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DepartmentoftheTREASUKY
SHINGTON. D C . 20220
TELEP H O N E W Q42041
July 2, 1973
NOTE TO CORRESPONDENTS
Attached is a resume of remarks by Under Secretary for
Monetary Affairs Paul A. Volcker on Thursday, June 7, at a
session on "Issues of International Monetary Reform" at the
1973 International Monetary Conference of the American
Bankers Association, Paris, France.
oOo
RESUMÉ OF REMARKS BY
TREASURY UNDER SECRETARY FOR MONETARY AFFAIRS
PAUL A. VOLCKER
ON THURSDAY, JUNE 7, 1973, TO A SESSION OF
THE PARIS INTERNATIONAL MONETARY CONFERENCE ON
"ISSUES OF INTERNATIONAL MONETARY REFORM"
(1) Monetary reform is as much a political as it is an
economic problem, and this is a point of which we must be
conscious in developing reform plans. We must deal with the
issues in a political perspective.
(2) We must keep in mind that one country's actions
impinge on other countries. Thus, we need a sense of system,
a set of rules or a code of conduct. Without such rules,
not only are economic conflicts likely to arise but, more
importantly, there will be political squabbling and inter
national tension.
(3) Another political reality that must be taken into
account is that countries don't like other people telling
them what to do. This point is very neatly crystallized in
the phrase "national sovereignty." Thus, one of the main
problems of monetary reform is to resolve the conflict be
tween the interests of the community as a whole and the
interests of individual member countries.
(4) Our objective in reform should be to work towards
international financial equilibrium, which we prefer to dis
equilibrium. Unfortunately, the temptation is to say that
we prefer surpluses to equilibrium, but this approach is not
workable. Moreover, we need "discipline." Now, this state
ment may sound "French," but if it does, so be it. We agree.
(5) The question is how to make these principles opera
tional. We have accumulated a certain number of slogans —
stable but adjustable rates, the necessity of controlling
the creation of international liquidity, and various views
about the degree of stability or flexibility in the system.
The problem is how to define these concepts and make them
operational and meaningful. In other words, how do we make
"discipline" operational?
(6) This is the sense that people attach to a con
vertible system. Why do they want such a system? The reason
is that it is a tool to enforce discipline. It enforces
discipline on deficit countries, and thus works in one
direction. It is a simple concept. The deficit country
2
loses reserves and therefore has to adjust. It is politically
palatable in that it is understandable to the population at
large. The loss of reserves is a clear public signal that
something needs to be done. And this feature is contained in
the U.S. proposals. However, it is not a sufficient mechanism
in that it is one-sided. So the question is how to enforce
"discipline" on countries moving in the opposite direction —
that is, surplus countries?
(7) Now, the logic of this situation is to apply the
reserve criterion symmetrically. In other words, when a
surplus country registers reserve increases, it should also
be required to adjust. This would mean an even-handed applica
tion of "discipline." However, we run into reluctance on the
part of many people to accept this logic. "Discipline" is
fine for others, but not for them. And this is a natural
reaction. So, if we can understand the reluctance of surplus
countries to accept the logic of the "discipline" that would
be involved in even-handed reliance on reserve indicators,
we should also be able to understand the reaction of deficit
countries if they get the feeling that the system is not
symmetrical and equitable. Our objective is to try to deal
with both problems.
(8) There are distinct political advantages in a re
serve indicator mechanism that operates in both directions.
It is fair and equitable. It operates alike on countries of
different size and in different positions. It is a code of
conduct that can be readily understood by politicians and
informed public opinion in the countries required to take
action.
(9) Now, a classic convertibility system requires a
deficit country to adjust, but does not tell the country
specifically what to do. The country must do something, but
it is left with discretion as to the type of action it takes.
The U.S. proposals also envisage leaving the widest possible
discretion to countries that are required to adjust. While
some actions would be ruled out, countries would be left
more or less to choose their own medicine. This is a polit
ical necessity for a system whose members are national,
sovereign governments. Thus, the principal rule would be
to maintain equilibrium, but with maximum freedom of choice
for the country concerned in the instruments used to do so.
3
(10) The problem of adjustment arises, whether we have
a fixed or a floating rate system. In a system of established
rates with convertibility, there is a need for reserves. The
type of adjustment process has a direct bearing on the size
of that need. How quickly will countries be required to ad
just? How much scope will be allowed for imbalances? We
must be consistent in our judgment on this point and on the
amount of reserves created. If we leave a lot of scope for
countries to adjust, but insist on a tight reserve situation,
then there will not be enough reserves to finance the amount
of play in the adjustment process. The less reserves we are
willing to provide, the stronger the adjustment process must
be. If we do not want to be too harsh on surplus countries,
if we are going to allow surplus countries to pile up re
serves, then there must be sufficient reserves to enable
this process to go on. The need for consistency between the
reserve system and the adjustment system is a point that is
sometimes overlooked. The advantage of the U.S. reserve
indicator proposal is that this consistency is automatically
obtainable.
(11) The sum of individual reserve needs must be equal
to global need. Otherwise, we will be in disequilibrium from
the start. We have had a system where the amount of primary
reserves available was far less than what people wanted to
hold as total reserves. This was the element that gave rise
to the widespread holding of national currencies as reserves
and related instability.
(12) In a convertible system, the certainty of the
settlement mechanism must be matched by equal certainty in
the adjustment process. Otherwise, inconsistencies will
arise, but this is a requirement which it is hard to satisfy,
particularly on the surplus country side of the equation.
Merely to say that at a certain point the surplus country
would be required to enter into discussions and consulta
tions is vague. Here, we are confronted with the certainty
of the settlement mechanism compared to the uncertainty of
the adjustment process. In our minds, these two elements
must be consistent. If adjustment is to be consultative,
then convertibility could be consultative as well, but not
automatic.
(13) The proposed U.S. system contains no easy politi
cal choices for any country. It is always easy to applaud
principles, but the root question is how to apply them. It
is natural to squirm when we see the principles applied to
4
ourselves. Looking at this fundamental point is a good
thing. We cannot evade it. We must take a commitment here;
otherwise, the reformed system will break down.
*
*
*
Mr. Volcker answered the following questions from the
floor.
Q. In his remarks, Dr. Emminger stressed that evolu
tionary influences were having an important effect in shaping
the future monetary system. Why does Mr. Volcker think that
the work of the Committee of the Twenty, in looking for
agreed rules, is so important if evolution is to be the de
termining force?
A.
I agree with the point made by Dr. Emminger, and see
no inconsistency between his remarks and mine. There are two
parallel lines of influence shaping the future monetary
system — the formal negotiations on structure and market
evolution. What is important is to bring these two lines
into convergence. The market evolution does not provide any
sense of system or rules.
Q. Doesn't the existence of large-scale international
credit facilities reduce the need for reserves?
A.
Yes, but it does not eliminate the need for reserves.
Attention to the reserve aspects of the matter is crucial.
I sense that countries are now much quicker to change their
exchange rates than in the past and show a greater reluctance
to go into debt. In the operation of the adjustment process,
credit and reserves are not full substitutes for one another.
Q. Why should surplus countries that have followed good
policies and managed their affairs well be expected to "help"
deficit countries get out of trouble?
A. The question is formulated in a prejudicial way.
One might equally ask why surplus countries shouldn't help
themselves to have a higher standard of living. The funda
mental point is whether we are going to have international
payments equilibrium or not. Surpluses somewhere in the
system inevitably mean deficits elsewhere. It has often
been said that this preoccupation with the problem of the
- 5 surplus countries represents nothing more than a bias of the
United States. On this topic, I would make the following
points:
(1) Is there a tendency to prefer surpluses
to deficits? The answer is probably yes, but this
conflicts with the general equilibrium hypothesis.
The problem is of some concern to the United States
in that the United States tends to be the residual
country in the system. Thus, other people's de
sire for surpluses tends to force the United States
into deficit.
(2) Do we consider it possible that the
United States would accept the discipline of the
U.S. proposals if it were to become a surplus
country? After all, the United States was a
surplus country within my lifetime. Thus, in
formulating the U.S. proposals, we looked hard
.at this question. I can categorically affirm
that the United States would accept the dis
cipline.
Q. Why does the United States persist in its negative
attitude towards the role of gold in the system?
A.
Recent developments reinforce us in our view re
garding the undesirability of relying on gold as a key
instrument in international monetary affairs. A commodity
like gold, which is subject to rising industrial demand and
heavy speculative influence, is becoming less and less suit
able as a reserve instrument.
Q. When you described your views on the adjustment
process, you said that countries required to adjust should
have maximum freedom to select the means for accomplishing
adjustment. Does that mean that you would allow them to
impose import quotas, import surcharges and the like?
A. Maximum freedom does not mean complete freedom.
What I had in mind was maximum freedom consistent with the
general interest. We accept the general presumption against
the use of trade measures as an adjustment tool. Thus, they
are the last on our list, but we would not want to see an
absolute prohibition against their use if they are used in
a general, non-discriminatory way.
*
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*
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Mr. Volcker answered the following questions at the
press briefing after the session on international monetary
reform on June 7:
Q. What role do you see for the IMF in the new system?
Would it be an independent power?
A.
That depends on what the phrase "independent power"
means. We have a strong sense of the need for rules of be
havior. However, we are skeptical about a system that would
place a high degree of discretionary authority in the Fund,
whatever the word "Fund" is taken to mean — the Managing
Director, the staff, the Executive Directors, etc. In such
a system, countries would feel that decisions were being
made in a context outside of their sovereignty. Therefore,
we should be as explicit as we can be in advance about rules
of behavior. This does not mean there would be no consulta
tion. There would be a great deal of consultation, but we
would not remand all problems to the "Fund" for discretionary
decision.
People say convertibility has merit because it is auto
matic. It is a crude mechanism, but they would say it works.
The U.S. proposals build on this technique. They are sym
metrical and fair. The basic rule of the system is to main
tain equilibrium. At the same time, we must avoid a degree of
detail of external instruction that no country would want to
live with. Our proposals try to reconcile discipline with
the need to leave maximum freedom for countries to choose
their own tools of adjustment.
Q. What is the effect of market developments on the
timing of reform?
A. These are two parallel processes. Market evolution
teaches us something about the operation of the system, and
we should learn from it. However, it does not provide us with
agreed rules, and this is important. This is a topic that
falls in the negotiating track. In other words, the negotia
tors should learn from what is going on in the market, and
ad hoc decisions taken to deal with market developments
should be consistent with long-term objectives. Of course,
we do not want to make an agreement merely for agreement's
sake. We want to think this problem through and have a system
people have conviction about. In the light of recent develop
ments, I am hopeful on the prospects for agreement.
- 7 Q. Mr. Laird stated yesterday that measures would be
developed regarding a speculation against the dollar. What
does he have in mind?
A. I only read the newspaper reports on Mr. Laird's
statement, so that it would not be appropriate for me to
comment on it. I would merely reiterate that the behavior
of the chief currency and country is important for the
system. This depends on how that country does at home.
Domestic stability is important both for the United States
and for other countries. I am confident that we will be
able to maintain reasonable domestic stability in the United
States•
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Departm ento/theTRUSU RY
inioft
W AS H IN G TO N , nD rC. 20220
Of
TELEPHONE W 0 4 2041
J 789
At t e n t i o n :
f i n a n c i a l ed i t o r
July 2, 1973
FOR 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, one series to be an additional issue of the bills dated
April 5, 1973
, and
the other series to be dated
.July 5, 1973
, which were invited on June 26, 1973,
were opened at the Federal Reserve Banks today. Tenders were invited for $2,500,000,000,
dr thereabouts, of 91-day bills and for $1,700,000,000, or thereabouts, of
182-day
bills. The details of the two series are as follows:
I ange of a c c e p t e d
COMPETITIVE BIDS:
High
Low
Average
91-day Treasury bills
maturing October 4, 1973
Approx. Equiv.
Annual Rate
Price
98.028 a/
97.952
97.981
7.801
8.102
7.987
:
:
:
:
:
:
1/ :
182-day Treasury bills
maturing January 5, 1974
Approx. Equiv.
Annual Rate
Price
95.980 b/
95.933
95.950
7.952#
8.045#
8.011#
i/
a/ Excepting two tenders totaling $450,000; b
53/o of the amount of 91-day bills bid for at the low price was accepted
72# of the amount of 182-day bills bid for at the low price was accepted
TOTAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
■ District
■ Boston
■ New York
■ Philadelphia
■Cleveland
■Ri chmond
■Atlanta
■Chicago
■St. Louis
■Minneapolis
■Kansas City
■Dallas
■San Francisco
TOTALS
Applied For
$
27,310,000
2,813,065,000
43,940,000
34,800,000
14,035,000
22,785,000
196,240,000
39,855,000
12,480,000
33,870,000
29,920,000
80,010,000
Accepted
$
17,310,000
2,037,215,000
43,940,000
34,800,000
14,035,000
22,785,000
142,890,000
37,385,000
12,480,000
33,780,000
26,245,000
77,190,000
Applied For
$
16,565,000
2,942,575,000
7,405,000
30,170,000
9,075,000
13,125,000
272,480,000
94,130,000
14,180,000
30,835,000
25,800,000
88,285,000
$3,348,310,000
$2,500,055,000 c/
$3,544,625,000
Accepted
$
6,565,000
1,464,075,000
7,405,000
20,120,000
9,075,000
13,125,000
65,925,000
49,930,000
6,180,000
20,975,000
13,300,000
23,415,000
$1,700,090,000 d/
Includes $293,885,000 noncompetitive tenders accepted at the average price'of 97.981
Includes $172,540,000 noncompetitive tenders accepted at the average price of 95.950
These rates are on a bank discount basis. The equivalent coupon issue yields are
8.27# for the 91-day bills, and 8.47# for the 182-day bills.
FOR IMMEDIATE RELEASE
July 3, 1973
TREASURY ANNOUNCES COLD ROLLED STAINLESS STEEL SHEET AND
STRIP FROM FRANCE IS BEING SOLD AT LESS THAN FAIR VALUE
Assistant Secretary of the Treasury Edward L. Morgan
announced that cold rolled stainless steel sheet and strip
from France is being, or is likely to be, sold at less
than fair value within the meaning of the Antidumping Act,
1921, as amended. This merchandise is used in the manufacture
of wheel covers, food service equipment, household appliances,
flatware, and automotive trim. Notice of the determination
will be published in the Federal Register of July 5, 1973.
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
o n all entries of this stainless steel sheet and strip from
France which have not been appraised and on which dumping
margins exist.
A notice of "Withholding of Appraisement" was issued
on April 4, 1973, 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
persons were afforded the opportunity to present oral and
written views prior to the final determination in this case.
During the year beginning April 1, 1972, imports of
cold rolled stainless steel sheet and strip were valued
at approximately $8.5 million.
# # #
Department of theJREA SU RY
Washington,o x .20220
T E L E P H O N E W04-2041
FOR IMMEDIATE RELEASE
July 3, 1973
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 $ 4,200,000,000, or thereabouts, for
cash and in exchange for Treasury bills maturing
of $4,302,580,000
July 12, 1973,
in the amount
as follows:
91-day bills (to maturity date) to be issued July 12, 1973,
in the amount
of $2,500,000,000, or thereabouts, representing an additional amount of bills
dated
April 12, 1973,
and to mature
October 11, 1973
(CUSIP No. 912793 RY4 )
originally issued in the amount of $1,800,695,000 , the additional and original
bills to be freely interchangeable.
182-day bills, for $1,700,000,000, or thereabouts, to be dated July 12, 1973,
and. to mature
January 10, 1974
(CUSIP No. 912793
ST4 ) #
The bills of both series will be issued on a discount basis under competitive
and noncompetitive bidding as hereinafter provided, and at maturity their face
amount will be payable without interest.
They will be issued in bearer form only,
and in denominations of $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 clos
ing hour, one-thirty p.m., Eastern Daylight Saving time, Monday, July 9, 1973.
Tenders will not be received at the Treasury Department, Washington.
must be for a minimum of $10,000.
$5,000.
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.
Fractions
may not be used.: It is urged that tenders be made on the printed forms and for
warded in the special envelopes which will be supplied by Federal Reserve Banks
or Branches on application therefor.
}
Banking institutions generally may submit tenders for account of customers
provided the names of the customers are set forth in such tenders.
Others than
banking institutions will not be permitted to submit tenders except for their own
(OVER)
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account.
2
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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 thosl
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 accept
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 12, 1973,
in cash or other immediately available funds or in a like face amount of Treasury I
bills maturing
treatment.
July 12, 1973'.
Cash and exchange tenders will receive equal I
Cash adjustments will be made for differences between the par value oil
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 accrii
when the bills are sold, redeemed or otherwise disposed of, and the bills are ex-1
eluded from consideration as capital assets.
Accordingly, the owner of Treasury
bills (other than life insurance companies) issued hereunder must include in his I
income tax return, as ordinary gain or loss, the difference between the price pai(B
for the bills, whether on original issue or on subsequent purchase, and the amour™
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 issu*
Copies of the circular may be obtained from any Federal Reserve Bank or Branch.
Departm entoftheTREASURY
SHINGTON. D.C. 20220
T E L E P H O N E W04-2041
FOR RELEASE TUESDAY, JULY 3, 1973
NO GASOLINE RATIONING, OIL POLICY CHAIRMAN SAYS
Amid scattered press reports of proposed gasoline rationing,
bringing memories of World War II ration books, William E. Simon,
Deputy Secretary of the Treasury and Chairman of the President's
Oil Policy Committee, and Duke R. Ligon, Director of the Office
of Oil and Gas, Department of the Interior, clarified the options
which are being considered to help equalize the current fuel
ept'l
or
shortage.
These do not include rationing at the consumer level.
Mr. Simon said, "There are several options open to us at
this time.
We can retain a voluntary fuel allocation program.
A voluntary program has been in existence since May 10, 1973,
and we have received many suggested revisions in this program.
"Another option is a mandatory fuel allocation program,
which would force, under penalty, the allocation of crude oil
and petroleum products equitably.
"A third option is a combination of the voluntary and
mandatory program.
"As yet, no decision has been reached, and these options
are being reviewed with John Love, the President's Director of
the Energy Policy Office.
In any event, we are not considering
rationing at the present time, and any reports that the Government
has printed rationing stamps or cards is not true."
S-250
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Departm entoftheTREASURY
HINGTON, D X . 20220
I & E P H 0 N E W 04-2041
tj pr
RELEASE ON RECEIPT
July 5, 1973
TREASURY SECRETARY SHULTZ NAMES WILLIAM B. JOHNSON
SAVINGS BONDS CHAIRMAN FOR ILLINOIS
William B. Johnson,1Chairman of the Executive Committee,
Illinois Central Gulf Railroad, and Chairman and Chief Execu
tive Officer, IC Industries, Inc., is appointed by Secretary
of the Treasury George P. Shultz volunteer State Chairman for
the Savings Bonds Program in Illinois, effective immediately.
He will head a committee of business, banking, labor,
government, and media leaders throughout the state, who -- in
cooperation with the U. S. Savings Bonds Division -- assist in
promoting Bond sales in Illinois.
Johnson, born in Salisbury, Md., attended Washington Col
lege, Chestertown, Md., from which he received an AB degree,
maxima cum laude, in 1940. In 1943 he received, cum laude, an
ILL degree from the University of Pennsylvania Law School, and
was awarded the Henry Wolfe Bikle Prize for highest grades in
constitutional law.
From 1943 to 1945, he served in the Security Intelligence
Corps.
In 1945, Johnson joined the staff of the U. S. Tax Court
in Washington.
In 1947, he joined Pennsylvania Railroad as
assistant solicitor, advancing, in time, to the post of assist
ant general counsel.
On March 1, 1959, he was elected President and Director of
Railroad Express Agency, a post he held until joining IC Indus
tries.
On February 18, 1966, Johnson was elected President and
Chief Executive Officer of Illinois Central Railroad and IC
Industries, parent company of the railroad. He became Chairman,
President, and Chief Executive Officer of IC Industries in
December, 1968, and on March 1, 1972, he was named Chairman and
Chief Executive Officer of the corporation.
Johnson is active in numerous business, civic, and profes
sional organizations -- among them: Director, Pepsi-Cola
(O V ER )
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2
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General Bottlers; Director, Transportation Association of
America; Director, Association of American Railroads; member,
citizen's board, U. of Chicago; governing member, Shedd Aquar
ium Society; trustee, Museum of Science and Industry, and the
American Bar Association.
\<*~
He is also a member of several clubs -- Newcomen Society
in North America; The Economic Club of New York; Western Rail
way Club, Chicago Club, Economic Club, and Commercial Club,
Chicago.
Johnson is married to the former Mary Barb. They have
four children -- Benjamin, 27, Kirk, 26, John, 23, and
Kathleen Mary, 21.
oOo
Assistant Secretary of the Treasury Edward L. Morgan
announced today a withholding of appraisement on
acrylonitrile-butadiene-styrene type of plastic resin in
pellet and powder form from Japan pending a determination
as to whether it is being sold at less than fair value within
the meaning of the Antidumping Act, 1921, as amended. This
resin, commonly referred to as ABS plastic, is used in a
number of engineering type applications such as telephone
and appliance housings and drain, waste and vent pipe.
The decision will appear in the Federal Register' of
July 6, 1973.
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 publica
tion of the "Withholding 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 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.
During calendar year 1972, imports of ABS-plastic
resin, in pellet and powder forms, from Japan amounted to
roughly $8,400,000.
oOo
Department o fth e T R E A S U R Y
OFFICE OF REVENUE SHARING
W A S H IN G TO N , D.C. 20226
j|
Telephone 6 3 15 16 3
, I
FOR INFORMATION, CALL (202) 634-5248
FOR RELEASE THURSDAY, JULY 5, 1973, 6:00 P.M., EST.
More than 38,000 general revenue sharing checks totalling
$1.495 billion will be sent to state and local governments through
out the United States tomorrow by the Office of Revenue Sharing,
U.S. Department of the Treasury.
In announcing the release of the money, Graham W. Watt,
Director of the Office of Revenue Sharing, said, "These checks
are for amounts to which states and local governments are entitled
for April, May and June, 1973.
Payment for the first quarter of
the year was made on April 6."
A list of the amounts of general revenue sharing funds being
sent to each state follows.
One-third of the amount shown goes
to the state government and the remainder is divided among local
units of government within that state.
The money is allocated according to a formula which relates
data on population, need (shown by per capita income figures) and
effort to meet need (represented by data on tax effort).
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General revenue sharing was initiated in October, 1972
by Secretary of the Treasury, George P. Shultz, when the State
and Local Fiscal Assistance Act (P.L. 92-512) was passed.
President Nixon has termed the program a keystone of the New
Federalism that returns money and decision-making authority to
state and local governments.
In five years, general revenue sharing will return $30.2
billion to states, counties, cities, towns, townships, Indian
tribes and Alaskan native villages.
Including today's payment, $8,121 billion has been returned
by the Office of Revenue Sharing to eligible units of government
throughout the United States.
30.
Attachment
- 3 OFFICE OF REVENUE SHARING
July' 6, 1973
STATE
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregc,i
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
AMOUNT
$ 25,345,081
1,933,491
15,127,120
16,403,616
161,045,104
15,695,815
18,654,384
4,423,373
6,736,068
43,043,492
30,932,796
6,603,927
6,249,027
76,065,856
31,813,413
21,148,151
14,472,776
24,497,169
34,347,362
8,824,695
29,418,650
t7,343,744
63,377,834
29,132,912
24,784,772
27,751,665
5,824,209
10,954,492
3,301,498
4,709,634
46,648,547
9,479,163
165,976,090
38,285,893
6,242,187
58,939,302
16,633,920
14,612,721
77,832,060
6,732,281
20,357,293
6,745,034
27,868,813
70,711,659
8,926,806
4,219,765
29,298,040
21,538,939
14,564,254
- 4 OFFICE OF REVENUE SHARING
July 6, 1973
AMOUNT
STATE
Wisconsin
Wyoming
$
37,252,647
2,838,762
Total
$ 1,494,664,102
July 9 , 1973
MEMORANDUM FOR THE PRESS:
The attached materials were sent today to the Subcommittee
on Private Pension Plans of the Senate Finance Committee for
inclusion in the record of the recent hearings on pension
reform. The materials consist of:
(a) Secretary Shultz*s letter to Senator Nelson, dated
today, transmitting the material listed below.
.
(b) A revised General Explanation of S. 1631 including
proposed revisions. This document is substantially the same
as the General Explanation released on April 17, 1973. S. 1671,
the Retirement Benefits Tax Act, is one of two pension reform
bills proposed by the Administration. S. 1631 is designed to
strengthen the private retirement system by providing minimum
standards of participation in the benefits offered by
employer-sponsored retirement plans; to encourage the expansion
of the private retirement system by offering greater tax
benefits to individuals who choose to invest in retirement
savings plans; and to increase the deductible contributions
which may be made to retirement plans on behalf of selfemployed individuals and shareholder-employees of electing
small business corporations.
(c) A Technical Explanation and Section by Section
Analysis of S. 1631 including proposed revisions.
(d) A list of the specific proposed technical revisions
to S. 1631.
Attachments
/
THE SECRETARY OF THE TREASURY
W A SH IN G TO N
JUL 9 1973
Dear Mr. Chairman:
On May 22, 1973j while testifying before your Subcommittee,
I indicated that we were preparing technical materials relating
to S . 1631, and that we would submit them to you for publication
in the record of the recent hearings on pension reform. Accord
ingly, I am enclosing copies of the following documents:
of S.
1631.
(a)
A set of proposed Technical Revisions to S.
(b)
A Technical Explanation and Section by Section Analysis
1631 as proposed to be revised.
(c) A Revised General Explanation of S.
to be revised.
1631 as proposed
Sincerely yours
George P. Shultz
The Honorable
Gaylord Nelson
Chairman, Subcommittee on
Private Pension Plans
Committee on Finance
United States Senate
Washington, D.C. 20510
Enclosures
GENERAL EXPLANATION
RETIREMENT BENEFITS TAX ACT
(S.
1.
1631, 93rd Cong., -with Proposed Technical Revisions)
Introduction.
Since 19^2 the Internal Revenue Code has accorded special tax benefits
to qualified retirement plans established by employers for the benefit
of their employees and the beneficiaries of their employees.
To insure
that benefits are provided under these plans for a broad range of the
employees of the sponsoring employer and not merely for a small group of
select employees, the availability of these special tax benefits is
conditioned upon the plan’s meeting certain statutory requirements.
Private retirement plans form an important part of the total frame
work of income maintenance for older Americans.
As such, it is appropriate
to provide tax incentives to encourage employers to establish these
plans and thus provide for their employees’ post-retirement needs.
In
so doing the employer performs a function and assumes a burden which
otherwise might be thrust upon society at large.
Private retirement
plans are a significant supplement to the social security system as a
source of income for retired and disabled Americans and their dependents.
Because private retirement plans are established by individual employers,
they can be shaped to respond to unique needs and situations in a manner
that a public system covering tens of millions of individuals cannot.
2
The experience of the past
30 years/has demonstrated that while
the private retirement system has the capacity to deal with an
important social problem through individual initiative, changes in
existing law are needed.
In the first place, recent surveys indicate
that, in spite of the incentives provided by existing law, approximately
one-half of the non-agricultural labor force does not now participate
in private retirement plans and that coverage is not likely to expand
significantly under existing conditions.
Moreover, overly restrictive
requirements for participation in, or acquisition of vested benefits
under, private retirement plans have resulted in effectively denying
to millions of employees the full benefits of the private retirement
system.
Special limitations upon contributions on behalf of self-
employed individuals and requirements for the plans in which they
participate are so restrictive that they have created an artificial
preference for the corporate form over other business forms which might
be more suitable or desirable for a particular enterprise.
2.
Eligibility Requirements.
A.
(Section 2 of Bill)
Present Law.
The Internal Revenue Code does not now contain any specific require
ments concerning eligibility conditions based on age or service that may
be included in a qualified private retirement plan established by a
corporate employer.
Existing administrative practice does permit such
a plan to provide that participation in the plan is limited to employees
who have attained a specified age or have been employed for a specified
number of years if the effect of such provisions is not discrimination
in favor of officers, shareholders, supervisory employees, or highly
compensated employees.
Likewise, such a plan may exclude from
participation employees who have attained a specified age close to
retirement when they otherwise become eligible to participate in the
plan.
On the other hand, the Internal Revenue Code specifically
requires that a qualified plan established by an unincorporated
business in which an owner-employee (i.e., a sole proprietor or a
partner with a greater than 10 percent interest in capital or income)
participates must provide that no employee with 3 or more years of
service may be excluded from the plan.
B.
Proposal.
Reasonable service or age requirements are an appropriate- means of
preventing the dissipation of plan assets.
The benefits earned by
employees with short periods of service are usually
small, both in
absolute terms and in relation to the administrative costs attributable
to these benefits.
Overly restrictive requirements may, however, result
in the arbitrary exclusion of employees from participation in private
retirement plans and thereby frustrate the effective functioning of the
private retirement system.
-k The proposed bill -would, therefor^ provide that a qualified
private retirement plan not be permitted to require, as a condition
of participation, that an employee have completed a period of service
with the employer in excess of 3 years, that he have attained an age
in excess of
30 years, or that he not have attained an age which is
less than the normal retirement age under the plan reduced by 5
years.
In the case of a qualified plan in which self-employed individuals
who are owner-employees participate, the bill would provide that the
plan not be permitted to require, as a condition of participation, that
the employee have completed more than 1 year of service with the employer
if his then age is 35 years or greater, more than 2 years of service if
his then age is
30 years or greater but less than 35 years, or more than
3 years of service if his then age is less than
C.
30 years.
Effective Date.
These rules would be effective upon the day after the date of
enactment with respect to,all private retirement plans established after
December 31, 1972.
In the case of plans in effect on December 31? 1972,
these rules would apply to plan years beginning after December 31, 197*+?
except that in the case of plans which are collectively bargained, these
rules would not apply to plan years ending before the expiration of the
collective bargaining agreement in effect on December 31? 1972.
- 5 -
3.
Vesting Requirements.
A.
(Section 2 of Bill)
Present Law.
There is no generally applicable requirement under existing law
that a participant in
a qualified private retirement plan have at
any time before he attains normal retirement age a nonforfeitable
right to receive his accrued benefit under the plan.
However, the
failure to provide pre-retirement vesting is taken into account by
the Internal Revenue Service in determining whether a plan satisfies
the statutory requirement that it
not discriminate in favor of officers,
shareholders, supervisory employees, or highly compensated employees,
and in appropriate circumstances the Service will not issue such a
determination if a plan does not provide pre-retirement vesting.
Neither
the circumstances in which pre-retirement vesting is required nor the
degree of such vesting is well defined, and considerable variation has
arisen.
The Internal Revenue Code requires that a plan established by
an unincorporated business in which an owner-employee participates must
provide that each participant have an immediately nonforfeitable interest
in the contributions made on his behalf under the plan.
B.
Proposal.
Some measure of pre-retirement vesting is essential if the private
retirement system is to exist as a functioning and effective supplement
to the social security system.
This is especially true in view of our
- 6 highly mobile labor force.. An individual whose participation in a
private retirement plan terminates before his rights in his benefits
accrued under the plan have become nonforfeitable has, for all
practical purposes, not really participated in the plan.
In addition,
pre-retirement vesting is needed to reinforce the non-discrimination
requirements of existing law in cases where most of the employer
contributions under a plan are made on behalf of participants with
a proprietary interest in the employer.
The proposed bill would, therefore, require a qualified private
retirement plan to meet new minimum pre-retirement vesting standards.
A participant’s rights in his accrued benefits derived from his own
contributions would have to be fully vested at all times.
at least
His rights
50 percent of his accrued benefits derived from employer
contributions would have to be nonforfeitable when the sum of his age
and his years of participation in the plan equals or exceeds
50 years,
.and this percentage would have to increase not less rapidly than ratably to
100 percent over the next succeeding 5 plan years.
Under this rule, the righl
of older employees would vest more rapidly than the rights of younger
employees, reflecting the fact that an older employee has less of an
opportunity to earn a reasonable pension with a new employer or to
save for his retirement.
A participant's accrued benefit is defined in the proposed bill.
For a profit-sharing plan or a money purchase pension plan, the accrued
benefit is defined as the balance in his account.
For a defined benefit
pension plan, a participant's accrued benefit, as of any applicable date
prior to normal retirement age, is defined as a fraction of the annual
benefit commencing at normal retirement age which the employee would
receive if he continued employment at his current rate of compensation
until normal retirement age.
The numerator of the faction is the total
number of his years of service with the employer; the denominator is the
total number of years of service he would have performed as of normal
retirement age if he continued to be employed by the employer until normal
retirement age.
However, the denominator cannot be less than 15 nor more
than J+O.
To avoid providing a disincentive against hiring older workers,
the proposed bill would permit a qualified plan to provide that an
employee’s rights in his accrued benefits derived from employer
contributions remain forfeitable until he has completed 3 years of
continuous service with the employer.
The plan would have to provide
that upon completing this period of service his rights in at least
50
percent of his accrued benefits derived from employer contributions
are nonforfeitable, and this percentage would be required to increase at least
ratably to 100 percent over the next succeeding 5 plan years.
To avoid additional costs for defined benefit pension plans in
difficult financial condition, pre-retirement vesting would not be
required with respect to benefits accrued for any plan year for which
-
8
-
benefit payments to retired participants exceed benefit accruals by
active participants and the present value of accrued liabilities to
retired and active participants exceeds the fair market value of plan
assets.
If, however, the plan is amended to provide greater benefits
during a plan year when this exception would otherwise be operable,
the exception would not apply with respect to that plan year, any
succeeding plan years, or the 5 plan years preceding such year in which
the plan is amended.
This exception is designed to provide relief for
defined benefit pension plans that have a large number of retired
participants in relation to the number of active participants and that
are not fully funded.
These plans are typically found in industries
where employment is declining and where any increase in pension costs
would be especially burdensome.
In the case of qualified private retirement plans in which selfemployed individuals who are owner-employees participate, an employee's
rights in at least
50 percent of his accrued benefits derived from employer
contributions would be required to be nonforfeitable when the sum of his
age and his years of participation equals or exceeds 35 years.
His
rights in the remaining percentage of such accrued benefits would be
required to become nonforfeitable not less rapidly than ratably over the
next succeeding.5 plan years of participation.
C.
Effective Dates.
Generally, these rules are effective with respect to benefits accrued
after the date of enactment.
However, in the case of plans in existence
on December 31, 1972, the rules would generally apply to benefits accrued
for a plan year beginning on or after January 1, 1975*
I*1
case
collectively bargained plans, however, these rules would not apply to
benefits accrued during plan years ending before the expiration of the
collective bargaining agreement in effect on December 31, 1972.
In applying these rules, all participation in the plan (whether before
or after the applicable effective dates) would be considered in deter
mining whether the sum of the employee's age and his years of participation
equals or exceeds
50 years or 35 years, whichever is applicable.
1+. Minimum Funding Standard (Section 2 of Bill)
A.
Present Law.
Under present regulations, in order to prevent full vesting of all
accounts, a defined benefit pension plan generally must be funded in a
sufficient amount so that the unfunded past service cost does not exceed the
unfunded past service cost as of the date of establishment of the plan,
plus any additional past service or supplemental costs added by amendment.
An employer generally will satisfy this requirement by annual funding of
the sum of normal cost and interest on the unfunded liability.
There is no
requirement that unfunded liability ever be reduced.
Thus, the current requirement provides only minimal assurance that plans
will be funded sufficiently to pay pension benefits according to the terms
of the plan.
B.
Proposal.
The proposed bill would provide a higher minimum standard, in order to
increase the security of participants.
eral, require
The proposed standard would, in gen
defined benefit pension plans to be funded annually in an
amount at least equal to the sum of normal cost, interest on the unfunded
liability, and 5% of the unfunded vested liability.
This standard would make
the average employee less dependent for his pension upon his employer continu
ing in business and continuing to maintain the plan.
10
-
The proposed standard is similar in concept to a standard widely used
by accountants to compute the minimum pension cost for accounting purposes.
5 . Deduction for Personal Savings for Retirement.
A.
(Section
3 of Bill)
Present Law.
Under present law, employer contributions on behalf of an employee
to a private retirement plan satisfying the qualification requirements
of the Internal Revenue Code and investment earnings on these contributions
are generally not subject to tax until paid to the employee or his
beneficiaries, even though the employee's right to receive these amounts
becomes nonforfeitable before payment is made*
Employee contributions
to such a plan are subject to tax currently (i.e., no deduction or exclu
sion is allowable), but investment earnings on these contributions are
not subject to tax .until distributed or paid to the employee.
Amounts
saved by an individual for his retirement outside the scope of a
qualified plan are not deductible or excludable from gross income, and
investment earnings on such amounts are subject to tax currently.
B.
Proposal.
The effect of existing law relating to saving for retirement purposes
is to discriminate substantially against individuals who do not participate
in qualified private retirement plans or who participate in plans providing
11
inadequate benefits.
-
Frequently, this situation is the result of a
unilateral decision of the employer not to establish a private retire
ment plan for its employees or not to improve benefits under an
existing plan.
Many other individuals, because of the nature of
their occupations, never have a sufficient period of service with
any one employer to accrue adequate retirement benefits.
To remedy this inadequacy in existing law, the proposed bill would
allow individuals a deduction in computing adjusted gross income for
amounts contributed to qualified individual retirement plans which
they have established or to qualified private retirement plans
established by their employers.
In addition, investment earnings on
amounts contributed to individual retirement plans would be excludable
from gross income.
In the case of an individual who does not participate in an employerfinanced private retirement plan, the amount deductible would be limited
to 20 percent of earned income or $1 ,500, whichever is the lesser.
In
the case of a married couple, each spouse would be eligible to claim
this deduction, and the limit would be applied separately to each spouse.
Thus, if a husband had earned income of $12,000 and his wife had earned
income of $7,000, the maximum deduction for him would be $1,500, and the
maximum deduction for her would be $l,J+00, permitting a total deduction
of $2,900.
-
12
-
If an individual, participates in an employer-financed plan, the
amount deductible, after application of the $1,500 or 20 percent of
earned income limitation, would be further reduced to reflect employer
contributions to such plan on his behalf.
For this purpose, an individual
would be permitted to assume that employer contributions on his behalf
are 7 percent of his earned income.
He could show, however, that a
lesser amount had been contributed on his behalf.
Such amount would be
determined in accordance with Treasury Department regulations on the
basis of the particular facts and circumstances of his situation.
In the case of individuals who have earned income which is not
covered by the social security system or the railroad retirement system,
the limitation on the deduction would be further reduced by the amount
of tax that would be imposed under the Federal Insurance Contributions
Act if that income were covered by the social security system.
This
reflects the fact that taxes imposed on employees under the Federal
Insurance Contributions Act are not deductible.
No deduction would be allowed with respect to amounts contributed
to a qualified retirement plan by an individual who has attained the age
of 70 1/2.
Under the proposed bill, an individual would be allowed to invest
these amounts in abroad range of assets, including stocks, bonds,
mutual fund shares, annuity and other life insurance contracts, faceamount certificates, and savings accounts with financial institutions.
While these assets could not be commingled with other property, they could
be held in custodial accounts, and a taxpayer would not be required to
establish a trust for this purpose.
To insure that amounts contributed to individual retirement programs
and investment earnings on such amounts are used only for retirement purposes,
withdrawals before the individual attains age 59 l/2 would not qualify for
the general income averaging provided under existing law and would also be
subject to an additional penalty tax of 30 percent of the amount withdrawn.
This penalty would not apply, however, if the taxpayer has died or has become
permanently disabled or if the amount withdrawn is deposited in another individual
retirement account within 60 days.
This last exception is designed to permit
transfer of individual retirement amounts from one type of investment to
another, or from one trustee or custodian to another.
Moreover, withdrawals would be required to begin by the time the
taxpayer reaches age 70 l/2 and would have to be sufficiently large so that
the entire accumulation will be distributed over his life expectancy or the
combined life expectancy of the taxpayer and his spouse.
If sufficient
amounts are not withdrawn to meet these rules after age 70 l/2, an annual
excise tax of 10 percent would be imposed.
The 10 percent excise tax would
be applied against the assets in the account multiplied by a fraction, the
numerator of which is the minimum amount required to be distributed for the
year reduced by the amount actually distributed, and the denominator of which
is the minimum amount required to be distributed for the year.
To insure compliance with the foregoing requirements, trustees,
custodians, and other persons having control of amounts deducted under the
proposal would be required to submit annual reports to the Internal Revenue
- Ilf
-
Service similar to those which are now required of trustees of plans
benefiting
C.
self-employed individuals who are cwner-employees.
Effective Date.
This proposal would apply to taxable years ending after the date
of enactment of the proposed bill.
Contributions on Behalf of Self-Employed Individuals and ShareholderEmployees of Electing Small Business Corporations, (Section ^4 of Bill)
A.
Present Law.
The Internal Revenue Code now limits the deductible contribution to
a qualified private retirement plan on behalf of a self-employed individual
to the lesser of 10 percent of earned income or $2 ,500.
In certain circum
stances, an additional $2,500. nondeductible contribution may be made.
Penalties are imposed if excessive contributions are made and are not
returned.
With respect to a shareholder-employee of an electing small
business corporation, no limit is imposed on the amount that may be
contributed on his behalf, but if the contribution exceeds the lesser of
10 percent of compensation or $2,500, the excess is includible in his
gross income.
The limitation on contributions on behalf of self-employed individuals
has had a number of undesirable effects.
In the first place, while the
limitation applies by its terms only to contributions on behalf of selfemployed individuals, as a matter of practice, it applies as well to their
employees with the result that the contributions on their behalf may be
wmm
less than the contributions which would otherwise be made on their behalf.
Furthermore, the inadequacy of the amount presently deductible creates an
artificial incentive for the incorporation of businesses and professional
practices.
B.
Proposal.
The proposed bill would increase the limitation on deductible
contributions to a qualified private retirement plan on behalf of a
self-employed individual to an amount which is the lesser of $7,500 or
15 percent of his earned income.
The limitation on excludable contributions on behalf of shareholderemployees of electing small business corporations would likewise be
increased to an amount which is the lesser of $7,500 or 15 percent of
compensate on.
C.
Effective Date.
These increased limitations would apply to taxable years beginning
after December 31? 1972*
’
7 • Treatment of Lump-Sum Distributions Recontributed to Qualified
Retirement Plans. (Section 5 of Bill)
A.
Present Law.
Under existing law, if a lump sum distribution is made under a
qualified private retirement plan, the distribution is subject to income
taxation even if the distribution is received by an employee before his
retirement and is set aside by him for his future retirement security.
- 16 -
Often, if an employee leaves his employer for a new employer under
circumstances where he has a vested right to retirement benefits from
his first employer, his retirement benefits will be distributed to him
in a lump sum at the time he leaves his first employer.
This is con
venient for the employer or trustee because he thereby avoids continuing tp
administer funds for the benefit of a former employee.
However, because
of the income tax payable at that time, the employee will have a smaller
fund available for his retirement years.
On the other hand, an employee
who, throughout his working career, is employed by a single employer
will typically avoid any tax on his retirement funds until actual
retirement.
Such a result creates an inequity between employees who
work for only one employer and employees who are more mobile.
B.
Proposal.
Under the proposed bill, an individual would not be subject to tax
upon receipt of a lump-sum distribution from a qualified retirement plan
if the individual reinvests the funds in a qualified individual retirement
account or a qualified employer-sponsored retirement plan within 60 days
after the close of the employee’s taxable year.
If the individual receives
the distribution in property, other than cash, he would have to reinvest the
same property in order to take advantage of this tax deferral opportunity.
The proposal would encourage retirement savings by enabling an employee to
defer taxation of an amount received as a lump-sum distribution until
retirement.
C.
2
Effective Date.
a
These rules would apply to taxable years ending after the date of
enactment.
8•
Prohibited Transactions.
(Section 6 of Bill)
A. Present Law.
Under present law, a trust forming part of a qualified
retirement plan is denied exemption from taxation if it engages in
prohibited transaction.
a
Within this context, a prohibited transaction
usually involves a transaction at less than arm’s length, between the
trust and the employer who established the plan, under circumstances which
may result in the diversion or dissipation of the trust assets required to
be held for the exclusive benefit of the employees covered by the plan.
If exemption from taxation is denied to the trust, other special benefits
under the Code relating to qualified plans are also denied.
Special
benefits affecting employees include deferral of the taxation of non
forfeitable amounts contributed on their behalf by employers, and special
averaging provisions available with respect to lump sum distributions.
The denial of the trust’s exemption from taxation, accompanied by
the denial of the employee’s exclusions for employer contributions and
the employer’s current deduction, has not been a satisfactory deterrent
in discouraging participation in a prohibited transaction.
An employer,
in need of working capital or in failing financial condition, may find it
advantageous to forego a deduction for any contribution made under a plan
- 18 in order to divert trust assets to his own use.
In far too many instances,
the fiduciary for the trust acquiesces in the employer’s demand to divert
assets to the detriment of the employees.
In many cases, the consequences of the denial of exemption for the
trust fall upon innocent rank-and-file employees covered.
For example,
if a trust is disqualified because of an act of the trustee and the
employer, any income tax imposed upon the disqualified trust may diminish
the funds available to provide the retirement benefit promised to the
employee.
Furthermore, because of the prohibited act in which he did not
participate, the employee may have to include in his gross income the
contributions made on his behalf in a taxable year before he actually
receives the amounts attributable to the contributions.
B.
Proposal.
Any sanction against prohibited transactions should be directed only
toward those who participate in them.
An employee who is a stranger to
the transaction should not be penalized through denial of the special tax
benefits to which he would be entitled but for the transaction of another.
An effective sanction against prohibited transactions would prevent the
wrongful dissipation of plan assets.
The proposed bill would impose excise taxes on the amount involved
in a prohibited transaction.
The taxes would be paid by any party in
interest (e.g., the trustee, employer, or officers of the employer, and
other persons having a close relationship to the trust or employer) who are
25
-19 participants in the transaction.
An initial tax would be imposed at the
rate of 5 percent of the amount involved in the prohibited transaction.
An additional tax would be imposed at the rate of 200 percent if the trans
action is not corrected within 90 days after notice of deficiency for such
tax is mailed.
An additional period for correction of the transaction
may be allowed if reasonable and necessary to bring about correction of
the prohibited transaction.
These provisions are similar to taxes imposed
by the Tax Reform Act of 1969 with respect to private foundations.
Under the proposed bill, a prohibited transaction would be any act
which is prohibited under the Administration’s proposed Employee Benefits
Protection Act.
Thus, there would be a uniform meaning of a prohibited
transaction for purposes of the tax law and the law relating to fiduciary
standards.
Furthermore, the effect of a uniform definition of the term
would be to extend the fiduciary standards to qualified private retire
ment plans that are not covered, for administrative and other reasons,
under the Employee Benefits Protection Act (e,g,, plans covering fewer
than 26 participants).
C.
Effective Date.
These provisions would be effective beginning on the day after the
date of enactment.
9. Miscellaneous Provisions.
A.
Premature Distributions to Owner-Employees.
(Section 7 (a) of Bill)
Under existing law, certain penalties are applicable to distributions
made to an owner-employee before he attains the age of 59-1/2 years but only
20
to the extent thè distributions are attributable to contributions made on
his behalf.
Under the proposed bill, this provision is made applicable to
forfeitures -which may arise under the rule of 35 vesting standard.
B.
Employees Covered under Collective Bargaining Agreement (Section 7 (b)
of Bill)
Under existing law, a qualified private retirement plan must cover
(1) specified percentages of employees (generally, 70 percent of employees
or 80 percent of those eligible if 70 percent are eligible to participate)
or (2) such employees as qualify under a classification that does not dis
criminate in favor of officers, shareholders, supervisors, or highly compensated
employees.
In making the computation under the percentage requirement, certain
short service, part-time and seasonal employees are excluded.
In addition,
contributions or benefits under a, plan may not discriminate in favor of officers,
shareholders, supervisors or highly compensated employees.
In many cases, employees covered under a collective bargaining agreement
prefer current compensation or other benefits to the benefits provided under
a qualified plan.
Thus, many employers are unable to establish a plan for
other employees because the coverage and discrimination requirements cannot
be satisfied if the bargaining -unit employees are not covered.
Under the
proposed bill, employees who are included in a unit of employees covered by
a collective bargaining agreement may be excluded for purposes of satisfying
the coverage requirements and the discrimination requirement unless such
agreement provides that the employees are to be included in the plan.
21
C.
-
Plans Benefiting Self-Employed Individuals.
(Section 7 (c) of Bill)
Under existing law, there is full and immediate vesting in contributions
made or benefits accrued under a plan covering an "owner-employee."
In a
plan which does not cover any owner-employee, forfeitures may not benefit
self-employed individuals.
Under the proposed bill, forfeitures attributable
to contributions made on behalf of common law employees (which may arise under
the rule of 35 or 50 vesting standards) may not inure to the benefit of selfemployed individuals.
However, forfeitures by a self-employed individual may
inure to the benefit of other participants, whether or not those other par
ticipants are self-employed.
D.
Trustee of a Trust Benefiting on Owner-Employee.
(Section 7 (d) of Bill)
Under existing law, the trustee for a trust forming part of a retirement
plan benefiting an owner-employee must be a bank.
Under the proposed bill,
any person who demonstrates to the satisfaction of the Secretary or his
delegate that he will hold the trust assets in a manner consistent with the
requirements for qualification may be a trustee for a plan benefiting an
owner-employee.
This provision is identical with the corresponding require
ment the bill would establish with.respexrt to individual retirement accounts.
E.
Custodial Accounts.
(Section 7 (f) of Bill)
Under existing law, a custodial account may be treated as a trust if
the custodian is a bank and investment of the funds is either solely in
mutual funds or solely in annuity contracts.
Under the proposed bill, a
person other than a bank may be a custodian if he demonstrates that he
-
22
■will hold the assets consistently with the requirements for qualification
of a trust.
The restrictions relating to investment would he eliminated.
This provision is identical with the corresponding requirement the hill
would establish with respect to individual retirement accounts.
F.
Time when Contributions Deemed Made. (Section 7 (h) of Bill)
Under existing law, a taxpayer who reports his income on an accrual
basis may deduct the contributions made after the close of a taxable year
on account of that year, if they are made at any time prior to filing a
tax return for that year.
In many cases, it is impossible to determine
the amount to be contributed under the plan for a year by the end of that
year.
Under the proposed bill, the rule applicable to accrual basis
taxpayers would be extended to cash basis taxpayers.
G.
Inclusion of Certain Employer Contributions in Gross Income.
(Section 7 (i) of Bill)
Under existing law, there is no limit upon the amount contributed under
a qualified private pension plan on behalf of an employee, other thar a
shareholder-employee of an electing small, business corporation, which may
be excluded from gross income by the employee.
Furthermore, there is no
meaningful limitation on the deductible amount which may be contributed by
an employer under a money purchase pension plan.
Under the proposed bill,
an employee would be required currently to include in his gross income the
amount of employer contributions made on his behalf under a money purchase pen
sion plan to the extent in excess of 20 percent of his compensation.
Any amount
included in gross income would be considered as part of the employee's
investment in the contract for purposes of computing the taxable amount of
a distribution from the plan to the employee.
However, these amounts would
be considered to be contributed by the employer for purposes of qualification of
the plan.
A deduction would be allowed for amounts included in.gross income
that are not received before all rights under the plan terminate.
H.
Defined Benefit Pension Plans Benefiting Self-Employed Individuals.
(Section 7 (a), (c), (g) of Bill)
Under existing law, defined benefit pension plans are permitted for selfemployed individuals.
However, these plans are seldom established because
of the low limits on deductible contributions and because separate accounts
are required to be maintained for each self-employed individual to assure
that forfeitures do not inure to his benefit.
Defined benefit pension plans
would be more feasible for self-employed individuals under the proposed bill
because of the increased deductible limit of ^7?500 and because forfeitures
by one self-employed individual would be permitted to inure to the benefit of
other self-employed individuals.
Under the proposed bill, a separate account
-
2k
-
•would be required to be maintained with respect to the self-employed individuals
covered under a defined benefit pension plan.
Another separate account would
be required to be maintained with respect to the common law employees covered
under the plan.
I. Voluntary Contributions by Owner-Employees. (Sections 3 (c) and 7 (e)
of Bill)
Under existing law, amounts received from a retirement plan before retire
ment are tax-free to all participants other than owner-employees (self-employed
persons who own 10$ or more of the business) to the extent of all non
deductible amounts contributed to the plan by the participants.
Under the
proposed bill owner-employe es would have the same rights upon withdrawal of
non-deductible contributions as all other participants.
10 .
Major Changes from Individual Retirement Benefits.Act of 1971 »
The proposed bill is a revised and expanded version of the Individual
Retirement Benefits Act of 1971? a bill proposed by the Administration in the
92nd Congress.
A.
The major changes from the earlier bill are as follows:
Minimum Funding Standard.
The earlier proposed bill did not deal with funding.
B.
Accrued Benefits.
Hie earlier proposed bill did not define "accrued benefits" for
vesting purposes.
C.
Vesting.
Provisions in the earlier proposed bill for special vesting in lieu
of the rule of 90 intended to prevent discrimination in favor of officers, etc.,
of closely held partnerships and corporations have been dropped because of
admini str at ive complexit ies .
-25
D.
Z
Contributions on Behalf of Self-Employed.
The earlier proposed bill provided that deductible contributions on
behalf of self-employed individuals and shareholder-employees of electing
small business corporations could not exceed 15$ of so much of earned income
as does not exceed $50,000.
This proposed bill provides that deductible
contributions are limited to the lesser of $7,500 or 1%
E.
of all earned income.
Reinvestment of Lump-Sum Distributions.
The earlier proposed bill did not permit tax-free reinvestment of lumpsun distributions.
F.
Prohibited Transactions.
The earlier proposed bill did not change the law concerning prohibited
transactions.
G.
Bargaining Unit.
The earlier proposed bill did not deal with collective bargaining
unit employees.
H.
Forfeitures.
The provision prohibiting the allocation of a forfeiture of a common
law employee’s benefits to a self-employed individual is new.
I.
Trustees and Custodians.
The earlier proposed bill did not change the rules concerning trustees
and custodians of existing qualified retirement plans.
J.
Money Purchase Pension Plans.
The provision requiring an employee to include in gross income amounts
contributed on his behalf under a purchase money pension plan to the extent
in excess of 20 percent of his compensation, is new.
L. Withdrawals
The earlier proposed bill would not have repealed the provision prohibit
ing an owner-employee from withdrawing his voluntary nondeductible contribu
tions before the taxable recovery of deductible contributions.
RETIREMENT BENEFITS TAX ACT
S. 1631 (93rd Cong.)
WITH PROPOSED TECHNICAL REVISIONS
Technical Explanation
and Section by Section
Analysis
Section 1,
(a)
Short Title, Etc.
Short title.— Section 1 (a) of the bill pro
vides that the bill may be cited as the ’’Retirement
Benefits Tax Act”.
(b)
Amendment of 1954 Code.--Section 1 (b) of the
bill provides that, except as otherwise expressly provided,
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.
Minimum Standards Relating to Funding,
Eligibility, and Vesting.
(a)
In general.— Section 2 (a) of the bill would
amend section 401 (a) of the code (relating to require
ments for qualification) by adding a minimum funding
standard in paragraph (7), and by adding new paragraphs
(11), (12), (13), and (14).
Proposed paragraph (11)
would impose limits upon the age and service conditions
for participation in a qualified plan.
Proposed para
graph (1 2 ) would require a qualified plan to include
provisions according participants nonforfeitable rights
under the plan prior to retirement, in accordance with
the ’’rule of 50”.
Proposed paragraph (13) would provide
2
a limited exception to the application of the rule of 50
under paragraph (12).
Proposed paragraph (14) would
provide special transitional rules for applying paragraphs
(1 1 ) and (1 2 ).
Minimum funding standard--section 401 (a) (7)
Section 401 (a) of the code does not contain any
explicit funding standard, although a funding standard
has been developed administratively.
The standard is
used in determining whether, under section 401 (a) (7 ),
a complete discontinuance of contributions to a qualified
pension plan has occurred.
Income Tax Regulations.)
(Sec. 1.401-6 (c) of the
A
qualified plan is required to
provide that if such a discontinuance occurs, the rights
of participants under the plan, to the extent funded, be
come vested.
Regulations.)
(Sec.1.401-6 (c) (1) of the Income Tax
Under the administrative standard, a .
suspension of contributions is not a complete discontinuance
of contributions if the benefits under the plan are not
affected at any time by the suspension and the unfunded
past service cost at any time does not exceed the unfunded
past service cost as of the date of establishment of the
plan, plus any additional past service or supplemental
costs added by amendment.
An employer will generally
satisfy the administrative funding standard, in the case
of a defined benefit pension plan, by annual funding of
the sum of normal cost and interest on unfunded past
service costs.
- 3 -
Section 2 (a) (1) of the bill would amend para-
J.
graph (7 ) of section 401 (a) of the code to provide that
for purposes of that paragraph, a complete discontinuance
of contributions under a defined benefit pension plan
occurs if the amount contributed to or under the plan
for a plan year beginning after December 31, 1973, is
less than the minimum funding standard.
This minimum
funding standard would not apply to a plan maintained by
the United States, a State or political subdivision there
of or a corporation which is an instrumentality of the
United States, a State or political subdivision thereof.
For the first plan year beginning after December 31,
1973, the minimum funding standard is to be the sum of (i) the
normal cost of the plan for such year plus interest for such
year on the unfunded liability computed under the funding
method used to determine normal costs, and (ii) 5 percent
of the unfunded liability for nonforfeitable benefits under
the plan (computed as the excess of the present value of the
nonforfeitable benefits then accrued under the plan over
the then fair market value of the assets).
For this
purpose, nonforfeitability of benefits is to be determined
without regard to such contingencies as withdrawal of
employee contributions, service with a competitor, or
improper conduct.
For each subsequent plan year, the standard
is increased by the total of the amounts determined under
(i) and (ii) of the preceding paragraph with respect to
the plan for each of the preceding plan years beginning
after December 31, 1973, and reduced (but not below zero)
4
by the total of the amounts contributed to or under the
plan for each of the preceding plan years beginning after
such date.
Thus, amounts contributed for a plan year in
excess of the standard reduce
the standard for subsequent
plan years.
The proposed minimum funding standard for any plan
year is not to exceed the excess (if any) of the accrued
liability under the entry-age normal funding method
(including the normal cost for the year), over the fair
market value cf the assets held under the plan.
Thus,
for example, if the fair market value of the assets held
under the plan is greater than the accrued liability
under the entry-age normal funding method, no contributions
would be required under this provision because the plan is
already fully funded.
For purposes of the minimum funding standard,
liabilities under the plan and the assets held under the
plan are to be determined as of the same date during the
plan year and such date is to be used consistently from
year to year.
The fair market value of the assets held
on such date is to be determined on the basis of a reason
able method applied consistently, such as on the basis of
their average value during the year.
Further, the actuarial
assumptions used in determining liabilities under
the plan are required to be reasonable in the aggregate.
As under present law, failure to satisfy the
minimum funding standard would not be the only means of
effecting a complete discontinuance of contributions.
As amended, paragraph (7) would also provide that the
Secretary of the Treasury or his delegate may authorize
the use of another minimum funding standard which results
in a satisfactory rate of funding.
Eligibility requirements--proposed section 401 (a) (11)
Under section 401 (a) (3) of the code (relating to re
quirements for qualification), a qualified pension, profit
sharing, or stock bonus plan (or plans treated as a single
plan for qualification purposes) must cover either (1 )
specified percentages of employees (generally, 70 percent
of all employees or 80 percent of the eligible employees
if 70 percent of all employees are eligible) or (2) such
employees as qualify under a classification that does
not discriminate in favor of officers, shareholders,
supervisors, or highly compensated employees.
Under
the percentage coverage requirement, employees who have
been employed for a minimum period prescribed by the plan
6-
(not in excess of 5 years) and certain part-time a n d
seasonal employees may be excluded.
These requirements,
however, do not directly limit the restrictions on
eligibility to participate which may be imposed by such
a qualified plan.
Under section 401 (a) (4) of the code,
a plan may not discriminate in favor of shareholders,
officers, supervisory employees, or highly compensated
employees.
For example, under present law, employees who,
when they first otherwise become eligible to participate in
a plan, are older than a specified age (generally an age
close to normal retirement age) may be excluded if the
prohibited discrimination does not result.
Proposed section 401 (a) (11) provides that a
trust is not to constitute a qualified trust under
section 401 of the code if the plan of which such trust
is a part requires, as a condition of participation, that
an employee ( A ) have a period o f continuous service
with the employer (including, in accordance with regulations
prescribed by the Secretary of the Treasury or his
delegate, a predecessor of the employer) in excess
of 3 years, (B) have attained an age in excess of 30
years, or (C) have not attained an age which is less
- 7 than the normal retirement age under the plan reduced
by 5 years.
For this purpose it is contemplated that
regulations will provide a definition of "continuous
service" which will be broader than the definition of
"employment relationship" provided by § 1.421-7 (h) of
the Income Tax Regulations.
The Secretary of the T r e a s u r y
or his delegate is, by regulation, to define the term
"normal retirement age under the plan" for purposes of
proposed section 401 (a) (11).
Accordingly, under subparagraphs (A) and (B) of
proposed section 401 (a) (11), a plan would be required
to cover an employee who has completed 3 years of service
and is at least 30 years old (if he meets all other
conditions of participation) if any trust forming part
of the plan is to constitute a qualified trust under
section 401 of the code.
Furthermore, for example, if
the normal retirement age under the plan is age 65, the
requirements of proposed section 401 (a) (11) (C) would
not be satisfied if, under the plan, employees who, when
they would first otherwise become eligible to participate
in the plan, are excluded because they have attained age
59 (because 59 is less than 65 reduced by 5).
However,
in such a case, the requirements would be satisfied if
the plan required, as a condition of participation, that
8
an employee have not attained age 60 years or an age
greater than 60 years when he first becomes otherwise
eligible to participate in the plan.
A plan would not be required to cover an employee
who is younger than 30 years even if he has completed
3 or more years of service with the employer.
However,
a plan could, for example, permit coverage of employees
younger than age 30 who have completed more than 3 years
of service, or employees who have completed less than
3 years of service who are older than age 30.
Similarly,
a greater service requirement could be imposed with
respect to an employee who, as of the time he is first
otherwise eligible to participate, is older than normal
retirement age reduced by 5 years.
Vesting requirements--proposed section 401 (a) (12)
Section 401 (a) of the code (relating to require
ments for qualification) does not explicitly require
that a qualified pension, profit-sharing, or stock bonus
plan provide that a participant in the plan acquires a
nonforfeitable right to his accrued benefit under the
plan at any time before he becomes eligible to retire.
However, section 401 (d) (2) (A) of the code (relating
to additional requirements for qualification of trusts
and plans benefiting owner-employees) presently requires
that a plan established by an unincorporated business
in which an owner-employee participates must provide
that each participant’s rights to or derived from the
contributions under the plan are nonforfeitable at the
time the contributions are paid to or under the plan.
In addition, under section 401 (a) (4) of the code, the
failure of a plan to provide for preretirement vesting
is taken into account by the Internal Revenue Service in
determining whether the plan satisfies the requirement
that it not discriminate in favor of officers, share
holders, supervisory employees, or highly compensated
employees.
Furthermore, under section 401 (a) (7) of
the code, a qualified pension, profit-sharing, or stock
10
bonus plan must provide that, upon its termination or
upon a complete discontinuance of contributions under
the plan, the rights of each employee in his accrued
benefits, to the extent funded, or the amounts credited
to his account, are nonforfeitable.
Although the
computation of benefits accrued by an employee is
required for purposes of section 401 (a) (7) of the
code and for purposes of other code provisions, the
code does not provide rules for the computation of accrued
benefits.
Subparagraph (A) of proposed section 401 (a) (12),
provides that, except as provided by subparagraphs (B)
and (C) of that paragraph (relating, respectively, to
forfeitures due to voluntary withdrawal of employee
contributions, and forfeitures required to prevent dis
crimination in favor of shareholders, officers, super
visory employees, or highly compensated employees) a
trust is not to constitute a qualified trust under sec
tion 401 (a) of the code unless the plan
trust is a part
standards.
of which such
satisfies specified minimum vesting
Under the proposed standards, an employee’s
rights in his accrued benefit derived from his own contri
butions must be nonforfeitable (other than by reason of
death).
Furthermore, under a qualified plan at least 50
percent of his accrued benefit derived from employer
11
contributions would be required to be nonforfeitable
(other than by reason of death) no later than the
later of (i) the close of the first plan year in which
the sum of his age and the period of his active
participation in the plan equals or exceeds 50 years,
or (ii) the time he has completed 3 years of continuous
service with the employer (including, in accordance with
regulations prescribed by the Secretary of the Treasury
or
his delegate, service with a predecessor of the
employer)*
For the purpose of (i), years of age and
years of active participation are to be rounded separately
to the nearest whole year and active participation would
not include, for example, periods after employment ceases,
or periods for which employee contributions required to be
made under the plan are not made.
Proposed section 401
(a) (12) (A) would further require that an employee*s
rights in the remaining percentage of all of his accrued
benefit derived from employer contributions become
nonforfeitable (other than by reason of death) not less
rapidly than ratably over the next succeeding 5 plan years
following the close of the first plan year in which such
employee satisfies the initial nonforfeitability require
ment.
More rapid vesting than that required under
proposed section 401 (a) (12) could be required under
section 401 (a) (4 ) if necessary to prevent discrimination
in favor of officers, shareholders, supervisory employees,
or highly compensated employees.
r 12
Under proposed paragraph (12) (A), if an
employee’s active participation began in 1975 at the
beginning of a plan year at age 30, and continued for
a period of 15 consecutive plan years, his right to at
least 50 percent of his accrued benefit derived from
employer contributions would have to be nonforfeitable
(other than by reason of death) no later than the close
of the 1 0 th plan year of participation and his right to
all of his accrued benefit would have to be nonforfeitable
(other than by reason of death) no later than the close
of the 15th plan year of participation.
Further, under
proposed paragraph (12) (A) his right to any benefit
accrued after such 15th year would have to be nonfor
feitable (other than by reason of death).
If, as of the
close of the plan year in which the vesting standard
becomes effective, participant A is age 40 and participant
B is age 50, and each has participated in the plan for
10 years, A ’s right to at least 50 percent and B's right
to 1 0 0 percent of the benefit accrued for such year would
have to be nonforfeitable (other than by reason of death).
(See effective date provided by sec. 2 (d) of the bill
and special transitional rules provided under sec. 401
(a) (14) as proposed to be added by sec. 2 (a) of the bill.)
13
b
Subparagraph (B) of proposed section 401 (a) (12)
provides that a trust, which is a part of a plan to
which employees are required to contribute as a condition
of participation, is not to be disqualified under proposed
paragraph (1 2 ) merely because an employee’s rights in
his accrued benefit derived from employer contributions
under the plan are forfeitable if, by reason of his
(
separation from the service or termination of his active
participation in the plan, he voluntarily withdraws all
or a part of the amount contributed by him.
If a plan
provided that a terminating employee is required to with
draw his contributions to the plan under certain circum
stances, his rights in his accrued benefit may not be
forfeited because of such withdrawal.
Moreover, proposed
section 401 (a) (12) (B) would not apply to a plan which
merely permits an employee to make voluntary contributions
to the plan (i.e., contributions that are not required to
be made under the plan to receive a benefit (or an addi
tional benefit) derived from employer contributions).
14 -
Subparagraph (C) of proposed section 401 (a) (12)
provides that proposed paragraph (1 2 ) is not to apply
to contributions which, under provisions of the plan
adopted pursuant to regulations prescribed by the
Secretary of the Treasury or his delegate to preclude
discrimination prohibited by paragraph (4) of section 401
(a) (in favor of shareholders, officers, supervisory
employees, or highly compensated employees), may not be
used to provide benefits for designated employees in the
event of early termination of the plan.
However, except
to the extent necessary to prevent the prohibited
discrimination, the rights of such a designated employee
must be nonforfeitable in accordance with provisions of
the plan satisfying the rule of 50.
Many plans provide, for example, for the forfeiture of
benefits by a participant who serves with a competitor
or engages in improper conduct.
To the extent provisions
such as these render forfeitable those benefits which
would be required to be nonforfeitable under proposed
section 401 (a) (1 2 ), such provisions would require
amendment. . Improper conduct may, nevertheless, continue
to be deterred by provisions giving an employer lien
rights against employee interests in a trust to recover
liabilities to the employer
if permitted under local
law, e.g., recovery for embezzlement.
Subparagraph (D) of proposed section 401 (a) (12)
provides rules for determining the amount of an employee*s
accrued benefit (which are minimum amounts in the case of
15
benefits under defined benefit pension plans), as of any
applicable date, for purposes of proposed sections 401
(a) (12) and 401 (d) (2) (A) (relating to the vesting
requirements of qualified plans benefiting owner-employees).
Separate rules would apply for the determination of the
minimum accrued benefit in the case of a defined benefit
pension plan and for such determination in the case of
other plans.
Clause (i) of proposed section 401 (a) (12) (D)
provides general rules for determining such accrued benefit
on the basis of an annual benefit commencing at normal
retirement age in the case of a defined benefit pension
plan.
(Subparagraph (F) of proposed sec. 401 (a) (12)
provides rules for the determination of a benefit other
than an annual benefit commencing at normal retirement age.)
The general rule provided by proposed clause (i) is that
an employee’s minimum accrued benefit, as of any applicable
date prior to normal retirement age, is to be the product
of (1 ) the annual benefit commencing at normal retirement
age to which such employee would be entitled under the
plan as .in effect at such time, assuming that he continues
to earn annually until normal retirement age the
same rate of compensation as he earned at such
time (based upon his average covered earnings during the
60 preceding months or, if shorter, the actual preceding
period of employment), and (2 ) the following fraction:
the
numerator of the fraction is to be the total number of his
16
years of service with the employer (including, in accordance
with regulations prescribed by the Secretary of the Treasury
of his delegate, service with a predecessor of the
employer) performed as of such time and the denominator
of such fraction is to be the total number of years of
service he will have performed as of normal retirement
age, assuming that he will continue to be employed by
the employer Until attaining such age.
However, such
denominator is not to be less than 15 nor more than 40.
Notwithstanding the above rules, the fraction referred
to in proposed clause (i) is to be deemed to be equal
to one at normal retirement age and is never to exceed
one.
Thus, for example, if an employee's age is equal
to or greater than normal retirement age, his annual
benefit would be multiplied by one, and prior to
normal retirement age the minimum accrued benefit of
an employee with a level salary would accrue at a level
rate, not to exceed l/15th per year and not less than
l/40th per year.
The minimum accrued benefit for an
employee with 40 years of service would be equal to
the annual benefit payable at normal retirement age
based on assumed continuation of his present compensa
tion to that age.
For example, employee A becomes an employee of X
Corporation and a participant in its noncontributory
plan at age 40 in 1976.
The plan provides a pension at
17 age 65, the normal retirement age, equal to 30 percent
of the average compensation during the five years of
service immediately preceding retirement,
A partici
pates in the plan for 10 years, earning average annual
covered compensation in the last 60 months of $12,000.
Under proposed section 401 (a) (12) (D), at the end of
the 10th year, his accrued benefit is not to be less
than $1,440 per year beginning at age 65 (30 percent of
$12,000 multiplied by 10/25).
It is anticipated that
regulations prescribed by the Secretary of Treasury or
his delegate would provide special rules for determining
an employee*s accrued benefit derived from employer
contributions under a defined benefit pension plan which
is integrated with social security benefits.
The last sentence of proposed section 401 (a) (12)
(D) provides that, in the case of a defined benefit
pension plan which permits voluntary employee contributions,
the portion of an employee*s accrued benefit derived from
such contributions is to be treated as an accrued benefit
derived from employee contributions under a plan other
than a defined benefit pension plan.
A separate account
would be required to be maintained for voluntary contri
butions of each participant together with the income
expenses, gains and losses thereon.
18
Clause (ii) of proposed section 401 (a) (12) (D)
provides that in the case of a plan other than a
defined benefit pension plan (a profit-sharing, stock
bonus, or money purchase pension plan (including a
"target benefit" plan)) an employee’s accrued benefit as
of any applicable date is to be the balance of the account
or accounts for such employee as of that time.
Subparagraph (E) of proposed section 401 (a) (12)
provides rules for determining an employee’s accrued
benefit derived from employer contributions (which
would be subject to the applicable proposed vesting
standards) and from employee contributions (which would
be fully nonforfeitable, except in the case of death).
The first sentence of proposed section 401 (a) (12) (E)
defines an employee’s minimum accrued benefit derived from
employer contributions as of a particular date as the excess
of the employee’s accrued benefit determined under proposed
section 401 (a) (12) (D) as of such date over the amount of
the accrued benefit derived from his employee contributions
as of such date.
Thus, the amount of an employee’s accrued
benefit derived from employer contributions depends on the
terms of the plan but does not depend upon the amount of
employer contributions actually made and does not depend on
the value of the assets in the fund.
With respect to a plan other than a defined benefit
pension plan, the amount of the accrued benefit derived
from employee contributions as of any date is to be
the benefit attributable to the balance in his
separate account consisting only of his contributions and
the income, expenses, gains, and losses attributable
thereto.
However, if a separate account is not maintained
with respect to an employee*s contributions under such a
plan, the amount of the accrued benefit derived from
employee contributions is to be the amount which bears
the same ratio to the employee’s total accrued benefit
as the total amount of the employee’s contributions (less
withdrawals) bears to the total amount of his contributions
(less withdrawals) and the employer contributions (less
withdrawals) made on his behalf.
For this purpose,
forfeitures credited to an employee’s account are to be
treated as employer contributions.
With respect to a defined benefit pension plan
providing an annual benefit in the form of a single
life annuity commencing at normal retirement age (proposed
sec. 401 (a) (12) (F) provides rules for other forms),
the amount of the minimum accrued benefit derived from
employee contributions as of any applicable date is
to be the annual benefit equal to the employee’s accumu
lated contributions multiplied by the appropriate con
version factor.
For this purpose, the term "appropriate
conversion factor" means the factor necessary to convert
an amount equal to the accumulated contributions to a
single life annuity commencing at normal retirement age.
20
Such factor is to be 10 percent for a normal retirement age
of 65 years and is to be the same for men and women*
For
other normal retirement ages, such factor is to be deter
mined in accordance with regulations prescribed by the
Secretary of the Treasury or his delegate.
For purposes of proposed section 401 (a) (12) (E)
the term "accumulated contributions" means the total
of:
(i) all mandatory contributions made by the employee
before the end of the last plan year referred to in
clause (i) or (ii) of proposed section 401 (a) (14) (A)
(relating to transitional rules), together with interest
(if any) credited thereon under the plan to the end of
such plan year (to the extent such contributions and
interest are nonforfeitable on the applicable date), and
interest compounded annually thereafter at the rate of
5 percent per annum, to the date upon which the employee
would attain normal retirement age, and (ii) all mandatory
contributions made by the employee after the end of the
last plan year referred to in clause (i) or (ii) of
proposed section 401 (a) (14) (A), together with interest
on such contributions compounded annually at the rate of
5 percent per annum to the date upon which the employee
would attain normal retirement age.
-
21
For purposes of subparagraph (E) of proposed section
401 (a) (12), mandatory contributions made by an employee
are the contributions that are required to be made under the
plan to receive a benefit (or an additional benefit) derived
from employer contributions.
For example, if the benefit de
rived from employer contributions depends upon a specified
level of employee contributions, employee contributions up
to that level would be treated as mandatory contributions.
Proposed section 401 (a) (12) (E) further provides
that the accrued benefit derived from employee contribu
tions is not to exceed the accrued benefit determined
under subparagraph (D) of proposed section 401 (a) (12).
Thus, for example, if an employee’s accrued benefit
determined under subparagraph (D) equals $20,000, his
accrued benefit derived from employee contributions is
not to be greater than $20,000 even though such benefits
determined under subparagraph (E) equal $25,000.
Subparagraph (F) of proposed section 401 (a) (12)
provides that, in the case of a defined benefit pension
plan, if. an employee’s accrued benefit is to be deter
mined as an amount other than an annual benefit commencing
at normal retirement age, or if the amount of the accrued
benefit derived from contributions made by an employee
is to be determined with respect to a benefit other than
an annual benefit in the form of single life annuity
commencing at normal retirement age, the employee’s
minimum accrued benefit, or the amount of
the minimum accrued benefit derived from contributions
made by an employee, as the case may be, is to be the
actuarial equivalent (determined in accordance with
regulations prescribed by the Secretary of the Treasury
or his delegate) of such benefit or such amount determined
under subparagraph (D) or (E) of proposed section 401 (a) (12).
It is contemplated, that amendment of many
existing plans would be required to conform them to the
proposed rules relating to the required percentage of
vesting and the definition of accrued benefit, in order
to remain qualified.
For instance, the United States
civil service retirement system would have to be amended
to conform to these rules.
Exception to vesting requirement$--proposed section 401
(a) (13)
Proposed section 401 (a) (13) provides that a trust
forming part of a defined benefit pension plan which is
in existence on December 31, 1972, is not to be dis
qualified for any plan year merely because such plan pro
vides that an employee's accrued benefit derived from
employer contributions for any plan year is forfeitable
if both of the following conditions are satisfied:
the sum of the periodic benefit payments to retired
(1)
23
participants (or their beneficiaries) during the plan year
exceeds the benefit accruals (determined in accordance
with regulations prescribed by the Secretary or his
delegate) by active participants during the plan year,
and (2) as of the beginning of the plan year, the sum of
the present values of accrued plan liabilities to active
and retired participants under the plan exceeds the fair
market value of plan assets.
Such accrued benefits for
an employee during such a plan year could remain for
feitable until the employee attains retirement age under
the plan.
The present values of accrued plan liabilities are
to be determined in accordance with actuarial assumptions
which in the aggregate are reasonable.
The fair market
value of plan assets held at the beginning of the plan
year is to be determined on the basis of a reasonable
method applied consistently, such as on the basis of
their average value during the preceding year.
Subparagraph (B) of proposed section 401 (a) (13)
provides that this exception is not to apply for any
plan year beginning after December 31, 1972, if the plan
is amended during such plan year to provide additional
or increased benefits (for example, by lowering the re
tirement age or raising benefit levels).
For this purpose,
neither a reduction in eligibility requirements to comply
24 with applicable law nor an increase in the rate of
vesting would be deemed to result in additional or
increased benefits.
If the plan is so amended, the
exception will also not apply to any succeeding plan
year or to any plan year which begins after December 31,
1972, and which precedes the plan year in which the plan
is amended by not more than 5 plan years.
Transitional rules--proposed section 401 (a) (14)
Proposed section 401 (a) (14) (A) (i) provides that
proposed paragraphs (11) and (12) of section 401 (a),
relating to eligibility of participants and nonforfeit
ability of accrued benefits, respectively, are not to
apply, in the Case of a plan in existence on December 31,
1972, with respect to a plan year which begins before
January 1, 1975.
However, if later, in the case of a plan
maintained pursuant to an agreement which the Secretary of
the Treasury or his delegate finds to be a collective
bargaining agreement between employee representatives
and one or more employers, in effect on December 31, 1972,
proposed paragraphs (11) and (12) of section 401 (a) are
not to apply to a plan year ending before the termination
of the agreement.
For purposes of determining the date
on which such an agreement terminates, an extension agreed
to after December 31, 1972, would be disregarded.
Thus, in the
case of such a collectively bargained plan, the proposed
25
rules relating to nonforfeitability of accrued benefits
would generally not apply to benefits accrued during plan
years ending before the expiration of the collective
bargaining agreement in effect on December 31, 1972.
Generally, subparagraph (B) of proposed section 401
(av (14) provides an exception to the application of the
transitional rules under subparagraph (A) of proposed
section 401 (a) (14).
Subparagraph (B) of proposed sec
tion 401 (a) (14) provides that proposed section 401
(a) (12), relating to nonforfeitability of accrued
benefits, is to apply to all benefits accrued under the
plan unless the conditions of nonforfeitability under
the plan as in effect on December 31, 1972, remain in
effect with respect to benefits accrued during plan years
beginning before January 1, 1975 (or, if applicable, the
appropriate later date in the case of a plan maintained
pursuant to a collective bargaining agreement).
For
this purpose the conditions of nonforfeitability are to
be deemed to remain in effect so long as such conditions
are not amended to provide for the forfeiture of amounts
which would not have been forfeited but for the amendment.
%
- 26 -
Subparagraph (B) of proposed section 401 (a) (14)
further provides that, in the case of a profit-sharing,
stock bonus, or money purchase pension plan, proposed
section 401 (a) (12) is to apply to all benefits accrued
under a plan unless separate accounts are maintained with
respect to the benefits accrued during plan years beginning
before January 1, 1975 (or, if applicable, the appropriate
later date in the case of a plan maintained pursuant to
a collective bargaining agreement).
27
(b)
Plans benefiting owner-employees.— Section 2 (b)
of the bill would amend section 401 (d) of the code
(relating to additional requirements for qualification of
trusts and plans benefiting owner-employees).
Paragraph
(1) of section 2 (b) of the bill would revise the con
ditions for nonforfeitability of benefits under such a
plan.
Paragraph (2) of section 2 (b) of the bill would
revise the service requirements for participation in a
qualified plan benefiting an owner-employee.
Conditions for nonforfeitability of benefits--section
401 (d) (2) (A)
Section 401 (d) (2) (A) of the code provides that
an employees* trust, in which an owner-employee (defined
in sec. 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, 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 nonfor
feitable at the time such contributions are made.
28
Paragraph (1) of section 2 (b) of the bill would
amend section 401 (d) (2) (A) to provide minimum vesting
standards which must be met if such a trust is to constitute
a qualified trust under section 401.
Under the proposed
standards, an employee*s rights in his accrued benefit
derived from his own contributions (within the meaning of
proposed sec. 401 (a) (12)) must be nonforfeitable (other
than by reason of death).
Furthermore, his rights in at
least 50 percent of his accrued benefit derived from
employer contributions (within the meaning of proposed
sec. 401 (a) (12)) must be nonforfeitable (other than by
reason of death) as of the close of the first plan year in
which the sum of his age and the period of his participa
tion in the plan equals or exceeds 35 years.
Proposed section 401 (d) (2) (A) would further
require that an employee’s rights in the remaining per
centage of all of his accrued benefit derived from employer
contributions become nonforfeitable (other than by reason
of death) not less rapidly than ratably over the next
succeeding 5 plan years following the close of the first
plan year in which such employee satisfies the initial
nonforfeitability requirement.
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, under provisions of the plan adopted pursuant to
- 29 regulations prescribed by the Secretary of the Treasury 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.
Further,
more rapid vesting could be required if necessary to
prevent discrimination in favor of self-employed indivi
duals, supervisory employees, or highly compensated employees.
Conditions for participation--section 401 (d) (3)
Section 401 (d) (3) of the code provides that an
employee*s trust, in which an owner-employee (as defined
in sec. 401 (c) (3)) participates, does not constitute
a qualified trust under section 401 of the code unless
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 for
not more than 20 hours in any one week or is for not more
than 5 months in any calendar year.
Section 2 (b) (2) of the bill would amend section
401 (d) (3) to provide that such a trust is not to con
stitute a qualified trust under section 401 unless the
plan benefits each employee having a period of continuous
service with the employer of 3 years or more who is younger
30
than 30 years of age, each employee having a period of
continuous service with the employer of 2 years or more
who has attained the age of 30 years but is younger than
35 years of age, and each employee having a period of
continuous service with the employer of 1 year or more
whose age is 35 years or greater.
Also, for this purpose,
the term ’’employee" is not to include any employee who is
included in a unit of employees covered by an agreement
which the Secretary of the Treasury or his delegate finds
to be a collective bargaining agreement, if such agreement
does not provide that such employee is to be included in
the plan.
Under regulations to be prescribed by the Sec
retary of the Treasury or his delegate, the term "employer"
would include a predecessor of an employer.
(c)
Conforming amendments.--Section 2 (c) of the
bill would make conforming amendments to section 404 (a)
(2) of the code (relating to deduction for contributions
of an employer to employees’ annuity plan), section
405 (a) (1) of the code (relating to qualified bond pur
chase plans), and section 805 (d) (1) (C) of the code
(relating to definition of pension plan reserves).
Paragraphs (1) and (2) of section 2 (c) would extend to
employees’ annuity plans and qualified bond purchase
plans, respectively, that do not utilize trusts, the
requirements that would be imposed upon plans utilizing
trusts by subsections (a) (2) and (b) of section 2 of
the bill.
Paragraph (3) of section 2 (c) would conform
the definition of "pension plan reserves" in section 805
(d) to reflect the new requirements described above.
(d)
Effective' dates.— Section 2 (d) of the bill
provides that generally, the amendments proposed to be
made by section 2 of the bill are to become effective
after the date of enactment of the bill.
The amendment
proposed to be made to section 401 (d) (3) of the code
(relating to eligibility conditions with respect to a
plan providing benefits for an owner-employee) by section
2 (b) (2) of the bill is not to apply for a plan year
beginning before January 1, 1975, in the case of a trust
or contract which is a part of a plan in existence on
December 31, 1972.
Section 3. Deduction for Retirement Savings.
(a)
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 re
designating section 219 (containing cross references) as sec
tion 220 and by inserting after section 218 a new section
219 which would allow individuals a limited deduction for
certain amounts saved for retirement purposes.
Section
32
3 (e) (2) of the bill would amend section 62 of the code
to provide that the deduction allowed by proposed section
219 is to be taken into account in computing adjusted gross
income.
Deduction allowed--proposed section 219 (a)
Under existing law, an individual (other than a selfemployed individual) is not allowed any deduction for
amounts which he saves for retirement purposes.
On the
Other hand, a participant in a qualified pension, annuity,
p profit-sharing, stock bonus or bond purchase 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.
- 33 -
Proposed section 219 (a) provides that, subject to
the limitations imposed by proposed section 219 (b), (c),
and (h), an individual (including a self-employed indivi
dual) is to be allowed a deduction for amounts paid in cash
during his taxable year by him (1) to or under a qualified
individual retirement account (as defined in sec. 408 (a)
of the code (as proposed to be added by sec. 3 (b) of the
bill)) which is exempt from tax under section 501 (a) if
the individual established such account, (2) to an exempt
employees* trust described in section 401 (a) of the code,
for the benefit of the individual, (3) for the purchase of
an annuity contract for the individual under a plan which
meets the requirements of section 404 (a) (2) of the code
(relating to employee annuities), or (4) to or under a
qualified bond purchase plan (described in sec. 405 (a)
of the code (relating to qualified bond purchase plans)),
for his benefit.
The requirement that the contribution
paid by the individual be for his benefit has the effect of
denying the deduction to an individual who contributes to an
employees* trust in which he is not a participant.
34 Limitations on deduction— proposed section 219 (b)
Paragraph (1) of proposed section 219 (b) provides
that the amount allowable as a deduction under proposed
section 219 (a) to an individual for any taxable year is
not to exceed an amount equal to 20 percent of his earned
income paid or accrued for such taxable year, or $1,500,
whichever is the lesser.
This limitation on the deduc
tible amount is to apply to the sum of the amounts paid
during such taxable year by such individual to or under
all accounts, trusts, and plans described in proposed
section 219 (a).
The general limitation computed under
this paragraph is to be reduced under paragraphs (2) and
(3) of proposed section 219 (b).
35
Paragraph (2) of proposed section 219 (b) provides
that the amount of the limitation determined under
proposed section 219 (b) (1) for any taxable year is
to be reduced by the amount (determined under regula
tions prescribed by the Secretary of the Treasury or
his delegate) of contributions paid on behalf of the
individual by his employer (including a sole proprietor
or partnership treated as an employer under sec. 401 (c)
(4)) for the individual’s taxable year to an exempt
employees* trust which qualifies under section 401 (a),
for the purchase of an annuity contract under a qualified
annuity plan which meets the requirements of section 404
(a) (2) (including a plan described in sec. 805 (d) (1) (C)),
to or under a qualified bond purchase plan described in
section 405 (a), or for the purchase of an annuity contract
described in section 403 (b) of the code (relating to
annuities purchased by a sec. 501 (c) (3) organization
or by a public school).
This reduction is to be made even
though the employee’s rights under the plan are forfeitable
in whole or in part.
Proposed section 219 (b) (2) provides that under regula
tions prescribed by the Secretary of the Treasury or his
delegate, the amount of any such contributions (other than
for the purchase of an annuity contract described in sec
tion 403 (b)). paid on behalf of an individual by his em
ployer for his taxable year may, at the option of the
36
individual, be considered to be 7 percent of his earned
income paid or accrued for such taxable year which is attri
butable to the performance of personal services for such
employer*
This choice is to be available even where it may
be readily demonstrated that the actual employer contributions
on behalf of the taxpayer exceed 7 percent of such earned
income.
However, proposed section 219 (b) (2) provides
that the option to treat such employer contributions to
such a trust or plan as not exceeding 7 percent is not to
apply in the case of a contribution on behalf of an owneremployee within the meaning of section 401 (c) ( 5 of the
code.
Thus, for example, a partner owning more than a
10 percent interest in the partnership would not have the
option to treat partnership contributions made on his
behalf to or under a plan maintained by the partnership as
being equal to 7 percent of his earned income if they
exceed that percentage*
Paragraph (3) of the proposed section 219 (b) provides
that, if an individual has earned income for the
taxable year which is not subject to tax under the SelfEmployment Contributions Act of 1954 (chapter 2 of the
code), the Federal Insurance Contributions Act (chapter
21 of the-code), or the Railroad Retirement Tax Act
* 37
(chapter 22 of the code), the limitation on the deductible
amount computed under paragraphs (1) and (2) is to be
further reduced by an amount equal to the tax (or, if such
individual has some earned income which is subject to
any of such taxes, the increase in tax) that would have
been imposed upon such income under section 3101 of the
code (relating to rate of tax on employees under the
Federal Insurance Contributions Act) for such taxable year
if such income constituted wages (as defined in sec. 3121
(a) of the code) received by such individual with respect
to employment (as defined in sec. 3121 (b) of the code).
Paragraph (4) of proposed section 219 (b) provides
that no deduction is to be allowed under proposed sec
tion 219 for a taxable year with respect to any payment
described in section 219 (a) which is made by an indivi
dual who has attained the age of 70-1/2 years before the
end of such year.
The application of proposed section 219 (b) may
be illustrated by the following example:
Example.
A is employed solely by the United States
and is a participant in the Civil Service Retirement
System.
A*s taxable year is the calendar year, and for
1975, his compensation is $10,000 and the amount of his
contributions to the Civil Service Retirement System is
38
$700,
(it is assumed that the Civil Service Retirement
System will be amended to conform to the requirements of
the Retirement Benefits Tax Act for 1975. ) The amount
allowable as a deduction under proposed section 219 (a)
for 1975 is determined in the following manners
1.
2.
3.
4.
A*s contributions which may be taken
into account under proposed section
219 (a)
$700.00
The lesser of 20 percent of A*s earned
income (proposed sec. 219 (b)(1))
for 1975 or $1,500
$1,500
Employer contributions to Civil
Service Retirement System (7
percent of $10,000 (proposed
sec. 219 (b) (2)))
$
Tax. that would be imposed for
1975 under section 3101 if compen
sation constituted wages (5.85 per
cent of $10,000 (proposed sec. 219
(b) (3) reduction))
700
585
5.
Sum of items (3) and (4)
6.
Limitation under proposed
section 219 (b) (item (2) less
item (5))
$215.00
Amount allowable as a deduction
.under proposed section 219 (a)
(lesser of item (1) or item (6))
$215.00
7.
$1,285
Recontributed amounts--proposed section 219 (c)
Subsection (c) of proposed section 219 provides
that no deduction is to be allowable under proposed sec
tion 219 with respect to a contribution described id section 72 (p) (2) (C) (as proposed to be added by sec. 3
(c) (9) of the bill), 402 (a) (6) or (7)
- 39
(as proposed to be added by sec, 5 (a) (2) of the bill),
or 403 (a) (4) or (5) (as proposed to be added by sec.
5 (b) (2) of the bill).
Proposed sections 72 (p)
(2) (C), 402 (a) (6) and (7), and 403 (a) (4) and (5),
provide "roll-over" rules under which certain distributions
received from a qualified individual retirement account
or a qualified trust or plan may be contributed within
a specified period to another qualified account, trust,
or plan and excluded from gross income for the taxable
year in which the distribution is received.
Thus,
taxation of distributions "rolled-over" to another plan,
trust, or account would generally be deferred until
distributions commenced from the other plan, trust, or
account.
Proposed section 219 (c) would deny any deduction
under proposed section 219 for these "roll-over"
contributions.
Married individuals--proposed section 219 (d)
Subsection (d) of proposed section 219 provides
special rules in the case of a married individual.
The marital status of an individual is to be determined
under the rules provided in section 153 of the code
(relating to determination of marital status for purposes
of personal exemptions).
Proposed section 219 (d) provides
that in the case of a married individual, the limitation
under proposed section 219 (b) (1) is to be determined
without regard to the earned income of his spouse and
40
without regard to contributions described in proposed
section 219 (b) (2) paid on behalf of his spouse.
For purposes of proposed section 219, the earned income
of a married individual is to be determined without regard
to community property laws of a State.
Thus, for example,
an individual could contribute his own earnings to a
qualified account even though such earnings would be
community property under State law.
Earned income defined— proposed section 219 (e)
Subsection (e) of proposed section 219 defines the
term "earned income" for purposes of proposed section 219
as any income which is earned income within the meaning
of section 401 (c) (2) of the code (defining earned income
in the* case of a self-employed individual) or of section 911
(b) of the code (defining earned income in the case of a
common-law employee).
Time contributions deemed made— proposed section 219 (f)
Subsection (f) of proposed section 219 provides
that for purposes of proposed sections 219 and 408, an
individual is to be deemed to have made a payment during
the taxable year if the payment is on account of such
taxable year and is made no later than the time prescribed
by law for filing the return for such taxable year
- 41
(including extensions thereof).
This rule corresponds
to the rule presently provided in section 404 (a) (6)
for a contribution by an accrual basis employer to a
qualified plan.
(Sec. 7 (h) (4) of the bill would amend
sec. 404 (a) (6) to extend the rule to cash basis employers.)
Regulations— proposed section 219 (g)
Subsection (g) of proposed section 219 provides that
the Secretary of the Treasury or his delegate is to be
authorized to prescribe such forms and regulations as may
be necessary to carry out the purposes of proposed sec
tion 219 including forms on which employers may be required
to furnish needful information to employees.
Such forms
are to be furnished to employees at such time as the
Secretary of the Treasury or his delegate may by regula
tions prescribe.
Section 6690 (as proposed to be added by sec. 7 (j)
of the bill) would prescribe assessable civil penalties
for an employer's failure to furnish information to his
employees as required under this section.
42
Special limitation for 1973— proposed section 219 (h)
Subsection (h) of proposed section 219 provides
that for taxable years ending before January 1, 1974, the
amount allowable as a deduction
under proposed subsection
(a) is not to exceed 50 percent of the limitation determined
under proposed subsection (b).
Thus, for example, if for
a taxable year ending in 1973, the limitation under pro
posed subsection (b) for an individual is $215 (without
regard to proposed sec. 219 (h)), the maximum amount
allowable as a deduction under proposed section 219
would be $107.50.
43
(b)
Individual retirement accounts.--Sect ion 3 (b)
of the bill would amend part I of subchapter D of chapter
1 of the code (relating to pension, etc., plans) by
adding a new section 408.
Proposed section 408 would
provide rules for the establishment and maintainance
of qualified individual retirement accounts which
individuals could utilize for saving for retirement
purposes, and would also provide rules for the taxation
of distributions from qualified individual retirement
accounts.
44 Requirements for qualification--proposed section 408 (a)
Proposed section 408 (a) provides that, if certain
requirements are satisfied, a trust created or organized
in the United States is to constitute a qualified in
dividual retirement account.
Proposed section 408 (a)
provides that, for purposes of the code, a custodial account,
annuity contract, or other similar arrangement is to be
treated as a trust constituting a qualified individual
retirement account, if otherwise qualified.
The requirements
for qualification would be required to be set forth in
a written governing instrument.
It is contemplated that,
in an appropriate case, a plan similar to a dividend rein
vestment plan of a regulated investment company might
constitute a "similar arrangement", even though no
certificates are issued, provided there is an appropriate
governing instrument for the plan.
Paragraph (1) of proposed section 408 (a) provides
that an individual retirement account is not to constitute
a qualified individual retirement account unless its
governing instrument provides that the account is main
tained for the purpose of distributing the contributions
to such account and the income derived from such contri
butions to the individual who established it or his
- 45 -
beneficiaries.
Distributions from the account could be
in the form of money or property.
The payment of an
expense or obligation on behalf of or for the benefit of
a beneficiary would be considered a distribution to such
beneficiary.
Such an account is to be considered to be
maintained for the purpose of distributing the contri
butions thereto and the income therefrom to the individual
who established it or his beneficiaries even though the
assets of the account include policies which have life or
- 46 -
disability insurance features if such features are incidental
to the purpose of providing benefits in a manner which
satisfies proposed sections 408 (a) (5) and (6).
Paragraph (2) of proposed section 408 (a) requires
that the governing instrument of a qualified individual
retirement account provide that
except in the case of a "roll-over" contribution
described in section 72 (p) (2) (C) (as proposed to be
added by sec. 3 (c) (9) of the bill), section 402 (a) (6)
(as proposed to be added by sec. 5 (a) (2) of the bill),
or section 403 (a) (4) (as proposed to be added by sec.
5 (b) (2) of the bill), the amount of contributions to
such account during any taxable year is not to exceed a
specified amount.
This specified amount is the excess of
the limitation provided by proposed section 219 (b) for such
taxable year over the sum of the amounts paid by such
individual during such year to a qualified pension, etc.,
plan for such individual1s benefit, for the purchase of
an annuity contract for the individual under a qualified
annuity plan, or to or under a qualified bond purchase
47
plan described in section 405 (a), for his benefit.
Paragraph (2) of proposed section 408 (a) further
requires that such instrument provide that contributions
to the account may be made only by the individual who
established the account.
However, proposed section 408 (b)
(2) would permit certain community property of the indivi
dual and his spouse to be contributed.
Paragraph (3) of proposed section 408 (a) requires
that the governing instrument of a qualified individual
retirement account provide that the assets of the account
may not be commingled with other property except in a
common trust fund.
This requirement would not prohibit
the assets from being held in a custodial account or
invested in an annuity contract.
Paragraph (4) of proposed section 408 (a) would
require that the assets of a qualified individual retire
ment account be held by a bank (as defined in sec. 401
(d) (1) of the code) or other person (including the issuer
of an annuity contract) who demonstrates to the satisfaction
of the Secretary of the Treasury or his delegate that
the manner in which he will hold such assets will be
consistent with the requirements of proposed section 408.
It is contemplated that regulations prescribed under
proposed section 408 (a) (4) will provide that neither the
transfer nor redemption of such assets may be effected
without the consent of the holder of the assets.
Paragraph (5) of proposed section 408 (a) requires
that the governing instrument of a qualified individual
retirement account provide that the entire interest
(i.e., the contributions to such account and the income
derived from such contributions) of the individual who
established such account must be distributed to him if he
is then alive not later than the last day of his taxable
year in which he attains the age of 70-1/2.
Alternatively,
the instrument may provide that such interest will 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 individual and his spouse.
The Secretary of
the Treasury or his delegate would be given authority
to prescribe regulations with respect to these alternative
methods of distribution.
If such individual's entire
interest is to be distributed in the form of an annuity
contract, the requirements of proposed section 408 (a) (5)
would be satisfied if the distribution of such contract
is to take place on or before the last day of the taxable
year in which such individual attains the age of 70-1/2
-49
and if such interest is to be paid over a period allow
able under proposed section 408 (a) (5).
Paragraph (5)
of proposed section 408 (a) provides the same rule
presently provided with respect to self-employed individuals
under section 401 (a) (9) of the code.
Paragraph (6) of proposed section 408 (a) requires
that the governing instrument of a qualified individual
retirement account provide that if the individual who
established the account dies before his entire interest
has been distributed to him, or if distribution has
commenced in accordance with the requirements of proposed
section 408 (a) (5) to his surviving spouse and such
spouse dies before the entire interest has been distributed
to such surviving spouse, the entire interest (or the
remaining part of such interest if distribution has
commenced) will be distributed or applied in a certain
manner.
The instrument would be required to provide that
such entire interest (or such remaining part) will, within
5 years after his death (or the death of his surviving
spouse), be distributed, or applied to the purchase of an
immediate annuity for his beneficiary or beneficiaries
(or the beneficiary or beneficiaries of his surviving
spouse) which will be payable for the life of such bene
ficiary or beneficiaries (or for a term certain not
50
extending beyond the life expectancy of such beneficiary
or beneficiaries) and which will be immediately dis
tributed to such beneficiary or beneficiaries.
This
is the same rule presently provided with respect to selfemployed individuals who are owner-employees under sec
tion 401 (d) (7) of the code.
If contributions to a qualified individual retire
ment account may be used for the purchase of annuity or
similar contracts, paragraph (7) of proposed section 408
(a) requires the governing instrument to provide that
any refunds of premiums are to be held by the issuer of
the contract with respect to which such refund of
premiums arises and applied within the current taxable year
or the next succeeding taxable year of the account toward
the payment of future premiums under such contract or
toward the purchase of additional benefits.
This is the
same rule presently provided with respect to qualified
annuity plans under section 404 (a) (2) of the code.
Proposed section 408 (a) provides that section 408
(a) (6) (relating to requirement' of distribution in the
case of death) is not to apply if distribution of the interest
51
of such individual has commenced and such distribution
is for a term certain over a period permitted under
proposed paragraph 408 (a) (5) (relating to requirements
as to the time of distribution).
These are the same rules
presently provided under section 401 (d) (7) of the code.
Special rules--proposed section 408 (b)
Proposed section 408 (b) provides special rules for
the application of section 408.
Excess contributions--proposed section 408 (b) (1)
Proposed section 408 (b) (1) provides that, if all
or a portion of the contributions paid by an individual
during any taxable year to a qualified individual retire
ment account are not deductible under section 219 of the
code, as proposed to be added by section 3 (a) of the
bill (other than by reason of proposed sec. 219 (c),
relating to recontributed amounts), under regulations
prescribed by the Secretary of the Treasury or his delegate
such contributions or portion thereof are to be treated
in the same manner as an excess contribution within the
meaning of section 401 (e) (1) of the code.
For this
purpose, section 401 (e) (2) and (3) of the code (relating
52
to effect of excess contribution and contributions for
premiums on annuity, etc., contracts) are to apply as
if such individual were an owner-employee.
Thus, for
example, if a portion of the contributions during any
taxable year to such an account is not deductible
under proposed section 219 (a) because it exceeds 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 portion (and the
net income derived therefrom) is repaid to the taxpayer
before the close of the 6-month period beginning on the
day on which the Secretary of the Treasury or his
delegate sends notice to the person to whom such excess
contribution was paid of the amount of such excess
contribution.
In addition, if such a contribution were
determined to have been willfully made, the taxpayer’s
interest in all individual retirement accounts is to
be distributed to him, and any
53
¥.
individual retirement account maintained by him
during his taxable year in which such non-deductible
contribution was 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 contri
butions to a qualified individual retirement account
if, under the governing instrument of the account, such
contributions must be applied to pay premiums or
other consideration for one or more annuity, endowment,
or life, insurance contracts on the life of the indivi
dual making any such contribution and if the amount of
such contributions does not exceed the average deductible
amount under proposed section 219 for the first 3 tax
able years preceding the year in which the last such
contract was issued.
Thus, for example, if an indivi
dual who has earned income of $6,000 for each taxable
year of a 3-year period purchases through a qualified
individual retirement account a life insurance policy
on which the annual premium is $1,200 (i.e., 20 per
cent of $6,000), he may continue to contribute the
amount of the premium annually even though his earned
income falls below $6,000.
However, amounts which may
54 -
be contributed under this exception are to be deductible
only to the extent that they do not exceed the limitations
of proposed section 219 (b).
Community property laws -- proposed section 408 (b) (2)
Proposed section 408 (b) (2) provides that pro
posed section 408 is to be applied without regard to
the community property laws of any State.
This pro
vision is intended to allow a married individual
in a community property State to establish and maintain
a qualified individual retirement account even though
under such laws contributions to the account or a
portion thereof may be community property.
Treatment as qualified trust benefiting owner-employee--"
proposed section 408 (c)
Proposed section 408 (c) provides that, solely
for purposes of subchapter F of chapter 1 of the code
(relating to exempt organizations) , chapter 44 of sub
title D of the code (relating to excise tax on prohibited
transactions as proposed to be added by sec. 6 (b)
of the bill), 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
55
or all of whom are owner-employees (as defined in
sec. 401 (c) (3) of the code), the individual who
established such account is to be treated as an owneremployee for whom such contributions and benefits are
provided, and the person holding
the assets of such account is to be treated as the
trustee of such trust.
Proposed chapter 44 (relating to
excise tax on prohibited transactions) is not to be
applied to a Contribution to a qualified individual re
tirement account in the case of a contribution to which a
"roll-over" provision applies.
(For "roll-over" provisions,
see sec. 72 (p) (2) (C) of the code (as proposed to be
added by sec. 3 (c) (9) of the bill), sec. 402 (a) (6)
of the code (as proposed to be added by sec. 5 (a) (2)
of the bill), and sec. 403 (a) (4) of the code (as proposed
to be added by sec. 5 (b) (2) of the bill).)
Thus, the income derived from contributions to a
qualified individual retirement 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
excise taxes on prohibited transactions (other than in
the case of certain "roll-over" contributions) provided by
section 4971 of the code (as proposed to be added by sec.
6 (b) of the bill) are.to apply to a qualified individual
56
retirement account, (A contribution of property pursuant
to the "roll-over** provisions is not to constitute a
prohibited transaction.)
Moreover, the provisions of
section 6033 of the code (relating to returns by exempt
organizations) and section 6047 of the code (relating to
information regarding certain trusts and annuity and bond
purchase plans) are also to apply, and the person holding
the assets of such an account would be required to file
the information returns and other material required under
those provisions.
Because 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 annuities under qualified plans) are not to
apply with respect to the transfer of an interest in a
qualified individual retirement account.
Further, 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 from
exempt employees* trusts), and section 403 (a) (2) of the
code (relating to capital gains treatment for certain
distributions under qualified annuity plans)
are not to apply to any amount distributed or paid
57
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 income tax with respect to any such amount is not to
be limited under section 72 (n) of the code (relating to
treatment of total distributions).
Taxability of beneficiary--proposed section 408 (d) (1)
Paragraph (1) of proposed section 408 (d) provides
that, except as provided in proposed section 408 (d) (2)
and (3) (relating to recontributed amounts and excess
contributions, respectively), the amount actually paid,
distributed, or.made available to any payee or distributee
by a qualified individual retirement account is to be
taxable to such person
in the year in which actually
paid or distributed under section 72 of the code (relating
to annuities).
Recontributed amounts--proposed section 408 (d) (2)
Proposed section 408 (d) (2) provides that amounts
paid or distributed by a qualified individual retire
ment account, except such amounts distributed pursuant
to provisions of the governing instrument meeting the
requirements of proposed section 408 (a) (5) (relating
to time of distribution), are not to be includible in
gross income when so paid or distributed to the extent
that such amounts are not subject to the tax imposed
58
by section 72 (p) (3) (relating to the penalty on pre
mature distributions (as proposed to be added by sec,
3 (c) (9) of the bill)) by reason of the application
of section 72 (p) (2) (C) (relating to a "roll-overH
from a qualified individual retirement account to another
such account).
Thus, if an individual who established a
qualified individual retirement account desires to change
the funding medium or trustee and such change requires a
"roll-over", the "roll-over" is not to be a taxable event
if certain requirements are satisfied (see discussion
under section 5 of the bill).
Applicability of section 72 (m)— proposed section 408 (d) (3)
Proposed section 408 (d) (3) provides that, under
regulations prescribed by the Secretary of the Treasury
or his delegate, an individual who establishes a qualified
individual retirement account is to be treated as an
owner-employee (as defined in sec. 401 (c) (3) of the code)
for purposes of applying the provisions of paragraphs (2)
and (4) of section 72 (m) of the code (relating to the
computation of consideration paid by the employee and
amounts constructively received).
Thus, notwithstanding
section 72 (m) (6) of the code (defining "owner-employee"
for purposes of sec. 72 (m)), an individual who establishes
a qualified individual retirement account is to be treated
as an owner-employee for purposes of paragraphs (2) and (4)
of section 72 (m) of the code.
59
For purposes of computing an individual’s or
employee’s investment in the contract, amounts allowed as
a deduction under section 219 (a) (as proposed to be
added by sec, 3 (a) of the bill) and any portion of
the premiums or other consideration for the contract which
is properly 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 219 (a), and any income of such account,
which is applied to purchase the life insurance pro
tection under any retirement income, endowment, or other
life insurance contract is includible in the gross in
come of the individual who established such account for
the year in which so applied.
This would be accomplished
by amending section 72 (m) (2) and 72 (m) (3) (B)
and by adding section 408 (d) (3) of the code (by sec.
3 (c) (2), (3), (4), (5), and (6) of the bill).
This is the same treatment provided under present law in
certain situations by sections 72 (m) (2) and (3) (B) of
the code.
- 60 -
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 from
such account for his taxable year in which such assign
ment, pledge, or agreement occurs.
This is the same
treatment provided under present law by section 72 (m)
(4) (A) of the code for owner-employees.
This treatment
would be extended to an individual who establishes a
qualified individual retirement account under section
72 (m) (4) (A) (as proposed to be amended by sec.
3 (c) (7) of the bill) and proposed section 408 (d)
(3).
If the assets of a qualified individual retirement
account include a life insurance contract, and the
individual who established such account receives, directly
or indirectly, any amount from the issuer of such contract
- - m
-
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.
This is the same
treatment provided under present law by section 72 (m)
(4) (B) of the code for owner-employees.
This treatment
would be extended to an individual who establishes a
qualified individual retirement account under proposed
section 72 (m) (4) (B) (as proposed to be amended by
sec. 3 (c) (8)) and proposed section 408 (d) (3).
Treatment of nonexempt account— proposed section 408 (e)
Proposed section 408 (e) provides that if, for the
preceding taxable year of a trust, custodial account,
annuity contract, or other similar arrangement, such
trust or arrangement was a qualified individual retirement
account and was exempt from tax under section 501 (a),
and if for the taxable year such trust or arrangement
is not exempt from tax under section 501 (a), then the
fair market value of the contract or the property held
under the trust or arrangement at the beginning of the
taxable year, reduced by contributions which were not
deductible under proposed section 219 (other than "roll
over" contributions which were not deductible by reason
- 62
of proposed sec. 219 (c)), is-to be included in the gross
income of the individual who established the trust or
arrangement (or his beneficiary) as if such trust’s or
arrangement’s assets had been distributed to him on the
first day of the trust’s or arrangement’s taxable year.
Thus, for example, if A ’s account which is exeppt
from taxation under section 501 (a) in its taxable year
beginning in 1980 were to lose its exemption in 1981
because of a transfer from the account to a person not
described in proposed section 408 (a) (4), the fair market
value of the account would be includible in A ’s ^981 gross
income to the extent provided by proposed section 408 (e).
Special rule--proposed section 408 (f)
Proposed section 408 (f) provides that solely for pur
poses of determining whether section 72 (p) (2) (G) (as
proposed to be added to the code by section 3 (c) (9)
of the bill) applies to a contribution under proposed
section 408 (a) (2) (relating to ”roll-overs”) or to an
amount paid or distributed under proposed section 408
(d) (2) (relating to ”roll-overs”), the requirement of
proposed section 72 (p) (1) that the amount paid or dis
tributed be received before age 59-1/2 is not to apply.
Thus, a ’’roll-over” could be made from a qualified
individual retirement account to another such account by
an individual who is older than age 59-1/2.
Cross references --proposed section 408 (g)
Proposed section 408 (g) provides appropriate cross
references.
(c)
Treatment of distributions from qualified
individual retirement accounts*— Section 3 (c) of the bill
would amend section 72 of the code (relating to annuities)
to revise the rules relating to amounts received before
the annuity starting date by an owner-employee and to
provide rules for the taxation of distributions from
qualified individual requirement accounts.
Paragraph (1) of section 3 (c) of the bill would
repeal section 72 (m) (1) of the code (relating to
certain amounts received before annuity starting date)•
Under present law, amounts received under a qualified
plan, before the annuity starting date, which are not
received as an annuity, are included in the recipient*s
gross income for the taxable year in which received to
the extent that such amounts, plus all amounts
-64-
previously received and includible in gross income, do
not exceed the aggregate premiums or other consideration
paid for the contract while the employee was an owneremployee which were allowed as deductions under sec
tion 404 of the code.
Under this rule, tax-deferred
amounts are deemed paid before previously taxed amounts
are distributed.
On the other hand, amounts received
before the annuity starting date by an employee who is
not an owner-employee are not includible in gross
income under section 72 (e) of the code to the extent
such amounts do not exceed the employee’s investment in
the contract.
Under this rule, previously taxed amounts
are deemed distributed before tax-deferred amounts.
The
effect of the proposed repeal of section 72 (m) (1) would
be to extend the rules of section 72 (e) to an owneremployee (and an individual who establishes a qualified
individual retirement account described in proposed sec.
408 (a)).
Further, section 7 (e) of the bill would amend sec
tion 401 (d) (4) (B) of the code (relating to additional
requirements for qualification of trusts and plans benefit
ing owner-employees) to permit distributions of an owneremployee’s nondeductible contributions from a qualified
plan before such owner-employee has attained the age of
59-1/2 years.
Thus, the rules relating to amounts received before
the annuity starting date would be uniformly applied.
However, certain special rules relating to certain pre
mature distributions would continue to apply with respect
to owner-employees (sec. 72 (m) (5) of the code) and,
as detailed below, would also apply with respect to an
individual who establishes a qualified individual retire
ment account (proposed sec. 72 (p) (as proposed to be added
by sec. 3 (c) (9) of the bill)).
Paragraph (2) of section 3 (c) of the bill would
revise the rules, under section 72 (m) (2), relating
to the computation of consideration paid by the employee,
to treat any amount allowed as a deduction under sec
tion 219 of the code (as proposed to be added by sec.
3 (a) of the bill) as consideration contributed by the
employer.
Paragraphs (3), (4), (5), and (6) of section 3 (c)
of the bill would amend section 72 (m) (3) of the code
(relating to life insurance contracts) to provide that
amounts applied to purchase life insurance protection by
a qualified individual retirement account are includible
in gross income of the individual who established it
66
for the taxable year when so applied.
Upon the
death of such individual, an amount equal to the
cash surrender value of such contract immediately
before his death is to be treated as distributed by
such account and the excess of the amount payable by
reason of such individuals death over such cash
surrender value is to be treated in the manner
provided in section 101 of the code (relating to
certain death benefits).
Paragraphs (7) and (8) of section 3 (c) of the bill
would amend section 72 (m) (4) of the code (relating to
amounts constructively received) so that the assignment
or pledge of an interest in a qualified individual re
tirement account, or a loan under a contract purchased
by such an account, would be treated in the same manner
as if a qualified pension, etc., trust or a qualified
annuity plan were involved.
Paragraph (9) of section 3 (c) of the bill would
redesignate section 72 (p) of the code (relating to cross
references) as section 72 (q) and add a new section
72 (p).
Taxation of premature distributions--proposed section 72 (p)
Paragraph (1) of proposed section 72 (p) provides
that proposed section 72 (p) is to apply to amounts
paid or distributed (i) by a qualified individual retire
ment account or (ii) by an exempt qualified trust (de
scribed in sec. 401 (a) of the code) or under a
qualified annuity plan (described in sec. 403 (a) of
the code), but only to the extent that such amount is
attributable, as determined under regulations to be
prescribed by the Secretary of the Treasury or his
delegate, to amounts with respect to which a deduction
was allowed under proposed section 219 (a).
Proposed
section 72 (p) is to apply only to amounts which are
includible in the gross income of the distributee or
68
payee and which are received before the individual who was
allowed such deduction attains the age of 59-1/2 years.
Paragraph (2) of proposed section 72 (p) provides
three limitations which, if met, will cause the penalty
(which would otherwise be imposed by proposed sec. 72
(p) (3)) not to apply to the amounts described in proposed
section 72 (p) (1).
The first limitation excludes payments
or distributions made to such individual on account of his
becoming disabled within the meaning of section 72 (m)(7)
of the code.
For this purpose, amounts paid or distribute'd
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 are to be treated as disability payments.
The
second limitation excludes any amount includible in gross
income under section 72 (m) (3) (B) of the code (relating
to amounts applied to purchase life insurance protection).
The third limitation excludes any amount paid or distri
buted by a qualified individual retirement account to
the individual who established such account, if within
60 days after receipt, such amount is contributed in full
(less any nontaxable portion) to another qualified
individual retirement account established by such individual.
- 69
The third limitation is not to be applicable for a
taxable year if during the three-year period ending on
the date such amount is received, the individual pre
viously received an amount from any qualified individual
retirement account established by him to which the penalty
tax imposed by proposed section 72 (p) (3) did not apply
because of proposed section 72 (p)(2) (C) (the third
limitation).
The same property received in a payment or
distribution must be contributed for the third limitation
to be applicable.
If, for example, a distribution to A
described in proposed section 72 (p) (1) consists of 500
shares of X Corporation stock and if a stock split occurs
before the shares are contributed so that A receives
1.000 shares in exchange for the 500 shares, the same
1.000 shares of X Corporation stock would be required to
be contributed for the third limitation to apply.
The
Secretary of the Treasury or his delegate is to prescribe
regulations to carry out the purposes of proposed section
72 (p) (2).
-
Paragraph (3) 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.
70
The only credits by which the tax imposed by proposed
section 72 (p) (3) may be reduced are the credits allowed
by section 31 of the code (relating to tax withheld on
wages), section 39 of the code (relating to certain uses
of gasoline and lubricating oil) and section 42 of the
code (relating to overpayments of tax).
In addition, such
tax is not to be treated as a tax imposed by chapter 1
of the code (relating to normal taxes and surtaxes) for
purposes of section 56 of the code (relating to imposition
of minimum tax for tax preferences)•
(d)
tion 3 (d)
Excise tax on excessive accumulations.— Sec
of the bill would amend subtitle D of the
code (relating to miscellaneous excise taxes) by adding
a new chapter 43, containing section 4960.
Section 4960
would impose an excise tax on the privilege of main
taining an individual retirement account in which ex
cessive amounts are accumulated.
Proposed section 4960
Proposed section 4960 would provide that there is im
posed for each taxable year on the assets of a qualified
individual retirement account described in section 408 (a)
of the code (as proposed to be added by sec. 3 (b) of
the bill) which is exempt from tax under section 501 (a)
of the code a tax equal to 10 percent of an amount which
bears the same ratio to the fair market value of the
total assets in such account at the beginning of the
account’s taxable year as the minimum amount required to
be distributed during such year under section 408 (a) (5)
or (6) of the code (as proposed to be added by section
3 (b) of the bill), whichever applies, reduced (but not
below zero) by the total amount actually distributed
during such year by the account to the individual who
established such account or his beneficiary bears to
the minimum amount required to be distributed during such
year under section 408 (a) (5) or (6) (whichever applies).
The tax imposed by proposed section 4960 is to apply only
for taxable years beginning after the taxable year in
which the individual who established such account
attains the age of 70-1/2 years.
For purposes of
proposed section 4960, the minimum amount required to be
distributed during a year under proposed section 408 (a)
(5) or (6) is to be determined under regulations prescribed
by the Secretary of the Treasury or his delegate.
(e)
Conforming amendments.--Section 3 (e) of the bill
would make conforming amendments to section 37 (c) (1)
(defining retirement income), section 62 (defining ad
justed gross income), section 72 (n) (4) (B) (relating to
special rule for employees without regard to section 401
(c) (1)), section 405 (d) (relating to taxability
of beneficiary of qualified bond purchase plan), section
801 (g) (7) (relating to basis of assets held by life
insurance company for qualified pension plan contract),
section 805 (d) (1) (defining pension plan reserves of life
insurance company), section 1302 (a) (2) (A) (defining
72
averagable income), and section 1348 (b) (1) (defining
earned income).
(f)
Clerical amendments.-"Section 3 (f) of the bill
would make clerical amendments to the table of sections
for part VII of subchapter B of chapter 1 of the code,
to the table of sections for part I of subchapter D
of chapter 1 of the code, and to the table of chapters
for subtitle D of the code.
(g)
Effective date.-“Section 3 (g) of the bill
provides that the amendments made by section 3 of the
bill 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 Shareholders-Employées ot Electing--Small Business Corporations.
a
(a)
Contributions on behalf of self-employed
individualSo— (1)
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.
Section 404 (e) (1) of the code provides that, in
the case of a qualified pension, annuity, or profitsharing 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
(i0e., self-employed individuals), the amounts
deductible under section 404 (a) of the code in any
taxable year with respect to contributions on behalf of
any such employee shall, 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
him from the trade or business with respect to which
the plan is established, whichever is the lesser.
74 Section 404 (e) (2) (A) of the code 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 within the
meaning *of section 401 (c) (1) of the code with respect
to such planso
In such a case, the amounts deductible
may not 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.
Section 4 (a) (1) of the bill would revise sec
tion 404 (e) by increasing the limitations
from $2,500 or’10 percent of earned income to $7,500 or
15 percent of earned income.
(2)
Excess contributions on behalf of owner-employees.
Section 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) of the
code as proposed to be amended by section 4 (a) (1) of the
bill.
Subparagraphs (A) and (B) of section 4 (a) (2)
would increase the limitations under section 401 (e) (1)
(B) on the amount that an owner-employee may contribute
as an employee (i.e., on a nondeductible basis).
Sub-
paragraph (C) of section 4 (a) (2) would increase the
limitation under section 401 (e) (3) on the total amount
which may be contributed to two or more plans requiring
premiums for certain contracts without regard to the
general limitations provided by section 401 (e) (1).
75 Contributions made as an employee -section 401 (e)(1) (B)
(iiij and Civ;
Section 401 (e) (1) (B) (iii) of the code provides
that the term "excess contribution" includes, with
respect to a plan under which contributions are made
on behalf of employees other than 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.
Sec
tion 401 (e) (1) (B) (iv) of the code 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 owner-employee (as an employee) under all such
plans, which exceeds $2,500.
Section 4 (a) (2) (A) of the bill would amend sec
tion 401 (e) (1) (B) (iii) to increase the limitation on
contributions made by an owner-employee (as an employee)
to the lesser of $7,500 or 10 percent of earned income.
Section 4 (a) (2) (B) of the bill would amend section 401
m
(i) (b > (iv) to increase the limitation on contributions
made by an owner-employee (as an employee) to more than one
plan to $7,500.
76
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 (1) under the plan
such contribution is required to be applied to pay pre
miums or other consideration for one or more annuity,
endowment, or life insurance contracts on the life of
such owner-employee, (2) the amount of such contribution
exceeds the amount deductible under section 404 with
respect to contributions made by the employer on behalf of
such owner-employee, and (3) 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 the year in which the last such contract was
issued and in which such owner-employee derived earned
income from the trade or business with respect to which
the plan is established or for so many of such taxable
years as such owner-employee was engaged in such trade
or business and derived earned income«
This exception does not apply in the case of an
individual on whose behalf contributions (required to
be applied to pay premiums or other consideration for
77
one or more annuity, endowment, or life insurance
contracts on the life of such owner-employee) 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) (C) would amend the second sentence of section
401 (e) (3) to increase this limitation to $7,500.
(3)
Penalties applicable to certain amounts
received by owner-employees.--Section 4 (a) (3) of the
bill would amend section 72 (m) (5) (B) (i) of the code
to increase from $2,500 to $7,500 the amounts described
in section 72 (m) (5) (A) of the code which must be
received in any year before the penalty imposed by section
72 (m) (5) (B) of the code would apply.
Under present law, amounts described in section 72
(m)
(5) (A) of the code are subject to the penalty imposed
by section 72 (m) (5) (B) if such amounts are $2,500 or
more and are subject to the penalty imposed by section 72
0*0 (5) (c) if such amounts are under $2,500.
The
amounts described in section 72 (m) (5) (A) of the code
consist, generally, of amounts received by an individual
who is or has been an owner-employee before he attains
the age of 59-1/2 (for any reason other than his becoming
disabled), the amounts received by an owner-employee or by
his successor in excess of the benefits provided for him
under the plan formula, the amounts received by reason of
a willfully made excess contribution.
Under this proposal,
if such amounts are $7,500 or more, the penalty provided
78
by section 72 (m) (5) (B) would apply, and if they do
not equal or exceed $7,500, the penalty imposed by sec
tion 72 (m) (5) (C) of the code would apply.
(b)
Contributions on behalf of shareholder-employees
of electing small business corporations.--Section 4 (b)
of the bill would amend section 1379 (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-employee
(an employee or officer who owns (or is considered as
owning within the meaning of section 318 (a) (1) of the
code) more than 5 percent of the outstanding stock of
the corporation) which may be excluded from his gross
income.
Section 1379 (b) (1) provides that the excess
of such contributions for any taxable year of the
corporation over the lesser of (i) 10 percent of the com
pensation 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«.
Section 4 (b) of the bill would
increase the amount which may be excluded by a shareholderemployee to the lesser of 15 percent of compensation or $7,500.
(c)
Effective date0
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.
/
80 -
Section 5«
Limitation on Application of Section 402 (a)
and 403 (a), in the Case of Certain Contributions.
(a)
Amendment of section 402.— Section 402 (a)
of the code provides that, in general, distributions
from any employees1 trust described in section 401 (a)
which is exempt from tax under section 501 (a) are tax
able under section 72 (relating to annuities).
Section
402 (a) (2), however, provides for capital gains treat
ment for certain lump-sum distributions.
In the case of
a lump-sum distribution paid after December 31, 1969,
section 402 (a) (5) limits the amount of such distribu
tion that is subject to capital gains treatment.
Section 5 (a) of the bill would amend section 402
(a) of the code (relating to the taxability of a beneficiary
of an exempt trust) by adding new paragraphs (6) and (7)
which would limit the application of section 402 (a).
Section 5 (a) of the bill also would make a conforming
change to section 402 (a) (1) of the code to reflect proposed
sections 402 (a) (6) and (7).
Under proposed sections
402 (a) (6) and (7), a total distribution received from
a trust forming a part of a qualified pension, etc.,
plan may be excluded from gross income if it is contributed
by an employee within a specified period to a qualified
individual retirement account, another qualified trust or
a qualified annuity plan.
These provisions would, therefore,
allow a tax-free reinvestment, or "roll-over", of a
distribution.
Taxation of amounts "rolled-over" would
generally be deferred until the time such amounts are
distributed by the individual retirement account, trust,
or plan to which they were paid.
Proposed section 402 (a) (6)
Proposed section 402 (a) (6) would limit the applica
tion of section 402 (a) by providing that in the case of
an employees* trust described in section 401 (a), which
is exempt from tax under section 501 (a), if the total
distributions payable with respect to any employee are
paid to him within one taxable year of the employee on
account of his separation from the service other than
by reason of his death, such distribution
not to be
includible in gross income in such taxable year if,
not later than the 60th day after the close of the taxable
year, he contributes the entire amount otherwise includible
in his gross income to one or more qualified individual
retirement accounts described in section 408
(a).
Proposed section 402 (a) (6) is not to apply unless
the same property received in the total distribution
is contributed to the individual retirement account.
Secretary of the Treasury or his delegate would be
authorized to prescribe regulations to carry out the
purposes of paragraph (6).
The
82
Proposed section 402 (a) (7)
Proposed section 402 (a)‘ (7) (A) would limit the
application of section 402 (a) by providing that in the
case of an employees* trust described in section 401 (a),
which is exempt from tax under section 501 (a), if the
total distributions payable with respect to any employee
are paid to him within one taxable year of the employee
on account of his separation from the service other than
by reason of his death, such distribution is not to be
includible in gross income in such taxable year if, not
later than the 60th day after the close of such taxable
year, he contributes the entire amount otherwise includible
in his gross income to another employees* trust described
in section 401 (a), which is exempt from tax under sec
tion 501 (a), or contributes such amount for the purchase
of retirement annuities under an annuity plan which meets
the requirements of section 404 (a) (2),
if less than the
entire amount is contributed, section 402 (a) (7) (A)
will not apply and the entire amount (including both the
portion retained and the portion contributed) will be
includible in gross income.
Proposed section 402 (a) (7) (B) provides that proposed
subparagraph (7) (A) is not to apply to a distribution
paid to any distributee to the extent such distribution is
attributable.to contributions made by or on behalf of a
/ b
- 83 self-employed person.
Thus, a self-employed individual
could rr>t "roll-over" a lump-sum distribution^ from an
H.R. 10 plan to another H.R. 10 plan or to a corporate
plan.
Proposed section 402 (a) (7) (B) also provides
that proposed paragraph (7) is not to apply unless the
same property received in the total distribution is
contributed to the qualified plan.
It is anticipated
that regulations under proposed section 402 (a) (7) (B)
would provide rules for determining how much property
must be contributed where a distribution of property is
made and less than the entire amount of the distribution
is includible in gross income.
Proposed section 402 (a) (7) (C) provides that a
contribution made pursuant to proposed section 402 (a) (7)
(A) is generally to be treated as an employer contribution
made on the date contributed.
Thus, to the extent of a
contribution made pursuant to proposed section 402 (a) (7)
(A), a later lump-sum distribution under the qualified
plan to which such contribution was made would not be
eligible for capital gains treatment under section 402 (a)
(2) because it would be treated as an employer contribution
for purposes of section 402 (a) (5) (relating to limitation
on capital gains treatment).
Furthermore, in the case of
an employee-bontributory plan, this treatment would affect
the computation of the estate tax exclusion under section
2039 (c) and the gift tax exclusion under section 2517 (b).
84 In addition, the recipient plan would not be required
to maintain records as to contributions made by employers
to the previous plan.
Proposed section 402 (a) (7) (C) also provides that
a contribution made pursuant to proposed section 402 (a)
(7) (A) is to be treated as an employee contribution under
HI
certain code sections.
Thus, the employer's limit on
deductible contributions either to a qualified in
dividual retirement account or to a qualified plan is not
to be thereby reduced under section 219 (b) (2), as
proposed to be added by section 3 (a) of the bill.
Further,
under section 401 (a) (12), as proposed to be added by
section 2 (a) (2) of the bill, the employee's rights in
his accrued benefit derived from the amount contributed
by him pursuant to proposed section 402 (a) (7) (A) are
to be nonforfeitable (except in the case of death if so
provided by the plan).
Also, with respect to a contribution
made pursuant to proposed section 402 (a) (7) (A), no
amount would be deductible under section 404 of the code
nor includible in gross income under either section 409 (a),
as proposed to be added by section 7 (i) of the bill
(relating to inclusion of certain employer contributions
in gross income) or section 1379 (b) of the code
(relating to inclusion in gross income of excess contri
butions made on behalf of a shareholder-employee of an
electing small business corporation).
85
Proposed section 402 (a) (7) (D) would provide
authority for the Secretary or his delegate to issue
regulations to carry out the' purposes of
paragraph (7).
(b)
Amendment of section 403,— Section 5 (b) of
the bill would make amendments to section 403 (a) of the
code (relating to taxability of a beneficiary under a
qualified annuity plan) which correspond to the amend
ments which would be made by section 5 (a) of the bill
to section 402 (a) of the code (relating to taxability
of a beneficiary of an exempt trust).
86
(c)
Effective date«--Section 5 (c) of the bill
provides that the amendments proposed to be made by section 5 of the bill are to apply to taxable years ending
after the date of enactment of the bill.
Section 6♦
(a)
Prohibited Transactions«
Requirements for exemption from taxation for a
trust,forming part of a qualified plan,--Section 503
of the code provides that a trust forming a part of
a qualified pension,profit-sharing, or stock bonus plan
will be denied exemption from taxation if such trust
engages in certain prohibited transactions.
Generally,
under section 503 (b) of the code, a prohibited transaction
is a transaction, between the trust and the employer who
established or maintains the plan of which the trust is
a part,or a related person, in which the trust (1) makes
a loan without adequate security or a reasonable rate
of interest, (2) pays more than a reasonable
amount
of compensation, (3) makes services available on a
preferential basis, (4) makes a substantial purchase or
property for more than an adequate consideration, (5) sells
a substantial part of its property for less than an
adéquate consideration, or (6) engages in any other
transaction which results in a substantial diversion of
- 871its assets.
In the case of a qualified trust which is
part of a plan providing contributions or benefits for
owner-employees who control the trade or business (i.e., a
sole proprietor; or partners who own more than 50 percent
of the capital or income interest of a partnership) with
respect to which the plan is established, certain other
transactions are treated as prohibited transactions under
section 503 (g) of the code.
Under this provision, a
transaction in which the trust makes any loan, pays any
compensation, makes services available on a preferential
basis, or sells any property
to such owner-employees or
certain related persons is also a prohibited transaction.
Further, the purchase of any property from such owneremployees or persons is a prohibited transaction under
section 503 (g).
88
In the event of the commission of a prohibited trans
action, certain special tax benefits provided under the code
are denied to the trust, the employer and the employee
because the plan is thereafter disqualified and is no
longer exempt from taxation.
Thus, the trust is taxed
on income earned on its assets, the employer may deduct
contributions to the trust under section 404 (a) (5) of the
code only in the taxable year in which an amount attri
butable to the contribution is includible in the gross
income of employees participating in the plan and, under
sections 402 (b), 403 (c), and 83 of the code, the employee
is taxed on any contributions made on his behalf for his
first taxable year in which his rights are not subject to a
substantial risk of forfeiture.
Furthermore, any distributions
received by the employee will not be eligible for the
special averaging treatment or capital gains treatment
accorded total distributions from qualified plans.
Thus,
under present law, persons who gained no benefit from a
prohibited transaction may suffer adverse tax consequences
because of it.
Section 6 (a) of the bill, in order to eliminate
adverse consequences to innocent parties, would amend
section 503 of the code so that a trust forming part of a
qualified plan will not be denied exemption from taxation
if the trust engages in a prohibited transaction.
(b)
Excise taxes on prohibited transactions.—
Section 6 (b) of the bill would amend subtitle D of the
code (relating to miscellaneous excise taxes) by adding
|
89
thereto a new chapter 44 and a new section 4971.
Proposed section 4971 would impose an excise tax on the
amount involved in a prohibited transaction.
Proposed
section 4971 is similar to the self-dealing tax imposed by
section 4941 of the code with respect to private foundations.
Thus, under the bill, sanctions would be applied only against
persons participating in a prohibited transaction rather
than against plan participants and others who may in fact
have been injured by the prohibited transaction.
The
sanctions would not depend on whether or not the trust
benefits self-employed individuals who are owner-employees.
Proposed section 4971 (a)
Proposed section 4971 (a) imposes for each year (or
part thereof) in the taxable period (as defined in
proposed section 4971 (e) (2)) an excise tax equal to
5 percent of the amount involved (as defined in proposed
section 4971 (e) (3)) in a prohibited transaction (as
defined in proposed section 4971 (d)).
The tax imposed
by proposed section 4971 (a) would be payable by any
party in interest (as defined in proposed sec. 4971
(e) (1)) who participates in the prohibited transaction.
Proposed section 4971 (b)
Proposed section 4971 (b) imposes an excise tax
/
equal to 200 percent of the amount involved in a pro
hibited transaction if a tax is imposed under proposed
90
section 4971 (a) and the transaction is not corrected
within the correction period;(as defined in proposed
sec. 4971 (e) (5)).
The tax imposed by proposed
section 4971 (b) would be payable by any party in interest
who participated in the prohibited transaction.
Proposed section 4971 (c)
Proposed section 4971 (c) provides that, if more
than one person is liable for a tax imposed by proposed
section 4971 (a) or (b), with respect to any one prohibited
transaction^all such persons would be jointly and severally
liable for such tax.
Proposed section 4971 (d)
Proposed section 4971 (d) defines a prohibited
transaction as an act which is (1) described in sec
tion 14 (b) (2) of the Welfare and Pension Plans Dis
closure Act of 1958, and not excepted from the pro
hibitions of that provision by section 14 (c) of such
Act, and which is (2) committed by a fiduciary (as
defined in proposed sec. 4971 (e) (6)) for a trust
described in section 401 (a) or 408 (a) which is exempt
from tax under section 501 (a).
Under section 14 (b)
(2) of the Welfare and Pension Plans Disclosure; Act of
1958, as proposed to be amended by the Employee Benefits
Protection Act (S. 1557, 93rd Cong,), a fiduciary would
be prohibited from engaging in certain specified acts.
Unless excepted, the fiduciary would generally be pro
hibited from (1) leasing or selling property to or
from a party in interest, (2) acting adversely to the
fund, its participants or beneficiaries, (3) receiving
compensation from a party dealing with the fund, (4)
lending money or other assets of the fund to a party
in interest, (5) furnishing goods, services or facilities
to a party in interest, or (6) transferring any property
of the fund to, or for the use of, any party in interest.
Section 14 (c) of the Welfare and Pension Plans
Disclosure Act of 1958, as proposed to be amended by the
Employee Benefits Protection Act, (S. 1557, 93rd Cong.),
would expressly allow a fiduciary to engage in certain
transactions.
Generally, these excepted transactions would
permit a fiduciary (1) to receive benefits to which he is en
titled as a participant or beneficiary and to receive reason
able compensation for services rendered to the fund (with
certain exceptions), (2) under certain conditions, to
invest in employer securities aggregating no more than
10 percent of fund assets (except that such limit would
not apply in the case of a profit-sharing, stock bonus,
thrift or savings plan if the plan explicitly provided
for the investment in employer securities), (3) to
purchase or sell securities listed on a regulated
-92exchange from or to a party in interest, (4) to make
loans to plan participants or beneficiaries if such
loans are made on a non-discriminatory basis, and (5)
to take action pursuant to an authorization in the trust
instrument or other document governing the fund, provided
such action is consistent with the provisions of sec
tion 14 (b) of the Welfare and Pension Plans Disclosure
Act of 1958.
Thus, the proposed definition of a
prohibited transaction would be broader than the de
finition contained in section 503 (b) qr (g) of the code.
Further, with respect to qualified trusts, the proposed
definition of a prohibited transaction would be uniform
for purposes of the internal revenue laws administered
by the Treasury Department and the proposed fiduciary
standards to be administered by the Department of Labor.
Proposed section 4971 (e) (1)
Proposed section 4971 (e) (1) defines the term
"party in interest" as a person described in sec
tion 3 (m) of the Welfare and Pension Plans Disclosure
Act of 1958.
Under section 3 (m) of such Act as proposed
to b e .amended by the Employee Benefits Protection Act
(S.1557, 93rd Cong.), a party in interest would be de
fined as any administrator, officer, trustee, custodian,
counsel, or employee of an employee benefit plan, or a
person providing benefit plan services to any such plan;
93
an employer any of whose employees are covered
by such a plan or any person controlling, controlled
by, or under common control with, such employer, or
an officer, employee, or agent of such employer or
j
person; an employee organization having members
covered by the plan, or an officer, employee, or
agent of such employee organization; or a relative,
partner or joint venturer of any of the described persons.
Proposed section 4971 (e) (2)
Proposed section 4971 (e) (2) defines the term
"taxable period" as the period beginning with' the date
on which the prohibited transaction occurs and ending
on the earlier of the date of mailing of a notice of
deficiency pursuant to section 6212 with respect to the
tax to be imposed by this proposed section or the date
on which correction of the prohibited transaction is
completed.
Proposed section 4971 (e) (3)
Proposed section 4971 (e) (3) defines the term
"amount involved" as the greater of the amount of
money and the fair market value of the other property
given in a prohibited transaction or the amount of money
and the fair market value of the other property received
in a prohibited transaction.
In the case of the tax
94 which would be imposed by proposed section 4971 (a), the
fair market value of property would be determined as of
the date on which the prohibited transaction occurs.
In
the case of the tax which would be imposed by proposed sec
tion 4971 (b), the fair market value of property would be
the highest fair market value during the correction period.
If no amount is involved in a prohibited transaction, no
tax woul^d. be imposed under proposed section 4971 (a).
Proposed section 4971 (e) (4)
Proposed section 4971 (e) (4) defines the terms
’’correction" and "correct" as undoing a prohibited
transaction to the extent possible, but in any case
placing the trust in a financial position not worse
than that in which it would be if the prohibited
transaction had not occurred.
Proposed section 4971 (e) (5)
Proposed section 4971 (e) (5) defines the term
"correction period" as the period beginning with the
date on which a prohibited transaction occurs and
ending 90 days after the date of mailing of a notice
of deficiency with respect to the tax to be imposed
under proposed section 4971 (b), extended by any period
in which a deficiency cannot be assessed under sec
tion 6213 (a)*and any other period which the Secretary
of the Treasury or his delegate determines to be
reasonable and necessary to bring about correction of
the prohibited transaction.
Proposed section 4971 (e) (6)
Proposed section 4971 (e) (6) would define the
term "fiduciary" as including a person described in
section 3 (w) of the Welfare and Pension Plans Dis
closure Act of 1958, as proposed to be amended by the
Employee Benefits Protection Act (S. 1557, 93rd Cong.),
or in section 7701 (a) (6) of the code.
Section 3 (w)
of the Welfare and Pension Plans Disclosure Act of
1958, would define "fiduciary" as meaning any person who
exercises any power of control, management or disposition
with respect to any moneys or other property of an employee
benefit fund, or has authority or responsibility to do so.
Proposed section 4971 (f)
Proposed section 4971 (f) provides that the
Secretary of the Treasury or his delegate is to
prescribe such regulations as would be necessary to
carry out the provisions of the proposed section.
(c)
Conforming, clerical, etc., amendments.
Section 6 (c) of the bill would make a clerical
amendment to the table of chapters for subtitle D of
96
the code (relating to miscellaneous excise taxes)
to reflect proposed chapter 44, and would make conforming amend
ments to section 6161 (relating to extension of time
for paying tax), section 6201 (d) (relating to assessment
authority), section 6211 (relating to definition of a
deficiency), section 6212 (relating to notice of a
deficiency), section 6213 (relating to restrictions
applicable to deficiencies and petition to Tax Court),
section 6214 (relating to determinations by Tax Court),
section 6344 (relating to cross references), sec
tion 6501 (e) (3) (relating to limitations on assess
ment and collection), section 6503 (relating to suspension
of running of period of limitations), section 6512
(relating to limitations in case of petition to Tax
Court), section 6601 (d) (relating to interest on
underpayment, nonpayment, or extensions of time for
payment of tax), section 6653 (c) (relating to failure
to pay tax), section 6659 (b) (relating to applicable
rules), section 6676 (b) (relating to failure to supply
identifying numbers), section 6677 (b) (relating to
failure to file information returns with respect to certain
foreign trusts), section 6679 (b) (relating to failure to
file returns as to organization or reorganization of
foreign corporations and as to acquisition of their stock)
and section 7422 (g) (relating to civil actions for refunds).
""¡I
(d)
Effective date»— Section 6 (d) of the bill
provides that the amendments proposed to be made by
section 6 of the bill are to be effective on and after
the day after the date of enactment of the bill.
Section 7.
(a)
Miscellaneous Provisions.
Penalties applicable to forfeitures received
by owner-employees.
Section 72 (m) (5) (A) (i) of the
code currently describes amounts to which the penalty
imposed by section 72 (m) (5) (B) or (C) of the code is
applicable.
Generally, section 72 (m) (5) applies to
amounts received by an owner-employee before he attains
the age of 59-1/2 years for any reason other than his
becoming disabled.
Section 72 (m) applies only to the
extent attributable to contributions made on his behalf
while he was an owner-employee.
Section 7 (a) of the
bill would amend section 72 (m) (5) (A) (i) by adding
to the amounts described therein, premature distributions
attributable to forfeitures credited to an individual’s
account or applied for his benefit, while he was an owneremployee.
Thus, for this purpose, forfeitures would be
treated in the same manner as employer contributions.
Forfeitures may arise, although only from other selfemployed individuals, as a result of the application of
the proposed."rule, of 35M vesting standard under sec
tion 401 (d) (2) (A) of the code, as proposed to be amended
by section 2 (b) (1) of the bill.
98
(b)
Coverage and nondiscrimination requirements.—
Section 401 (a) (3) of the code provides two alternative
tests as to the number of employees who must be covered
by a plan (other than a plan benefiting an owner-employee)
if a trust forming part of the plan is to qualify under
the code.
Section 401 (a) (3) (A) of the code requires
that the plan benefit 70 percent or more of all-employees,
or 80 percent or more of all eligible employees if at
least 70 percent of all employees are eligible.
In making
this computation, certain short service, part-time and
seasonal employees may be excluded.
Section 401 (a) (3)
(B) of the code requires that the plan benefit such
employees as qualify under a classification which is not
discriminatory in favor of officers, shareholders,
supervisory employees, or highly compensated employees.
Section 7 (b) (1) of the bill would amend section 401
(a) (3) (A) to provide that, for purposes of satisfying
the percentage coverage requirement, employees who are
included in a unit of employees covered by an agreement
which the Secretary of the Treasury or his delegate finds
to be a collective bargaining agreement are to be excluded,
unless the agreement provides that the bargaining unit
employees are to be included in the plan.
See section
2 (b) of the bill which would make a similar amendment
with respect to plans which include self-employed indivi
duals who are owner-employees.
99
Section 7 (b) (2) of the bill would amend section
401 (a) (5) to provide that, for purposes of determining
whether a plan is discriminatory within the meaning of
paragraph (3) (B) or (4), there
are not to be taken into
account any employees who are included in a unit of
employees covered by a collective bargaining agreement,
if such agreement does not provide that such employees
are to be included in the plan.
No change is made with respect to the exclusion for
short service employees (employees who have been employed
not more than a minimum period, not in excess of 5 years),
part-time employees (employees who customarily work not
more than 20 hours in a week) or seasonal employees
(employees whose customary employment is for not more
than 5 months in a year).
However, the 5 year minimum
period under the exclusion for short service employees
would become less significant when a qualified plan is
required to satisfy the minimum eligibility requirements
under section 401 (a) (11), as proposed to be added by
section 2 (a) (2) of the bill.
It would retain significance
during the transitional period and, in the case of a plan,
other than an H,R, 10 plan, which
requires, as a
condition of participation, service in excess of 3 years
by an employee younger than age 30.
Proposed section 401 (a) (14), as proposed to be
added by section 2 (a) (2) of the bill, provides for
certain transitional periods during which the minimum
100eligibility requirements would not apply,
(c)
Plans benefiting self-employed individuals,—
Under present law the full and immediate vesting require
ment of section 401 (d) (2) (A) of the code prevents for
feitures in a plan which provides contributions or benefits
for employees some or all of whom are owner-employees.
Section 2 (b) (1) of the bill would amend section 401 (d)
(2) (A) to provide a "rule of 35" vesting standard.
Accordingly, forfeitures may arise as a result of the
operation of this proposed vesting standard.
Section 7 (c) of the bill would amend section 401
(c) of the code (relating to definitions and rules re
lating to self-employed individuals and owner-employees)
by adding a new paragraph (6).
Under proposed section 4dl
0
-
101-
(c) (6), a trust forming a part of a pension or
profit-sharing plan which provides contributions or
benefits for employees some or all or whom are employees
within the meaning of section 401 (c) (1) of the code
(i.e., self-employed individuals) is to constitute a
qualified trust only i£ under the plan, forfeitures
attributable to contributions made on behalf of an
employee other than an employee within the meaning of
section 401 (c) (1) (i.e., a common-law employee) may
not inure to the benefit of any individual who, at any
time during the period beginning with the taxable year
for which the contribution is made and ending with the
taxable year during which the forfeiture occurs, is a
self-employed individual.
Under present
law, a defined benefit pension plan
may cover a self-employed individual.
plan, however, a separate account
Under such a
consisting of con
tributions and gains, income, losses, and expenses must
be maintained for each self-employed individual to
assure that forfeitures do not inure to his benefit.
Proposed section 401 (c) (6) provides that, in the
case of a defined benefit pension plan, a separate
account or accounts are to be maintained with respect to
all participants under the plan who are not self-employed
-
102
-
individuals (i.e., common-law employees) and another
separate account or accounts are to be maintained with
respect to all participants under the plan who are selfemployed individuals#
Thus, a separate account would not
be required to be maintained with respect to each partici
pant, provided that an aggregate account is maintained
for common-law employees and a separate aggregate account
is maintained for self-employed individuals covered under
a plan.
Consequently, although the limitations on contri
butions on behalf of self-employed individuals would b©
separately computed on the basis of each such individual s
earned income covered by a plan, the benefits payable under
the plan with respect to a particular self-employed
individual would not be required to be determined by
reference to the separately computed contributions on
his behalf.
Under proposed section 401 (c) (6), if an individual
who was covered under a plan as a common-law employee
becomes covered under the plan as a self-employed in
dividual, the aggregate account for common-law employees
is not to be reduced and the aggregate account for selfemployed individuals is not to be increased by reason of
his change of status.
His benefits accrued as a common-
law employee, however, may be paid out of the common-law
employee accounts.
(d)
Trustee of a trust benefiting an owner-employee.^
Section 401 (d) (1) of the code provides that only a bank
may be the trustee of a trust benefiting an owner-employee.
Section 7 (d) of the bill would amend section 401 (d)
(1) of the code to provide that such a trust would be
qualified only if, in addition to satisfying the other
requirements for qualification, the assets thereof are
held by a bank or other person who demonstrates to the
satisfaction of the Secretary of the Treasury or his
delegate that the manner in which he will hold such assets
will be consistent with the requirements of section 401
of the code.
(e)
Employee contributions of owner-employees.—
Under section 401 (d) (4) (B) of the code, a plan will
not qualify under section 401 of the code if it permits
an owner-employee who has not attained age 59-1/2 or
become disabled to make any withdrawals, including
withdrawals of his nondeductible employee contributions.
(See Rev. Rul. 72-98, 1972-1 Cum. Bull. 113).
There is no
similar restriction with respect to employees who are
not owner-employees.
Section 7 (e) of the bill would eliminate this
restriction on withdrawals by owner-employees by amending
section 401 (d) (4) (B) to provide that the restriction
„
- 104 on withdrawals applies only to benefits in excess of
contributions made by an owner-employee as an employee.
Thus, withdrawal of contributions made by an owneremployee as an employee would be allowed under the same
circumstances as contributions made by any other employee.
See also section 3 (c) (1) of the bill, which would repeal
section 72 (m) (1) of the code relating to amounts
received before the annuity starting date.
(f)
Certain custodial accounts.--Section 401
(f) of the code (relating to certain custodial accounts)
currently treats a custodial account as a qualified
trust, and the custodian as trustee thereof, if (1)
the account would, except for the fact that it is not a
trust, constitute a qualified trust, (2) the custodian is
a bank, (3) the investments are made solely in stock of
regulated investment companies with respect to which
the employee is beneficial owner, or solely m
annuity,
endowment, or life insurance contracts issued by an
insurance company, (4) the shareholder of record of any
such stock is the custodian or its nominee, and (5) any
insurance contracts are held by the custodian until
distributed under the plan.
Section 7 (f) of the bill
would amend section 401 (f) of the code to provide that,
in addition to a bank, another person may be a custodian
if he demonstrates to the satisfaction of the Secretary
of the Treasury or his delegate that the manner in which
he will have custody of the assets will be consistent
with the requirements of section 401 of the code.
Fur
ther, the restriction placed upon investment of the
funds of the custodial account would be eliminated.
Section 401 (f) of the code would be amended so that
an arrangement similar to a custodial account or similar
to an annuity contract might be treated as a trust
constituting a qualified trust, if otherwise qualified.
It is contemplated that, in an appropriate case, a plan
similar, to a dividend reinvestment plan of a regulated
investment company might constitute a "similar arrangement
even though no certificates are issued, provided there is
an appropriate governing instrument for the plan.
(g)
Excess contributions.--Section 401 (e) (1)
(B) (ii) of the code provides that the amount of any
contribution made by an owner-employee (as an employee)
at a rate which exceeds the rate of contributions per
mitted to be made by employees other than owner-employees
is an "excess contribution".
Section 7 (g) of the bill
would amend section 401 (e) (1) (B) (ii) of the code
to make its provisions applicable only with respect to
a plan other than a defined benefit pension plan.
This
amendment would facilitate the establishment of defined
benefit pension plans by owner-employees because owneremployees could make non-deductible contributions (up to
106
the lesser of $7,500 or 10 per cent of earned income) in
order to finance nondiscriminatory benefits.
(h)
Amendments to section 404 (a) of the code.—
Generally, section 404 of the code allows a deduction
for contributions of an employer to or under a qualified
plan, and for compensation paid under a plan of deferred
compensation.
Generally, under section 404 (a) (1) (A) and (B)
of the code, deductible contributions paid to a
qualified pension trust are limited to (1) 5 percent
of the compensation otherwise paid or accrued during the
taxable year to all employees under the plan, plus (2)
the excess (if any) of the ’’level cost” under the plan
for the taxable year over 5 percent of such compensation.
Alternatively, section 404 (a) (1) (C) limits deductible
contributions made to a qualified pension plan to
contributions determined under a ’’normal cost” method.
Provision is also made under section 404 (a) (1) (C) for a
deduction with respect to contributions for past service.
Thus, under present law, deductible contributions in
excess of ’’level cost” or ’’normal cost” may be made so
long as they do not exceed 5 percent of compensation.
Section 7 (h) (1) of the bill would repeal section
404 (a) (1) (A) of the code which provides the 5 percent
limitation.
Thus, deductible contributions under a
qualified pension plan would be limited under either the
’’level cost” method or the ’’normal cost” method under
section 404 (a) (1) (B) or (C), respectively.
107
Section 7 (h) (2) of the bill would amend sections
404 (a) (1) (B) and (C) of the code (relating to deduc
tible contributions under the ,?level cost" method and to
deductible contributions under the "normal cost"
method, respectively) to conform them to the proposed
repeal of section 404 (a) (1) (A) of the code.
Section 7 (h) (3) of the bill would amend section
404 (a) (1) of the code to conform that section
to the proposed amendment of section 401 (a) (7) of the
code by section 2 (a) (1) of the bill.
Section 7 (h) (3)
of the bill would add a new sentence at the end of section
404 (a) (1) to provide that the limitations under section
404 (a) (1) (B) and (C) (as proposed to be amended by
sec. 7 (h) of the bill) would not apply with
respect to the amount of a contribution made to or under
a pension plan to the extent such contribution does not
108
exceed the minimum funding standard described in section
401 (a) (7), as proposed to be added by section 2 (a)
(1) of the bill.
Section 7 (h) (4) of the bill would amend section
404 (a) (6) of the code (relating to taxpayers on the
accrual basis).
Under section 404 (a) (6), for purposes
of section 404 (a) (1) (relating to pension plans), 404
(a) (2) (relating to employees* annuities), and 404 (a) (3)
(relating to stock bonus and profit-sharing plans),
a taxpayer on the accrual basis is deemed to have made
a payment on the last day of the year of accrual if the
payment is on account of that year and is made not later
than the time when the return for that year is filed.
Proposed section.404 (a) (6) would eliminate the require
ment of establishing an accrual and would extend this
treatment to cash basis taxpayers by providing that for
purposes of section 404 (a) (1), 404 (a) (2), and 404 (a)
(3) of the code, a taxpayer is to be deemed to have made a
payment on the last day of the preceding taxable year if
the payment is on account of such preceding taxable year
and is made not later than the time prescribed by law for
filing the return for such preceding taxable year (including
extensions thereof).
This permits a cash basis taxpayer
to compute the applicable limits on the maximum deductible
contribution
during the taxable year immediately following
the year to which the contribution relates.
O
109
Section 7 (h) (5) of the bill would amend section
404 (a) (7) of the code (relating to the limit of
deduction) to allow deductions with respect to amounts
contributed to meet the minimum funding standard under
section 401 (a) (7), as amended, by section 2 (a) (1)
of the bill.
Section 7 (h) (5) of the bill also amends
section 404 (a) (7) by reducing the amount deductible
as a carryover from 30 percent to 25 percent of compensation.
(i)
Inclusion of certain employer contributions in
gross income.— Section 7 (i) of the bill would add a
new section 409 to the code, which is similar in concept
to section 1379 of the code (relating to certain qualified
plans of electing small business corporations).
Proposed section 409 (a)
Proposed section 409 (a) provides that, notwith
standing the provisions of section 402 of the code (re
lating to taxability of beneficiaries of employees* trusts),
section 403 (relating to taxation of employee annuities),
or section 405 (relating to taxability of beneficiaries
under qualified bond purchase plans), an individual is to
include in gross income, for his taxable year in which or
with which the taxable year of his employer ends, an amount
equal to the excess of the amount of the contributions made
on his behalf (reduced by any amount includible in gross
income under sec. 1379 (b) (1) with respect to such
110
contributions) by the employer during the taxable
year of the employer (including amounts deemed to be
paid during such year under sec. 404 (a) (6) of the
code) to or under a money purchase pension plan (in
cluding a "target benefit" plan) which satisfies the
requirements of section 401 (a), 404 (a) (2) or 405
(a), over 20 percent of such individual’s compensation
otherwise paid or accrued by him from such employer
during the employer’s taxable year, whether or not his rights
in such excess contribution are forfeitable.
In any taxable
year of an individual in which he is covered under two or
more money purchase pension plans maintained by an
employer, the amount includible in gross income would
be the amount by which the total of such contributions
exceeds 20 percent of the compensation received or
accrued by such individual during the taxable year
of his employer.
Proposed section 409 (b)
Proposed section 409 (b) provides that any amount
included in the gross income of an individual under
proposed section 409 (a) would be treated as consideration
for the contract contributed by the individual for
purposes of section 72 of the code (relating to annuities).
Accordingly, any amount included in the gross income of
the individual would be treated as a contribution made by
him for purposes of sections 2039 (c) (relating to
exemption for certain annuities) and 2517 (relating to
certain annuities under qualified plans).
However, such
amounts would be treated as employer contributions for
purposes of qualification under section 401 of the code.
Proposed section 409 (c)
Proposed section 409 (c) provides that if amounts
are included in the gross income of an individual under
proposed section 409 (a), and the rights of such
individual (or his beneficiaries) under the plan
terminate before payments under the plan which are
excluded from gross income equal the amounts included
in gross income under proposed section 409 (a), then
the individual is allowed as a deduction, for the taxable
year in which such rights terminate, an amount equal to
the excess of the amounts included in gross income under
proposed section 409 (a) over such payments.
Proposed section 409 (d)(1)
Proposed section 409 (d) (1) provides that subsection (a)
would not apply for a taxable year of an employee if at all
times during the employee’s taxable year in which or with
which the taxable yea: of the employer ends, under the money
purchase pension plans maintained by the employer
112
(considering all such plans as a single plan) the rate
at which employer contributions are to be made with
respect to employee compensation (as defined under
the plan) does not exceed 20 percent.
Thus, for example,
if contributions are made with respect to an employee
at the beginning of his taxable year at a rate which
does not exceed 20 percent of his anticipated annual
compensation determined under the plan, no amount would
be includible in the employee’s gross income under proposed
section 409 (d).
This result would obtain even though,
because of the employee’s separation from the service
during the year, the contributions exceed 20 percent
of the employee’s actual compensation paid or accrued for
the employer’s taxable year ending with or within the
employee’s taxable year.
If any employee is covered under
two or more qualified money purchase pension plans
maintained by an employer, the rate of employer contribu
tions thereunder for each employee is to be determined as
if the plans constituted a single plan, by computing m
aggregate rate of contributions.
In such a case, the 20
percent limitation provided by proposed section 409 (d) (1)
is to be applied to this aggregate rate.
- 113 -
Proposed section 409 (d) (2)
Proposed section 409 (d) (2) provides that subsection
(a) would not apply to contributions made to or under
a money purchase pension plan on behalf of an individual
who is an employee within the meaning of section 401 (c)
(1) of the code (i.e., a self-employed individual) with
respect to such plan.
Deductible contributions made on
behalf of such an individual are subject to the limitations
of section 404 (e) of the code (as proposed to be amended
by sec. 4 (a) (1) of the bill).
As amended, the deductible
limit would be the lesser of $7,500 or 15 percent of
earned income.
Consequently, the proposed 20 percent
limitation upon excludable contributions made to or under
a qualified money*purchase pension plan is not made appli
cable to contributions made on behalf of a self-employed
individual.
114 Proposed section 409 (e)
Proposed section 409 (e) would authorize the
Secretary of the Treasury or his delegate to prescribe
such forms and regulations as may be necessary to carry
out the purposes of section 409, including forms on which
employers may be required to furnish needful information
to their employees.
Such forms would be furnished to
employees at such time as the Secretary of the Treasury
or his delegate may by regulations prescribe.
Section
6690 (as proposed to be added by sec. 7 (j) of the bill)
would prescribe assessable civil penalties for an employer s
failure to furnish information to his employees as required
under this section
(j)
Penalty for failure to furnish information.—
Section 7 (j) of the bill would amend subchapter B of
chapter 68 by adding a new section 6690, relating to
reports by employers which would be required by section
219 (g) of the code (as proposed to be added by sec.
3 |(a): of the bill) or section 409 (e) of the code
(as proposed to be added by section 7 (i) of the bill).
Reports by employers"-proposed section 6690
Proposed section 6690 of the code would provide an
assessable penalty for failure to furnish certain informa
tion.
The usual deficiency procedures prescribed by the
code would not apply in respect of the assessment of such
a penalty.
115
Civil penalty— proposed section 6690 (a)
Proposed section 6690 (a) provides that if any person,
who is required by regulations prescribed under section
219 (g) of the code (relating to retirement savings, as
proposed to be added by sec. 3 (a) of the bill) or
section 409 (e) of the code (relating to inclusion of
certain employer contributions in gross income, as
proposed to be added by sec. 7 (i) of the bill) to
furnish information to an employee, fails to comply with
such requirement at the time prescribed by such regula
tions, such person is to pay a penalty of $10 for each
such failure unless it is shown that such failure is due
to reasonable cause.
Deficiency procedures —
proposed section 6690 (b)
Proposed section 6690 (b) provides that Subchapter B
of chapter 63 (relating to deficiency procedures for
income, estate, gift and certain excise taxes) is not to
apply in respect of the assessment or collection of any
penalty imposed by section 6690 (a).
(k)
Net operating loss.--Under present law, section
172 (d) (4) (D) of the code (relating to net operating
loss modifications) provides that in computing a net
operating loss, no deduction is allowed to a self-employed
individual to the extent that the deduction allowed under
section 404 or 405 (c) of the code together with all
other nonbusiness deductions exceeds nonbusiness
income.
Section 7 (k) of the bill would amend section
116
172 (d)(4) of the code by adding a new subparagraph (E)
which would impose the same treatment as to the deduction
allowed to individuals under section 219 of the code (as
proposed to be added by sec. 3 (a) of the bill).
(j^)
Certain retroactive changes.--
Under present law, section 401 (b) of the code
(relating to certain retroactive changes in plans)
allows retroactive, remedial amendments to be adopted
by a newly established plan to satisfy certain require
ments of section 401 (a) of the code (relating to qualified
pension, etc., plans).
Specifically, these requirements
are those of paragraph (3) (relating to coverage), para
graph (4) (relating to discrimination in contributions
of benefits), paragraph (5) (relating to discrimination
in coverage, and discrimination in contributions and
benefits), and paragraph (6) (relating to coverage) of
section 401 (a) of the code.
Under section 401 (b),
the retroactive amendments must be adopted by the fifteenth
day of the third month following the close of the taxable
year of the employer.
Proposed section 401 (b) of the code would permit
retroactive, remedial amendments of a plan regardless
of whether such failure was precipitated by establish
ment of a new plan or an amendment to an existing plan.
- 117 Proposed section 401 (b) of the code would also
extend the time permitted to adopt a retroactive, remedial
amendment to the time for filing of the return of the
employer for the taxable year in which the plan or
amendment was put into effect (including extensions
thereof) or such later time as the Secretary of the
Treasury or his delegate may designate.
It is anticipated that regulations would provide
for extension of the period for reasonable cause, such
as the filing of a bona fide request for a determination by
the Secretary of the Treasury or his delegate with respect
to the plan or amendment.
Section 7 (J/) (2) of the bill would make amendments
to section 1379 (a) of the code (relating to certain
qualified pension, etc., plans) which correspond to
amendments which would be made by section 7 (i) (1)
of the bill to section 401 (b) of the code (relating
to certain retroactive changes is plans).
(m)
Conforming and clerical amendments.--
A conforming amendment would be made by section 7 (m)
(1) of the bill to section 62 of the code (relating to
definition of adjusted gross income).
118
Clerical amendments would be made by section 7 (m)
(2) of the bill to the table of sections for part I of
subchapter D of chapter 1 of the code and to the table
of sections for subchapter B of chapter 68.
Section 7
(m) (2) would also redesignate section 6687 of the code
(as added by section 1 (c) of Public Law 92-606 (86 Stat.
1494)), as section 6688.
(n)
Effective dates.— Section 7 (n) of the bill
provides that the amendments proposed to be made by
section 7 of the bill (other than the amendment proposed
to be made by section 7 (i) of the bill) are to be
effective on and after the day after the date of enactment
of the bill.
The amendment proposed to be made by section
7 (i) of the bill is to apply with respect to taxable
years of an employer beginning after December 31, 1973.
Proposed Technical Revisions
of S. 1631 (93rd Cong.)
As introduced April 18, 1973
Page 2 .
1. On line 4, after "provision" insert ", the
reference is to a section or other provision".
2. On line 11, after "paragraph," insert "except
in the case of a plan established and maintained by
the United States, a state or political subdivision
thereof, or a corporation which is an instrumentality
of the United States, a state or political subdivision
thereof,".
3.
year".
On line 20, after "interest" insert "for such
Page 4.
1. On line 2, strike out "or" and insert in lieu
thereof "including".
2. On line 7, strike out "greater" and insert in
lieu thereof "less".
Page 5 .
On line 2, strike out "or" and insert in lieu thereof
"including".
Page 6 .
1, On line 11, strike out "earnings during the 12"
and insert in lieu thereof "average covered earnings
during the 60".
2. On line 15. strike out "or" and insert in lieu
thereof "including,".
Page 7.
i
On line 23, strike out "gains" and insert in lieu
thereof "expenses, gains,".
Page 8.
1. On line 5. after "such contributions" insert
"(less withdrawals)".
2. On line 6, after "employer" insert "(less with
drawals)".
'-Cfci
-
2
-
Page 9.
On line 4, strike out "insert” and insert in lieu
thereof "interest".
Page 11«
On line 19, after "plan" insert "year".
Page 12«
On line 25, strike out "to" and insert in lieu
thereof "in"«
Page 13«
1. On line 3, strike out "and",
2. Strike out line 18 and insert in lieu thereof
,M(3) The plan benefits— ".
Page 14«
1. . On line 8, after "year" insert "and does not
include any employee who is included in a unit of
employees covered by an agreement which the Secretary
or his delegate finds to be a collective bargaining
agreement, if such agreement does not provide that such
employee is to be included in the plan"«
2. On line 19, after "(10)," insert "of" and after
"(6), and" insert "of"«
Page 15.
On line 25, strike out "and (c)" and insert in lieu
thereof ", (c), and (h)".
Page 18.
1« On line 20, strike out "tion with respect" and
insert in lieu thereof "tion for a taxable year with
respect".
2.
On line 22, after "years" insert "before the end
of such year".
Page 19.
1.
2.
On line 22, strike out the quotation mark.
After line 22, insert the following:
"» (g) Regulations.--The Secretary or his delegate
is authorized to prescribe such forms and regulations
as may be necessary to carry out the purposes of this
3
section, including forms on which employers may be
required to furnish needful information to employees.
Such forms shall be furnished to employees at such
time as the Secretary or his delegate may by regulations
prescribe,
"* (h) Special Limitation for 1973,--For taxable
years ending before January 1, 1974, the amount allowable
as a deduction under subsection (a) shall not exceed 50
percent of the limitation determined under subsection (b).*"
Page 21.
1. On line
thereof "by".
2. On line
custody of,".
3 0 On line
4. On line
8, strike out "in" and insert in lieu
9, strike out "trust by, or in the
12, strike out "or have".
13, strike out "custody of".
Page 22.
On line 9, strike out "spouse)" and insert in
lieu thereof "spouse),".
Page 23.
1. Strike out lines 1 through 4 and insert in
lieu thereof the following:
"constituting a qualified individual retirement
account if such arrangement would, except for the
fact that it is not a trust, constitute a qualified
individual retirement account under this subsection.
Paragraph (6) shall not apply if distribution".
2. Strike out lines 9 through 16 and insert in
lieu thereof the following:
"' (1) Excess contributions.— If all or
a portion of the contributions paid by an indivi
dual during any taxable year to a qualified
individual retirement account are not deductible
under section 219 (other than by reason of sec
tion 219 (c)), under regulations prescribed by
the Secretary or his delegate, such contributions
or portion thereof shall be treated in the same
manner as an excess contribution within the meaning
of section 401 (e) (1), and for this purpose,
section 401 (e) (2) and (3) shall apply as if such
individual were an owner-employee."
Page 240
1.
2*
On line 4, strike out "or" at the end thereof.
On line 5, strike out "having custody of".
4
Page 25.
1.
Strike out lines 3 through 6.
2. On line 7, strike out "(4)" and insert in lieu
thereof "(3)".
3. On line 23, after "219" insert "(other than
by reason of section 219 (c))".
Page 26.
1.
On line 1, after "distributed" insert "to him".*
2.
After line 2, insert the following:
"' (f) Special Rule.--Solely for the purpose of
determining whether section 72 (p; (2) (C) applies to
a contribution under subsection (a) (2) or to an amount
paid or distributed under subsection (d) (2), the re
quirement of section 72 (p) (1) that the amount paid or
distributed be received before age 59-1/2 shall not apply."
3. ' Strike out line 3 and insert in lieu thereof the
following:
"(g)
Cross References.--
"(1) For excise tax on a qualified individual
retirement account, see section 4960.
"(2) For additional tax on certain distributions
from a qualified individual retirement account, see
section 72 (p)."
Page 27.
On line 13, strike out "(B)" and insert in lieu
thereof "(A)".
Page 29.
On line 20, strike out ”13" and insert in lieu
thereof "31".
Page 33.
1.
Strike out lines 1 through 9.
2. On line 10, strike out "(5)" and insert in
lieu thereof "(4)".
5
3.
GD
After line 25, insert the following:
M (5) Basis for assets held for
plan contracts,— Section 801 (g) (7)
of assets held for qualified pension
amended by striking out 'pr (D)* and
thereof 1(D), or (E)'."
qualified pension
(relating to basis
plan contracts) is
inserting in lieu
Page 34.
1. On line 19, strike out "after *72 (m)" and insert
in lieu thereof "after *72 (n)".
2.
Strike out lines 20 through 26.
Page 35.
Strike out lines 1 through 26.
Page 36.
1.
Strike out lines 1 and 2.
2. On line 14, strike out "aply" and insert in lieu
thereof "apply".
3. On line 20, strike out "Indivduals" and insert
in lieu thereof "Individuals".
Page 37.
1.
On line 9, strike out "or 10 percent".
2.
On line 10, strike out "or 15 percent".
Page 39.
1. On line 7, strike out "within 60 days" and insert
in lieu thereof "no later than the 60th day".
2. On line 8, after "him, such" insert "otherwise
includible".
Page 40.
1. On line 2, strike out "within 60 days" and insert
in lieu thereof "no later than the 60th day".
2.
On line 3, after "such" insert "otherwise includible"
Page 41.
1. on line 23, strike out "payee" and insert in
lieu thereof "employee".
6
2. On line 24, strike out "payee" and insert in
lieu thereof "employee".
Page 42,
1. On line 3, strike out "within 60 days" and insert
in lieu thereof "no later than the 60th day".
2.
On line 5, after Psuch" insert "otherwise includible".
Page 43.
1.
On line 1, strike out "within".
2. On line 2, strike out "60 days" and insert in lieu
thereof "no later than the 60th day".
3. On line 3, strike out "him, such" and insert in
lieu thereof "him, such otherwise includible".
Page 49.
Strike out lines 10, 11, and 12 and insert in lieu
thereof the following:
"(iii) by striking out ‘chapter 42
tax' in subsection (c) and inserting in
lieu thereof ‘chapter 42 or 44 tax*."
Page 52.
1.
On line 1, after "inserting" insert "in".
2. On line 7, strike out "therof" and insert in lieu
thereof "thereof".
3. On line 20, strike out "an dinserting" and insert
in lieu thereof "and inserting".
Page 53.
1. Strike out lines 8 through 11 and insert in lieu
thereof the following:
"(b) Amendment of Section 401 (a).— Section
401 (a) (relating to requirements for qualification)
is amended—
"(1) by striking out paragraph (3) (A) and
inserting in lieu thereof:".
2. On line 19, strike out "which" and insert in lieu
thereof", if such agreement".
3.
On line 21, after "eluded" insert "in the plan".
7
Page 54.
1. On line 3, strike out "or.' .** and insert in lieu
thereof "or*, and”.
20
After line 3, insert the following:
"(2) by inserting after the second
sentence of paragraph (5) the following
new sentence:
" ’The determination of whether a plan
is discriminatory within the meaning
of paragraph (3) (B) or (4) shall be
made without taking into account any
employees who are included in a unit
of employees covered by a collective
bargaining agreement, if such agree
ment does not provide that such employees
are to be included in thè plan.1**
Page 55.
1. On line 17, strike out "in trust bv, or in
custody of," and insert in lieu thereof "by*.
2.
On line 20, strike out "or have custody of".
Page 56.
10 After line 4, insert the following:
"(e) Employee Contributions of Owner-Employees.—
Section 40 i (d) (4) (B) (relating to additional require
ments for qualification of trusts and plans benefiting
owner-employees) is amended by inserting *in excess of
contributions made by an owner-employee as an employee
after benefits*."
2. On line 5, strike out "(e)" and insert in lieu
thereof "(f)"0
3 0 On line 9, after "Accounts" insert "or Other
Arrangement s".
4.
On line 10, after "account" insert "or an arrange
ment similar to a custodial account or similer to an annuity
contract".
8
5.
On line 12, after "account" insert "or arrangement".
6.
On line 14, after "section;" insert "and",
7. On line 15, strike out "custodian is" and insert
in lieu thereof "assets thereof are held by"0
8. On line 18, strike out "have custody of" and insert
in lieu thereof ‘’hold".
9. On line 19, strike out "section; and" and insert
in lieu thereof "section.".
10o Strike out lines 20 and 21.
11.
ment".
On line 22, after "account" insert "or arrange
12. On line 24, strike out "custodian of such account"
and insert in lieu thereof "person holding the assets of
such account or arrangement".
Page 57.
1. On line 1, strike out "(f)" and insert in lieu
thereof "(g)".
2. On line 10, strike out "(g)" and insert in lieu
thereof "(h)"<>
Page 60.
On line 20, strike out "(h)" and insert in lieu
thereof "(i)".
Page 61.
Strike out lines 12 through 16, and insert in lieu
thereof the following:
"*(1) the amount of the contributions made
on his behalf (reduced by any amount includible
in gross income under section 1379 (b) (1)
with respect to such contributions) by the employer
during the taxable year of the employer (including
amounts deemed to be paid during such year under
section 404 (a) (6)) to or under a money purchase
pension plan which satisfies the requirements of
section 401 (a), 404 (a) (2), or 405 (a) during
such taxable year of the employer, over •
Page 62o
1.
On line 20, strike out the quotation mark.
2.
After line 20, insert the following:
*** (d) Limitations.--(1) Subsection (a) shall
not apply for a taxable year of an employee if, at all
times during the employer*s taxable year referred to
in subsection (a), under the money purchase pension
plans maintained by the employer (considering all such
plans as a single plan) the rate at which employer
contributions are to be made with respect to employee
compensation does not exceed 20 percent.
,M (2) Subsection (a) shall not apply to contri
butions made to or under a money purchase pension plan
on behalf of an individual who is an employee within
the meaning of section 401 (c) (1) with respect to
such plan.
"* (e) Regulations.— The Secretary or his delegate
is authorized to prescribe such forms and regulations as
may be necessary to carry out the purposes of this sec
tion, including forms on which employers may be required
to furnish needful information to employees. Such forms
shall be furnished to employees at such time as the
Secretary or his delegate may by regulations prescribe.*
**(j) Penalty for Failure to Furnish Information.—
Subchapter B of chapter 68 (relating to assessable
penalties) is amended by inserting at the end thereof
the following new section:
***SEC.
6690.
REPORTS BY EMPLOYERS.
M *(a) Civil Penalty.— If any person who is required,
by regulations prescribed under section 219 (g) or 409
(e), to furnish information to an employee fails to comply
with such requirement at the time prescribed by such
regulations, such person shall pay a penalty of $10 for
each such failure, unless it is shown that such failure is
due to reasonable cause.
n *(b) Deficiency Procedures Not to Apply.--Subchapter
B of chapter 63 (relating to deficiency procedures for
income, estate, gift and certain excise taxes) shall not
apply in respect of the assessment or collection of any
penalty imposed by subsection (a).*
10
"(k) Net Operating Loss.--Section 172 (d)(4)
(relating to net operating loss modifications) is
amended by-1(a )
striking out 'and' at the end of
subparagraph (C),
"(2) striking out 'such individual.' in subparagraph (D) and inserting in lieu thereof 'such
individual; and', and
"(3) by adding immediately after subparagraph
(D) the following new subparagraph (E):
"'(E) any deductions allowed under section
219 shall not be treated as attributable to the
trade or business of an individual.*"
nr
11
"(j^)
Retroactive Changes in Plan.--
"(1) Amendment of Section 401.— Section 401
(relating to qualified pension, etc., plans) is
amended by striking out subsection (b) and insert
ing in lieu thereof:
,M(b) Certain Retroactive Changes in Plan.— A stock
bonus, pension, profit-sharing, or annuity plan shall be
considered as satisfying the requirements of subsection
(a) for the period beginning with the date on which it
was put into effect, or for the period beginning with
the date on which there was put into effect any amendment
which caused the plan to fail to satisfy such require
ments, and ending with the time prescribed by law for
filing the return of the employer for his taxable year
in which such plan or amendment was put into effect
(including extensions thereof) or such later time as the
Secretary or his delegate may designate, if all pro
visions, of the plan which are necessary to satisfy such
requirements are in effect by the end of such period
and have been made effective for all purposes for the
whole of such period.*
"(2) Amendment of Section 1379.— Section 1379
(relating to certain qualified pension, etc., plans)
is amended by striking out the last sentence of
subsection (a) and inserting in lieu thereof:
"'A plan shall be considered as satisfying the requirement
of this subsection for the period beginning with the first
day of a taxable year and ending with the time pre
scribed by law for filing the return of the employer for
such taxable year (including extensions thereof) or such
later time as the Secretary or his delegate may designate,
if all the provisions of the plan which are necessary to
satisfy this requirement are in effect by the end of
such period and have been made effective for all purposes
for the whole of such period.*.M
12
3.
On line 21. strike out "(i)" and insert in
lieu thereof "(m)".
Page 63,
1. Strike out lines 5, 6, and 7, and insert in
lieu thereof the following:
M(2)
Clerical amendments.—
"(A) The table of sections for part I of
subchapter D of chapter 1 of subtitle A is
amended by inserting at the end thereof the
following new item:
1,1 Sec. 409.
Inclusion of certain employer
contributions in gross income.*
M(B) The table of sections for subchapter
B of chapter 68 is amended-"(i) by striking out the penultimate
item and inserting in lieu thereof:
"'Sec. 6688.
Assessable penalties with
respect to information required
to be furnished under section
7654.*
"(ii) by inserting at the end thereof
the following new item:
'"Sec. 6690.
Reports by employers.'
"(C)- Subchapter B of chapter 68 is amended
by striking out the heading of the section
immediately preceding section 6689 and
inserting in lieu thereof:
'"SEC. 6688.
ASSESSABLE PENALTIES WITH RESPECT TO INFORMATION
REQUIRED TO BE FURNISHED UNDER SECTION 7654.'".
*
2. On line 8, strike out "(j)" and insert in lieu
thereof "(n)".
3. On line 9, strike out "(h)" and insert in lieu
thereof "(i)".
4. On line 12, strike out "(h)" and insert in
lieu thereof "(i)".
GPO
865**69 1
¡1
Department of th e fR E A S U R Y
ASHINGTON/O.C. 20220
T E L E P H O N E W 04-2041
1
July 9, 1973
FOR IMMEDIATE REILEASE
TREASURY ISSUES DUMPING FINDING WITH RESPECT TO
SYNTHETIC METHIONINE FROM JAPAN________
Assistant Secretary of the Treasury Edward L. Morgan
announced today that he has issued a dumping finding with
respect to synthetic methionine from Japan. This product
is used as a feed additive to promote weight response and
vigor in poultry. The finding will be published in the
Federal Register of July 10, 1973.
On February 15, 1973, the Treasury Department deter
mined that synthetic methionine from Japan was being sold,
or likely to be sold, at less than fair value within the
meaning of the Antidumping Act, 1921, as amended.
On May 14, 1973, the Tariff Commission advised the
Secretary of the Treasury that an industry in the United
States was being injured by reason of the importation of
synthetic methionine from Japan sold, or likely to be sold,
at less than fair value within the meaning of the Antidumping
Act, 1921, as amended.
After these two determinations, the finding of dumping
automatically fòllows as the final administrative requirement
in antidumping investigations.
During the period of January through September 1972,
imports of synthetic methionine from Japan were valued at
approximately $3 million.
# # #
Department of th e T R E A S U R Y
SHINGTimf D C 20220
I T E L E P H O N E W 04 2041
EMBARGOED FOR RELEASE UNTIL
10:00 A.M., EDT, TUESDAY, JULY 10, 1973
TESTIMONY BY THE HONORABLE WILLIAM E. SIMON
DEPUTY SECRETARY OF THE TREASURY
BEFORE THE
HOUSE COMMITTEE ON INTERSTATE AND FOREIGN COMMERCE
TUESDAY, JULY 10, 1973, 10:00 A.M., E.D.T.
Mr, Chairman and Members of the Committee:
I
am delighted to appear before you to discuss possible
shortages of gasoline and other petroleum products.
Today,
I would like to focus on the problems of supplying crude oil
and petroleum products to independent refiners and marketers
throughout the United States.
The Growth of Demand for Energy
The first thing to understand is that the demand for
energy has been increasing continually while supply has not.
With six percent of the world's population, we are consuming
33 percent of the world's energy.
Furthermore, the demand
for energy in this country is growing at an annual rate of
about four percent and, by 1990, our energy needs will be
double those of 1970.
Much of this increase in demand will
be reflected in an increase in the demand for oil, which
has grown, in part, because there has been a shift away
S -251
2
from coal to oil and, in part, because of the inability to
obtain natural gas, an alternative to oil.
Domestic
demand for oil has increased from 15.1 million barrels a
day in 1971 to 18 million this year and will increase to
about 21 million in 1975 and to approximately 25 million
in 1980.
Oil and gas now account for about 65 percent of
the world energy consumption and 77 percent of U.S. energy
consumption.
The demand for gasoline in the United States has also
been growing faster in the past several years than at any
other time in recent history.
Since 1968, gasoline demand
has risen at an annual rate of about five percent.
During
the past two years the rate of increase has been about
seven percent per year.
Part of this rise in demand can
be explained by growth in the population, growth in the
economy, and the increasing number of cars on the road.
There are close to 90 million cars in use in the United
States today, a gain over last year of more than four per
cent.
Demand has also risen significantly because of the
many power-using devices added to cars.
These include
automatic transmissions, air conditioning, various safety
features, and the changes made in automobiles since 1970
in compliance with EPA regulations issued under the mandate
of the Clean Air Act.
Producers' compliance with these
3
regulations has led to substantially reduced engine
efficiency.
As more vehicles come on the road equipped
with safety, emission control, and physical comfort devices,
average mileage per gallon will decrease further.
An
automobile that once got 14 miles per gallon, now gets
eight or nine miles.
Because new automobiles are not getting the gasoline
mileage obtained by their counterparts five and ten years
ago, and because we are driving more, gasoline consumption
has risen.
We are using 300,000 barrels per day more
gasoline this year than last year.
Failure to Build Refineries
While gasoline demand has been growing at about seven
percent per year, the volume of crude oil processed by
refiners has risen only three percent per year.
We are
now extremely short of refinery capacity and, at the
time of the President's energy message, which announced
the new oil import program, no new refineries were under
construction.
had ceased.
Furthermore, expansion of existing refineries
Growth in the capacity of the industry had
come to an end because the industry found that it was more
profitable to invest abroad than in the United States.
There were a number of reasons for this:
(1)
Environmental restrictions have made it increasingly difficult to find acceptable sites for new
4
refineries in this country.
Because of resistance
to refinery siting, it may take three years to
obtain site approvals today, in addition to the
three years required for construction.
Yet,
modern refineries can be designed so that they
do not significantly pollute the environment.
(2)
U.S. oil import restrictions, in the past, created
uncertainty as to whether new domestic refineries
could obtain sufficient imported supplies of crude
oil. As long as the government set import quotas
on a year-to-year and, in some cases, on a monthto-month basis, no company was assured of the
stability of supply necessary to encourage domestic
refinery construction.
This impediment ended on
April 18 when we terminated volumetric quotas on
oil imports.
(3)
The tax and other economic benefits available to
refiners in the Caribbean and in Canada have been
more lucrative than similar provisions available
in the United States.
Deepwater ports in the
Caribbean and Canada have also permitted savings
in the use of very large crude carriers.
For all these reasons, U.S. refinery construction has
been standing still while U.S. demand for refinery products
has been increasing.
Our growing lack of refined products
5
was driven home to the public late in 1972 with shortages
of distillates and other heating fuels in various parts of
the country.
Refineries had to increase their percentage
of distillate production and, correspondingly, reduce gaso
line production.
Gasoline production this year, however, is higher than
it has ever been.
Cumulative production for the first six
months of 1973 was 69 million barrels greater than for the
comparable period last year.
The result has been that our
stocks of gasoline, as of June 29, were only two million
barrels below the comparable date a year ago.
marked improvement from earlier this year.
This is a
On April 6,
for example, gasoline stocks were 25 million below the year
before.
It is also important to note that distillate fuel oil
stocks are much improved.
As of June 29, they totaled more
than 139 million barrels as compared with 129 million barrels
a year ago.
However, inventories were abnormally low in 1972.
In 1971, distillate fuel oil stocks were 149 million barrels
as of June 29, or about seven percent above what they are now.
Also, there is evidence that the stocks of the independents
have declined, and this concerns us today.
One reason that there has been such a substantial increase
in the demand for distillates is that air quality standards
have required their use.
oil with residual oil.
Many utilities are mixing No. 2 fuel
Some are actually switching to No. 2
6
fuel oil altogether in an effort to meet these standards.
This is imposing an enormous strain on our productive
capability and is making it difficult, especially for inde
pendent marketers of fuel oil, to obtain needed supplies
of home heating oil.
The Problems of the Independent Oil Companies
With this demand-supply picture in mind, I would like
to turn now to the problems faced by the independent segment
of the petroleum industry.
The independent refiners and
marketers, especially, are confronted by related but distinct
problems.
The refiners face crude oil shortages; the marketers,
gasoline shortages.
To understand how these problems developed, it is
important to realize that, until the early 1970's, we had
surplus crude oil production capacity in the United States.
This enabled independent refiners to buy crude oil and build
refineries to supply, among others, independent jobbers,
marketers, and other wholesale customers.
There was also
a surplus of gasoline and other products being produced by
the major oil companies.
Independent marketers took
advantage of this surplus and opened thousands of gasoline
stations to sell gasoline purchased in the spot market.
By efficient servicing of consumers, these marketers were
able to sell gasoline for a few cents a gallon less than
<ty
7
the major oil companies.
These independents have had a
healthy influence on the petroleum industry by giving
consumers a greater choice between price and service.
8
J . O S I
O
'
%
v ...
•i
: • •1 :
,k. • <t } t
They have made it possible for consumers to buy gasoline
at lower prices.
The gasoline shortage has hit these independents
hardest.
In the first place, independent refineries
can no longer get adequate supplies of crude oil.
They
used to obtain domestic crude oil by exchanging their
import licenses with the major oil companies.
The major
companies used the import licenses to import cheaper foreign
crude for their own use, while providing the independent
refiners with domestic crude oil.
In addition, the so-called
"Sliding Scale" method of allocating import licenses under
the old system gave smaller refineries more than a
proportionate share of the licenses.
ijSifit 8i ox laifa s,* •
■■ All this has changed during the last two years.
Quoted prices of foreign crude oil are now equal to or higher
than prices of American crude sold in the same markets.
Thefe is.,a worldwide shortage of low-sulfur or "sweet" crude.
ssrxd ^od
oil companies have had no economic
incentive to trade their domestic sweet crude production
for imported crude obtained by moans of independents' import
tickets.
iio x d x a o Q
It is estimated that only 40 percent of the u.S.
0 113 :
8
refineries are equipped to handle sour crude or to convert
high-sulfur residual oil to low-sulfur residual oil.
Further, because of local air quality standards, plants
that are designed for refining high-sulfur crude are
compelled to use low-sulfur crude.
The result is that the
independent refineries, particularly those in the midContinent, cannot get the sweet crude they need and are
operating at less than full capacity.
Independent gasoline marketers are also in a difficult
position.
The wholesale market for gasoline has become
very tight and many of the independents find it impossible
to purchase gasoline wholesale.
Hundreds of independent
gasoline stations across the country have closed down.
Those that can obtain gasoline abroad, find it available
only at much higher prices.
This hurts them competitively
because their main selling point with the public is that
they can underprice the major oil companies.
In the face of these problems, we have gone to great
length to help protect the independents.
Our basic objective
has been to balance the need to preserve the independent
n rsin i Iuesi s sA
segment of the petroleum industry with the desire to create
a vigorous domestic industry through incentives for construction
of new refineries in the United States and for exploration
for new reserves of crude oil.
As such, we have taken the
following steps to help strengthen the short-term position
of the independent refiners and marketers, enabling them
to establish themselves on a more enduring basis.
9
l|
Under the new Mandatory Oil Import Program, we
honored outstanding import licenses free of license fee.
Because the independents hold a large share of these
licenses, this provides some value to their tickets where
none existed previously.
The independents will be able to
import oil at lower cost than the majors.
As a result, the
independents should now have an improved competitive position
in world markets.
2.
To provide greater value to the independents *
tickets, we suspended existing tariffs.
Had we not done
this, the independents* ticket value would have been lower.
The only other way to create value under the new program
was to have the consumer pay substantially higher prices.
3.
In the past, the Oil Import Appeals Board (OIAB)
would not distribute import licenses in cases of hardship
until September of each year.
These licenses were, by and
large, distributed to the independent refiners and marketers.
Early this year, the OIAB began to allocate tickets immediately
upon application.
allocation.
It had soon disbursed its entire 1973
Then, on March 23, 1973, the President issued
a Proclamation granting unlimited allocations to the Oil
Import Appeals Board in an effort to make more crude oil and
product available to both the independents and the Nation.
Finally, on April 18, in another Proclamation, the President
removed volumetric controls altogether.
10
The OIAB has now been granted unlimited ability to
authorize fee-exempt import licenses, and has been given
the specific responsibility of helping the independent
refiners and marketers through the period of transition
in which they now find themselves.
Major oil companies
may also appeal to the Oil Import Appeals Board, but must
demonstrate their inability to obtain import licenses by
exchange from among those already distributed by the
government or their willingness to supply established
independent marketers and refiners with the same proportion
of crude oil or products supplied in 1972,
4.
The government has also been allocating its
"royalty oil" to independent refineries in need.
Under
the terms of relatively recent lease sales, the government
can collect some of its royalties in cash or in a share of
the oil produced on leased lands.
In choosing the latter
course, it is, in effect, diverting crude oil from the
major to the independent refineries.
The Interior Department estimates that the amount of
royalty oil accruing from all federal lands is about 225,000
barrels a day.
The Secretary of the Interior has decided
to take as much of that royalty oil as possible in kind and
to distribute it to independent refiners.
Although the
independent refiners are a small segment of the industry,
their contribution is significant and the additional supplies
of royalty oil are important to their survival.
ft*
11
The Voluntary Allocation Program
Despite these actions, however, we realized that
immediate measures had to be taken to assure adequate
supplies of crude oil and refined products to independent
refiners and marketers.
The Congress enacted the Economic
Stabilization Act with a provision granting the authority
to allocate petroleum and petroleum products.
In order
to exercise this authority and adopt a mandatory allocation
program, however, public hearings had to be held.
We
felt that the American people could not wait that long.
Therefore, we acted immediately and adopted the voluntary
allocation program.
This program relies on voluntary
compliance with guidelines set by the Government.
Our
purpose was to apportion, as evenly as possible, any
curtailment of consumption that resulted from shortages
of gasoline and distillate.
We adopted priorities for
farming, food processing, other essential industries,
health and emergency services, and state and local govern
ments •
Compliance
We have found a widespread willingness on the part of
the industry to participate in some form of allocation
program.
There are many companies who are genuinely trying
to cooperate, although particular features of the program
pose difficulties and, for this reason, different allocation
12
schemes have been adopted.
One measure of the degree of
compliance by the industry is provided by a recent survey
conducted by the National Federation of Independent Business.
Of the 2,471 gasoline retailers replying, 2,091 indicated
that their suppliers had complied with the guidelines.
However, the program is confronted with some legal
and supply difficulties.
Some companies report that they
cannot fully comply with the guidelines because prior
contractual arrangements legally commit them to provide
fixed amounts of crude or product to certain customers.
Others simply do not have enough crude or products to
meet the base period requirements.
Speed and Effectiveness of Assistance
The administration of the program is moving forward.
Since it was announced on May 10, 1973, we have expanded
the program's staff to 77.
In addition, several agencies
of the government have been most helpful in responding to
our needs, but their work loads limit the amount of assistance
they can provide.
We still have considerable staffing, space,
and computer problems to resolve.
However, we feel that these
problems can be remedied in the very near future by further
augmentation of our staff and by revising the allocation
program's guidelines in ways that would limit the amount of
workload.
13
Preparations For Mandatory Program And
Options Being Considered
At the same time that we put this voluntary program
into place, we also began to prepare for a mandatory fuel
allocation program to be adopted if necessary.
The measures
we have taken to this end include the publication in the
Federal Register on May 21, a notice of public hearings
regarding allocation of crude oil and refinery products and
the holding of hearings so that the public has an opportunity
to express itself on how the program is working and modifica
tions that must be made in it.
Much has been learned from the administration of the
program and from comments by the companies involved.
On
June 11-14, 1973, we held public hearings to evaluate the
operation of the program.
We received oral or written testimony from over 100
witnesses, representing a broad cross-section of industry,
state and local government and consumer interests, as well
as U.S. Senators and Representatives.
We asked them to
address themselves to two basic issues:
First, based on the experience of the past weeks, how
can the voluntary program be improved and made more
workable.
Second, do we need a mandatory program; and if so, how
should it be structured.
14
In general, we learned from these hearings that the
voluntary allocation program was working well in some
instances and working only partially in others.
cases it was not working at all.
In some
Criticism ranged from
insufficient voluntary compliance, to reports of businesses
actually closing their doors because of no available
supplies of gasoline or fuel oil.
In some cases, even
priority consumers were still being denied supplies.
We learned that the voluntary program was working
much better for refined products than for crude oil.
Perhaps most important, we learned that we do need an
improved allocation program, possibly with some mandatory
features, in order to supply equitably the fuel needs of
all segments of the industry.
Interestingly, many major
oil companies spoke out in favor of a mandatory program,
in order to invoke force majeure clauses in their existina
contracts, while some independents preferred to retain
the existing voluntary program.
Many witnesses noted the need to have greater flexi
bility built into the program.
Many wanted a more current
base period, while some wanted the government to allow
companies to develop their own base periods and allocation
programs subject to government approval.
Several stressed
that consideration should be given to persons who had
supply contracts or were established customers.
Others
stressed that special consideration be given to persons who
15
did not have contracts and were spot buyers.
Many industry
representatives and state and local officials emphasized
the needs of particular segments of the country or economy
and urged that the priority list be expanded to include
these needs.
Finally, many major oil companies noted that,
although many of their sales were to dealers selling under
their brand name, most of these dealers were actually local
independent businessmen and, as such, should be given equal
consideration with other independent marketers.
In light of these reactions, we are now reviewing a
number of alternative allocation programs with John Love,
the newly appointed Director of the President’s Energy
Policy Office.
(1)
These options include:
Retaining a voluntary allocation program with
suggested revisions?
(2)
Adopting a partially mandatory-partially
voluntary program; or
(3)
Adopting a fully mandatory program covering
all segments of the industry.
No final decision has yet been made by the Administration
as to which alternative should be adopted or whether the
program should be mandatory or voluntary.
16
In considering a possible mandatory program, there
are some general objectives that we would want to pursue:
(1)
It should cover crude oil, petroleum products,
and liquified petroleum gases.
(2)
To the extent possible, the program should be
self-administering, although all covered
companies must be required to participate.
(3)
To the extent possible, the program should
not conflict with existing business practices
or contractual arrangements.
(4)
Separate programs should be developed for crude
oil and petroleum products and liquified petroleum
gases.
In addition, most options consider priority allocations
by the Office of Oil and Gas to various end users of finished
products and liquified petroleum gases deemed to be essential
to our Nation.
Included among these priority users are
independent marketers and distributors, as well as other
wholesale customers, supplying priority customers unable
to obtain the products they require through the regular
allocation program.
Further, any mandatory program must preempt various state
and local allocation programs.
Also, any mandatory program
should allow force majeure provisions in contracts to become
applicable, thus terminating, where necessary, existing
contractual obligations.
In addition, in no case should a
supplier be forced to sell crude oil or product below cost,
in this way avoiding a possible legal challenge that the
program is confiscatory.
Finally, there should be sanctions
for those companies refusing to comply with any such
program as well as incentives for those companies agreeing
UfCrJo* I S v S ‘ i f t f f v T
i' 1' ¿t
*' * 1
1 3 J,
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'// a »(
fr*
t.
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to comply with it.
H.R. 8089
Let me now turn to H.R. 8089 which proposes an
alternative mandatory allocation program.
There are several significant differences between
H.R. 8089, the Independent Oil Marketers Supply Act of
1973, and our current thinking about any allocation program.
First of all, we believe there is need for a comprehensive
and systematic program to insure an equitable and adequate
distribution of petroleum, petroleum products, and liquified
petroleum gases to all segments of the industry.
H.R. 8089
prohibits suppliers from unfairly discriminating against
independent marketers only, but it does not provide a
mechanism for insuring adequate supplies when legitimate
distribution and allocation problems arise.
Second, H.R. 8089 does not provide for the allocation
of crude oil among refiners.
Nor does it prohibit major
producers from curtailing supplies of crude oil to independent
refiners.
We feel it is necessary to insure that all
refiners will operate at more or less the same percentage
18
of capacity as the average refiner in a particular area
of the country.
Third, all refiners should participate in any
allocation program for refined products.
The provisions
of H.R. 8089 only apply to refiners whose total average
refinery input exceeds 30,000 barrels per day.
Fourth, any allocation program should include propane,
butane, jet fuel, and other distillates, which H.R. 8089
does not.
We think this broader approach is needed,
particularly because shortages of propane are extremely
serious and pose, perhaps, the greatest threat to agri
culture this coming fall.
Fifth, H.R. 8089 adopts a base period from October Ï,
1971, through September 30, 1972.
in the voluntary program.
This is the period used
It has caused some problems
in administering the voluntary allocation program and,
for this reason, we are inclined to change it.
19
Sixth, H.R. 8089 does not specifically provide
for the administration and enforcement of its provisions.
In order to insure compliance, there must be a way to
requite submitting reports and records by the companies.
Seventh, because any Administration program would be
established under authority granted to the President, and
through the publication of regulations, it is subject to
amendment as a result of changing conditions and experience
in administering the program.
Congressional overview is
maintained through the Economic Stabilization Act.
does not provide this flexibility.
H.R. 8089
There are no provisions
for the promulgation of regulations to implement the intent
of the bill or to provide guidance for relevant parties.
Eighth, H.R. 8089 does not contain force majeure or
preemption provisions.
Such provisions are necessary to
create an efficiently administered program free from litiga
tion arising from pre-existing contractual arrangements
and obstruction from local regulations.
20
Let me emphasize that the essential difference between
H.R. 8089 and any program we are considering is that the
former is more limited in scope and does not provide for
full allocation.
We are seeking to protect independent
refiners and marketers as well as to insure an adequate
supply of crude oil and refined products to all priority
consumers.
Basically what we want is a program that will
assure more equitable distribution of oil and, at the same
time, will be administratively feasible.
Conclusion
Under a stronger allocation program, I believe we can
distribute our limited supplies equitably and minimize
inconvenience to the consumer.
However, it is important
to realize that no allocation program can increase supply
and,in the long-run, our needs can only be satisfied by
carrying out the energy policies presented by the President.
On April 18, 1973, the President presented a broad
and comprehensive energy message which I see as a blueprint
for action that must and will be taken.
The basic goal
underlying these policies is to assure adequate supplies of
energy in the short run, while also reducing our dependence
upon foreign supplies in the long run by fostering a vigorous
domestic energy industry.
Further, last week, the President announced a $10 billion
energy research and development program.
This program
s h o u ld
21
speed up the development of clean energy products, including
synthetic oil and gas from coal, stack scrubbers which will
permit us to use more coal without polluting the atmosphere,
nuclear power, and research into other sources of energy such
as geothermal, solar, and oil shale.
This program will start
to produce results in the early 1980's as these new energy
sources begin to supply a significant part of our energy needs.
We have also initiated a program to triple the acreage
on the outer continental shelf made available for oil and gas
exploration.
We have asked the Congress for authority to
build the badly needed Alaska pipeline which when completed,
will result in more than two million barrels of oil a day by
1980.
This is equal to one-third of current oil imports*
As important, approval of the Alaskan pipeline will encourage
additional development of Alaskan fields.
Projections indicate
that the North Slope has potential reserves of as much as
80 billion barrels.
Thus, eventually, we could achieve an
Alaska production of between five and six million barrels a
day.
Finally, the President has called on all consumers —
the
Government, industry and the general public to conserve energy.
We have established an Office of Energy Conservation in the
Department of the Interior to spearhead this program.
The
Federal Government is taking the lead by an across-the-board
seven percent cut-back in its energy utilization.
conservation measures are absolutely essential.
Effective
22
In short, we are undertaking long-term measures which,
I think, will assure an adequate supply and because of this,
equitable allocation of crude oil and products.
It is in
this effort that we really need the assistance of Congress.
I
am basically opposed, as I am sure are most of the
Members of this Committee, to the needless injection of
government regulation and control into any industry,
particularly where there is every evidence of intense
and healthy competition.
I dc not want to take any step
which would discourage private initiative.
At the same
time, we are,in a situation in which we must make decisions
on priorities.
We cannot afford to let crops go unplanted
or unharvested for lack of diesel fuel for our tractors.
We cannot let our vital industries close down.
endanger public health or safety.
We cannot
And, finally, we should
not let the independent segment of the oil industry, which
provides competition in the marketplace, be forced to shut
down.
Thank you.
o 0 o
Departmentof th e T R E A S U R Y
Washington,d.c: 20220
telephone
W04-204i
ItENTXOW: FINANCIAL EDITOR
pR RELEASE 6:30
P.M.
July 9, 1973
RESULTS OF TREASURY'S WEEKLY BILL OFFERING
The Treasury Department announced that the tenders for two series of Treasury
ills, one series to be an additional issue of the bills dated April- 12, 1973
, and
he other series to be dated July 12, 1973
, which were invited on July 3, 1973,
[ere opened at the Federal Reserve Banks today. Tenders were invited for $2,500,000,000
r thereabouts, of 91-day bills and for $ 1,700,000,000, or thereabouts, of
1 8 2 -day
ills. The details of the two series are as follows:
IANGE OF ACCEPTED
OMPETITIVE BIDS:
High
Low
Average
91-day Treasury bills
maturing October 11, 1973
Approx. Equiv.
Price
Annual Rate
97.996
97.976
97.980
7.928$
8.007$
7.991$
1/
18S-day Treasury bills
maturing January 10, 1974
Approx. Equiv.
Price
Annual Rate
95.968
95.937
95.946
7.975$
8.037$
8.019$
1/
4?$ of the amount of 91-day bills bid for at the low price was accepted
17$ of the amount of 182 -day bills bid for at the low price was accepted
pAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District
Boston
Hew York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
Louis
Minneapolis
HAnsas City
Dallas
Ban Francisco
TOTALS
■
Applied For
$
66,690,000
3,273,940,000
23,215,000
38.010.000
31.505.000
25,505,000
197,670,000
68,045,000
14,140,000
40,300,000
43,080,000
152,380,000
Accepted
$
32,525,000
2,091,740,000
23,015,000
34.315.000
23.335.000
24,655,000
103,235,000
34,210,000
11,660,000
31,365,000
20,555,000
69,505,000
Applied For
$
19,905,000
2,565,340,000
10,555,000
69.880.000
22.400.000
26,320,000
190,800,000
79,140,000
5,665,000
44,020,000
39,065,000
141,135,000
Accepted______
I
9,305,000
1,387,580,000
10.555.000
28.825.000
19.150.000
21.500.000
82.340.000
24.065.000
5,665,000
28.910.000
16.565.000
66.125.000
$3,974,480,000
$2,500,115,000 a/
$3,214,225,000
$1,700,585,000
y
eludes $355,260,000 noncompetitive tenders accepted at the average price*of 97.980
c^Uc^es $258,345,000 noncompetitive tenders accepted at the average price of 95.946
■ ,
rates are on a bank discount basis. The equivalent coupon issue yields are
for the 91-day bills, and 8.47$ for the 182 -day bills.
I
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 $4,200,000,000, or thereabouts, for
cash and in exchange for Treasury bills maturing
of $4,304,315,000
July 19, 1973,
in the amount
as follows :
91-day bills (to maturity date) to t e issued
July 19, 1973,
in the amount
of $2,500,000,000, or thereabouts, representing an additional amount of bills
dated
April 19, 1973, and to mature
October 18, 1973 (CUSIP No. 912793 RZl),
originally issued in the amount of $1,800,340,000,
the additional and original
bills to be freely interchangeable.
182-day bills, for $1,700,000,000, or thereabouts, to be dated July 19, 1973,
and to mature January 17, 1974
(CUSIP No. 912793 SUI ).
The bills of both series will be issued on a discount basis under competitive
and noncompetitive bidding as hereinafter provided, and at maturity their face ’
amount will be payable without interest.
They will be issued in bearer form only,
and in denominations of $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 clos
ing hour, one-thirty p.m., Eastern Daylight Saving time, Monday, July 16, 1973.
Tenders will not be received at the Treasury Department, Washington.
roust be for a minimum of $10,000.
$5,000.
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.
roay not be used.
Fractions
It is urged that tenders be made on the printed forms and for
warded in the special envelopes which will be supplied by Federal Reserve Banks
or Branches on application therefor.
Banking institutions generally may submit tenders for account of customers
provided the names of the customers are set forth in such tenders.
Others than
Banking institutions will not be permitted to submit tenders except for their own
(OVER)
-
account.
2-
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 a xe
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 thos
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 accept
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 19, 1973,
in cash or other immediately available funds or in a like face amount of Treasury
bills maturing July 19, 1973.
treatment.
Cash and exchange tenders will receive equal
Cash adjustments will be made for differences between the par value ofj
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 accni
when the bills are sold, redeemed or otherwise disposed of, and the bills are ex
cluded 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 pai<l
for the bills, whether on original issue or on subsequent purchase, and the amourntj
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 issu
Copies of the circular may be obtained from any Federal Reserve Bank or Branch.
Secretary of the Treasury, George P. Shultz announced today
he was cancelling his projected trip to Tokyo on Friday.
The Secretary*s decision was necessitated by his preoccupation
with assisting the President in shaping Phase IV of the Economic
Stabilization Program.
Secretary Shultz will be represented in meetings with the
Japanese Cabinet next week by Paul A. Volcker, Under Secretary
for Monetary Affairs.
Department of th e JH f f lS U R Y
feSHINGTON,
B.C. 20210
T E IE P H Q N E W 04-2041
FOR IMMEDIATE RELEASE
July 16, 1973
TREASURY ANNOUNCES TENTATIVE NEGATIVE DETERMINATION
______ON POLYPROPYLENE STRAPPING FROM JAPAN________
Assistant Secretary of the Treasury Edward L. Morgan
announced today a tentative determination that polypropylene
strapping from Japan is not being, nor is likely to be, sold
at less than fair value within the meaning of the Antidumping
Act of 1921, as amended. This product is a non-metallic
plastic industrial strapping which is a substitute for steel
or rope as a banding or strapping material.
Notice of this determination will be published in the
Federal Register of July 17, 1973.
Information gathered in this investigation showed that
the price to buyers in the home market was lower than the
price to buyers in the United States. Appraisement of this
merchandise from Japan has not been withheld.
During the year beginning June 1, 1972, imports of
polypropylene strapping from Japan were valued at roughly
$515,000.
# # #
( * 1
THE SECRETARY OF THE TREASURY
W A SH IN G TO N
JUL
1 61973
Dear Mr. Presidents
There is transmitted herewith a draft bill, "To amend
the Tariff Act of 1930 to grant additional arrest authority
to officers of the Customs Service."
Under existing law, a Customs officer may make arrests
without warrant for violations of the narcotic drug or
marihuana laws under section 7607 of the Internal Revenue
Code and for violations of the Customs or navigation laws
or any law respecting the revenue under section 581 of the
Tariff Act of 1930, as amended, where the violation is
committed in his presence or where he has reason to believe
that the person to be arrested has committed or is committing
such violation.
Customs officers are now engaged in Federal enforcement
programs not heretofore within the sphere of Customs activity
and such limited authority has proved to be clearly inadequate.
For example, Customs officers in the cargo security program
frequently observe violations of non-Customs laws, such as
thefts from interstate shipments (18 U.S.C. 659) . Fugitive
felons and persons in possession of stolen property have been
detected entering the United States by Customs inspectors,
who now have access to the National Crime Information Center.
In both of these examples, Customs officers must call upon
other law enforcement officers to make the arrest. In remote
border areas and late at night such law enforcement officers
may be unavailable. In addition, Customs officers engaged
in protecting Federal property and employees, and those in
the Federal air security program have had to be sworn in as
deputy United States marshals to enable them to carry out
their duties. This procedure has proved to be inefficient,
cumbersome and inadequate. Moreover, this limited arrest
authority is inconsistent with the arrest authority granted
to other enforcement personnel of the Treasury Department,
specifically, Internal Revenue Service enforcement officers
* and Secret Service agents. The Department of Justice, under
whose law Customs officers have been designated United States
marshals, has requested this Department to seek expanded
arrest authority for Customs officers to obviate the problem.
2
The proposed bill would grant such additional arrest
authority to officers of the Customs as defined in section
401(i) of the Tariff Act of 1930, as amended (19 U.S.C.
1401(i)). Section 7607 of Internal Revenue Code of 1954 now
(1) authorizes Customs officers to carry firearms, execute
and serve search and arrest warrants, and serve subpoenas
and summons; and (2) provide arrest authority for violations
of narcotic drug or marihuana laws. Proposed new section
589 of the Tariff Act of 1930 would incorporate the authority
described in (1) above under the Customs provisions and, in
addition, would authorize an officer in the performance of
his duties as an officer of the Customs Service to make arrests
without warrant for any offense against the United States
committed in his presence, or for any felony cognizable under
the laws of the United States if he has reasonable grounds
to believe that the person to be arrested has committed, or
is committing, such felony. The proposed bill would make
the retention of the authority in section 7607 of the
Internal Revenue Code unnecessary and it would be repealed.
Such expanded authority parallels the authority now
possessed by internal revenue agents under section 7608 of
the Internal Revenue Code. It is intended to be used by a
Customs officer only in performance of his duties as a
Customs officer and would not extend the arrest authority
to such officer when acting as a private citizen.
It will be appreciated if you will lay the enclosed draft
bill before the Senate. A similar proposal has been trans
mitted to the House of Representatives.
The Department has been advised by the Office of
Management and Budget that there is no objection from the
standpoint of the Administration's program to the submission
of this proposed legislation to the Congress.
Sincerely yours
George P. Shultz
The Honorable
Spiro T . Agnew
President of the Senate
Washington, D. C. 20510
Enclosure
;
jj/^j
A BILL
.
•'
\
v j, »{pa ■
.v
To amend the Tariff Act of 1930 to grant additional arrest authority
to officers of the Customs Service.
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled. That the Tariff
Act of 1930 is amended by adding a new section 589 to read:
"Sec. 589.
Additional Authority for Bureau of Customs.
An officer of the Customs, as defined in section 401(1) of this
Act, as amended, may (1) carry firearms, execute and serve search i
warrants and arrest warrants, and serve subpoenas and summonses
Issued under the authority of the United States; and (2) make arrests
without warrant for any offense against the United States committed
in his presence, or for any felony cognizable under the laws of the
United States if he has reasonable grounds to believe that the person
to be arrested has committed, or is committing such a felony."
Sec. 2.
Section 7607 of the Internal Revenue Code of 1954
(26 U.S.C. 7607) is repealed.
Department o f t h e J R E A S U l t Y
IASHIN6T0N, D.C. 20220
T E LE P H O N E W 04-204Ì
(
ÌTENTION:
FINANCIAL EDITOR
RELEASE 6:30 P.M.
July 16, 1973
RESULTS OF TREASURY’S WEEKLY BILL OFFERING
The Treasury Department announced that the tenders for t-wo series of Treasury
Ills, one series to he an additional issue of the hills dated
April 19, 1973
, and
fe other series to be dated
July 19, 1973
, which were invited on July 10, 1973,
bre opened at the Federal Reserve Banks today. Tenders were invited for $2,500,000,000
r thereabouts, of 91-day bills and for $1,700,000,000, or thereabouts, of
182-day
Ills. The details of the two series are as follows:
ETGE. OF ACCEPTED
MPETITIVE BIDS:
High
Low
Average
91-day Treasury bills
maturing October 18, 1973
Approx. Equiv.
Price
Annual Rate
98.003
97.983
97.986
a/
7.900$
7.979$
7.967$
182-day Treasury bills
maturing January 17, 1974
Approx. Equiv.
Price
Annual Rate
1/
95.983 b/
95.940
95.944
7.946$
8.031$
8.023$
1/
a/ Excepting one tender of $25,000; b/ Excepting two tenders totaling $1,670,000
amoun^ of 91 -day bills bid for at the low price was accepted
38$ of the amount of 182 -day bills bid for at the low price was accepted
fCAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS;
d is tric t
Boston
pew York
Philadelphia
Cleveland
[Richmond
pianta
fhicago
|t. Louis
Minneapolis
fkisas City
Pallas
¡an Francisco
TOTALS
Applied For
? 34,315,000
3,531,485,000
44.485.000
41.430.000
25.650.000
23.235.000
231.195.000
39.445.000
16.960.000
50.940.000
40.695.000
193.170.000
Accepted
?
24,315,000
2,148,125,000
24.485.000
41.430.000
22.660.000
21.405.000
72.515.000
31.445.000
8,910,000
37.600.000
18.195.000
49.190.000
$4,273,005,000
$2,500,275,000
oj
Applied For
$
20,375,000
2,764,185,000
13.495.000
78.685.000
20.125.000
23.965.000
186.715.000
36.710.000
17.950.000
42.060.000
38.425.000
187.040.000
Accepted
$
9,875,000
1,369,670,000
13.495.000
48.685.000
18.925.000
21.215.000
45.605.000
18.610.000
7,710,000
31.870.000
15.925.000
99.255.000
$3,429,730,000
$1,700,820,000 d/
^eludes $ 334,285,000 noncompetitive tenders accepted at the average price 1of 97.986
c udes $268,190,000 noncompetitive tenders accepted at the average price of 95.944
10 pj5® rates are on a bank discount basis. The equivalent coupon issue yields are
| ’ $ for the 9 1 -day bills, and 8.48$ for the 182-day bills.
Department o / th e fR E A S U R Y
SHINGTON, D.C. 20220
TELEPHONE W04-2041
I
FOR IMMEDIATE RELEASE
July 17, 1973
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 $ 4,200,000,000, or thereabouts, for
cash and in exchange for Treasury bills maturing
of $4,299,725,000
July 26, 1973,
in the amount
as follows:
91-day bills (to maturity date) to be issued July 26, 1973,
in the amount
of $2,500,000,000, or thereabouts, representing an additional amount of bills
dated April 26, 1973,
and to mature October 25, 1973
originally issued in the amount of $1,799,345,000,
(CUSIP No. 912793 SA5)
the additional and original
bills to be freely interchangeable.
182-day bills, for $1,700,000,000, or thereabouts, to be dated July 26, 1973,
and. to mature January 24, 1974
(CUSIP No.. 912793
SV9).
The bills of both series will be issued on a discount basis under competitive
I
noncompetitive bidding as hereinafter provided, and at maturity their face
amount will be payable without interest.
They will be issued in bearer form only,
and in denominations of $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 clos-
I ing hour,
one-thirty p.m., Eastern Daylight Saving time, Monday, July 23, 1973.
I Tenders will not be received at the Treasury Department, Washington.
Imust be for a minimum of $10,000.
[$5,000.
Each tender
Tenders over $10,000 must be in multiples of
In the case of competitive tenders the price offered must be expressed
[°n the basis of 100, with not more than three decimals, e.g., 99.925.
■may not be used.
Fractions
It is urged that tenders be made on the printed forms and for-
Iwarded in the special envelopes which will be supplied by Federal Reserve Banks
|°r 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
inking institutions will not be permitted to submit tenders except for their own
(OVER)
-
accoimt.
2-
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
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 accepted
in full at the average price (in three decimals) of accepted competitive bids for
the respective issues.
Settlement for accepted tenders in accordance with the
bids must be made or completed at the Federal Reserve Bank on
July 26, 1973,
in cash or other immediately available funds or in a like face amount of Treasury
bills maturing
treatment.
July 26, 1973.
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 ex
cluded 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.
UNITED STATES U V M t t BONDS ISSUED AND REDEEMED THROUGH June 30, 1973
( D o l l a r a m o u n ts In m illio n s - r o u n d s and w ill n ot n o c o s s o r ily a dd to t o ta ls )
D E S C R IP T IO N
A M O U N T IS S U E D
AMOUNT
r e d e e m e d
!/
AM OUNT
O U T S T A N D IN G ^ /
¡matured
Series A -1 9 3 5 th ru D -1 9 4 1
Series F and G -1 9 4 1 thru 1 9 5 2
Series J and K -1 9 5 2 th ru 1 9 5 7
5,003
29,501
3,754-
4,999
29,498
3,746
1,9248,4-88
13,644
15,922
12, $4-1
5,718
5,4-51
5,652
5,609
4-,922
4,258
4-,4-62
5,1145,2145,4-345,254
4,956
4,851
4,552
4,580
4,671
4,545
5*108
4',979
4,872
5,246
5,172
4^913
4,622
4,838
5,568
6^122
2^235
1,738
7,656
12,331
14,321
11,133
4,923
4,563
4,655
4,542
3,934
3,402
3,543
3,979
4,004
4,134
3,964
3,692
| 3,519
3,265
3,193
4
22
7
% O U T S T A N D IN G
O F A M O U N T IS S U E D
.08
.07
.19
U N M ATU R ED
Series E & :
1941
1942
19 4 3
1944
1945
194fi
1947
1948
1949
1950
1951
1952
1953
1954
1955
195fi
1957
19 5 8
1959
1980
1981
1982
1983
1984
1985
1966
1967
1968
1969
1970
1971
1972
1973
Unclassified
422
Total Series p
Series
H (1952 'thru M«y, ifl59)i/ ,
H
(June, 1 9 5 9 th ru 1 9 7 f ) __________
T o ta l S e rie s H
T o ta l S e rie s
E
and
H
(Total matured
All S eries J Total nnmatured
\ G rand T o ta l
¿j _
$j
3 ,1 3 6
2,967
3,136
3,065
2,960
3,056
3,002
2^797
2,524
2,327
2,223
1,768
212
386.
186
832
1,312
1,602
1,408
795
888
997
1,067
988
856
919
1,135
1,210
1,300
1,290
1,264
1,332
1,287
1,387
1,535
1,577
1,972
1,914
1,912
.2,190
2,171
2,115
2,098
2,511
3,345
4,354
2,023
35 r .
51,806
9.70
9.80
9.62
10.06
11.23
13.90
16.29
17.64
19.02
20.07
20.10
20.60
22.19
23.21
23.92
24.55
- 25.50
27.4-6
28.27
30.28
32.86
34.70
38.61
38.44
39.24
41.75
41.98
43.05
45.39
51.90
60.08
71.12
90.51
8.29
27.00
191,857
140,051
5,485
9,071
3,975
2,994
1,510
6,076 .
27.53
66.98
14,556
6,969
7,586
52.12
206,413
147,020
59,392
28.77
38,258
206,413
244,671
38,243
147,020
185,263
33
59,392
59,425
.09
28.77
24.29
« vv im o u u/scoum»
redemption value,
°Ption of owner bonde may be held and w ill earn infaraat tor additional periods after original maturity detoe.
Form PD 3812 (Rav. Jan. If73) - Dept, of the T re a su ry — Bureau of the Public Debt
July 17, 1973
/
NOTE TO CORRESPONDENTS
Attached are'Treasury proposed amendments to
regulations governing surety companies doing busi
ness with the United States which appeared in the
Federal Register, Monday, July 16, 1973.
SUMMARY
The Department of the Treasury has determined to amend
its regulations governing Surety Companies Doing Business
With the United States, at 31 CFR Part 223, to provide surety
companies with an opportunity for a hearing to explain and
justify its reasons for not settling claims made against it
by Federal agencies, prior to a determination by the Secretary
of the Treasury to revoke its certificate of authority to do
business with the United States for failure to perform its
obligations to such agencies.
»' TITLE 31 - H0HKY AND FINANCE:
TREASURY
CHAPTER II - FISCAL SERVICI:, *
DEPARTliEET 0? THE TREASURY
-
SUBCilAPTERA ~ BUREAU OF ACCOUNTS
PART 223 - SURETY COMPANIES* DOING BUS IRESS
VTIXil THE UNITED STATES
NOTICE OF PROPOSED RULE ZI&KIRG
«
The Department of the Treasury is considering asending its
regulations governing surety companies doing business \7ith the
United States, at 31 CFR Part 223 (also appearing as Department
Circular ho* 297, Revised).
These amendments vili provide a surety
company with an opportunity for a hearing to. explain, and justify
ite reasons for not settling claims isada against it by Federal
agencies, prior to a determination by the Secretary of the
Treasury to revoke its certificate of authority to do business with
the United States for failure to perform its obligations to such
agencies.
The provisions concerning the revocation of a company’s
certificate of authority for not complying v?ith other requirements
c ' 6 U.S.C. 6 - 13 and these regulations are not affected by this
amendment.
Accordingly, notice is hereby given pursuant to 5 U.S.C. 553
that the Secretary of the Treasury is considering aran cling Fort 223,
Subchaptor A, Chapter II of Title 31 of the Code of Federal Regu
lations by:
(I) ¿¡rending the treble of sections; (2) amending section
223.6; (3) retitliug and renumbering section 223.17 as section 223.13
(4) renumbering section 223.18 as section 223.17 end section 223.19
as section 223.22, and (5) adding nei; sections 223.19, 223.20 and 223
~ 3 ~
( -
time and placet es he deems appropriate, for the purpose .of
determining whether revocation of the company’s certificate of
authority is justified.
(c)
Kotico.
The company shall be advised, in writing,
of the time end placa of the informal hearing and shall be direct
to bring a'll documents, records and other information as it nay
find necessary and relevant to substantiate ite refusal to
settle tlie claims nade against it by the Federal agency making
the report under § 223.18(a).
(d)
Conduct of hearings.
-
*
The hearing shall be con
ducted by a hearing officer appointed by the Secretary.
The
company may be represented by counsel and shall have a fair
opportunity to present any relevant material and to examine the
agency’s evidence.
Formal rules of evidence will not apply at
the informal hearing.
(e)
Report. Within 30 days after the informal hearing
the hearing officer shall make a written report to the. Secretary
setting forth his findings, the basis for his findings, and his
recommendations. A copy of the report shall be sent to the
company.
5 223.20
Final decisions.
If, after review of the case file, it is the judgment of
the Secretary that the complaint was unfounded, the Secretary
shall dismiss the complaint, by the Federal agency concerned and
shall c o 'notify the company. If, however, it is the judgment
of the Secretary that the company has not fulfilled its obligations
to the complainant agency, he shall notify the company of the
facts or conduct which indicate such failure mid allow the.
company 20 »business days from, the date of such notification to
demonstrate or achieve compliance.
If no showing of compliance
is made within the period allowed, the Secretary shall either
preclude renewal of the company’s certificate of authority or
revoke it.
§ 223.21
Reinstatement.
If, after one year from the date of the expiration or
the revocation of the certificate of authority, as the case
may be, a company can show that the basis for the non-renewal
or revocation has been eliminated and that it can comply with
the. requirements of 6 U.S.C. 6 ~ 13 and the regulations in this
part, a new certificate of authority shall be issued without
prejudice.
(5 U.S.C, 301; 6 U.S.C. 8.)
Prior to the adoption of the proposed amendments, consideration
will he given to written views or arguments submitted to the Cornnlssioner of Accounts, U.S. Department of tha Treasury, Washington 7
D.C.
20226, end received not later than 30 days fro*;i the publi-
cation of this notice in the Federal Register.
Pursijant to 31
C1?A 1.4(b), 36 FA 13335, comments submitted in respovise to this
■ ; f. ■
■
»<
: ' i'V'V ” *- 5 - :V;:y
iiotice of proposed rule making are available to the public upon
request: therefor unless confidential status for the submission has
been r »quested and approved.
(Signed) Joàn X. Carloot
• Fiscal /Assistant Secretary
Department of t h e f U U S U R Y
ASHINGTON, D C 20220
TELEPHONE W04-204T
i
FOR IMMEDIATE RELEASE
HR
r
July 18, 1975
TREASURY'S MONTHLY BILL OFFERING
The Treasury Department, By this public notice, invites tenders for
$1,800,000,000> or thereabouts, of 336-day Treasury bills for cash and in exchange
for Treasury bills maturing
July 51, 1973
The bills of this series will be dated
, in the amount of $1,701,520,000.
July 31, 1973
, and will mature
(CUSIP No. 912793 TUO)»
July 2, 1974
The bills will be issued on a discount basis under competitive and noncomIpetitive bidding as hereinafter provided, and at maturity their face amount will
ihe payable without interest.
They will bt 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, July 24, 1973.
Tenders will not be received at the Treasury Department, Washington.
must be for
$5,000.
a minimum of $10,000.
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.
[not be used.
Fractions may
It is urged that tenders be made on the printed forms and forwarded in
jthe special envelopes which will be supplied by Federal Reserve Banks or Branches
on application therefor.
Banking institutions generally may submit tenders for account of customers
provided the names of the customers are set forth in such tenders.
Others than
Banking institutions will not be permitted to submit tenders except for their own
pceount.
Tenders will be received without deposit from incorporated banks and trust
lompanies and from responsible and recognized dealers in investment securities,
fenders from others must be accompanied by payment of 2 percent of the face amount
F Treasury bills applied for, unless the tenders are accompanied by an express
paranty of payment by an incorporated bank or trust company.
(O V E R )
-
2-
]jmnedlately after the closing hour, tenders will he 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 $200,000 or less without
stated price from any one bidder will be accepted in full at the average price (in
three decimals) of accepted competitive bids.
Settlement for accepted tenders in
accordance with the bids must be made or completed at the Federal Reserve Bank on
July 31, 1973
, in cash or other immediately available funds or in a like
face amount of Treasury bills maturing July 31, 1973.
tenders will receive equal treatment.
Cash and exchange
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 122l(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, pre
scribe 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.
Deportment ofthe TREASURY
HINGTON. D C.
20220
1
T ELEP H O N E W 04 204T
RELEASE ON RECEIPT
July 18, 1973
TREASURY SECRETARY SHULTZ NAMES VALERIE LEVITAN AS NEW
CHAIRMAN OF NATIONAL ORGANIZATIONS COMMITTEE FOR SAVINGS BONDS
Valerie Levitan, Ixtcutive Director, Soroptimist Federation of
the Americas, Inc., Philadelphia, is newly appointed Volunteer Chair
man of the National Organizations Committee for Savings Bonds by
Treasury Secretary George P, Shultz, effective immediately. She suc
ceeds Hugh H. Cranford, Executive Secretary, Optimist International,
who had served as Committee Chairman since March, 1970.
The National Organizations Committee is composed of the execu
tive heads of 50 of the nation’s leading civic, service, veterans,
and fraternal organizations, who work with the U. S. Savings Bonds
Division to develop and s u s t a i n Bond Program interest in such organi
zations nationwide.
Ms. Levitan has served as the Soroptimist’s Executive Director
since September, 1970. She was formerly co-owner, teacher, and as
sistant principal of The Levitan School, Inc., an accredited twoyear business school.
She is active in such civic, professional, and fraternal organi
zations as: Conference of UN Representatives; Women’s Committee,
President’s Committee, Employment of the Handicapped; Right to Read
Conference, National Center for Voluntary Action; White House Con
ference on Aging; Delaware Valley Society for Association Executives;
founding President, U. of Pennsylvania and Alumnae chapters, Kappa
Delta Epsilon, and Philadelphia branch, American Association of Uni
versity Women.
Ms. Levitan is a resident of center-city Philadelphia. She has
two children -- Daniel, 17, who is entering Temple University, and
Jeanie, 15, a student at Philadelphia High School for Girls.
oOo
FOR IMMEDIATE RELEASE
July 18, 1973
WITHHOLDING OF APPRAISEMENT ON
IRON AND SPONGE IRON POWDERS FROM CANADA
Assistant Secretary of the Treasury Edward L. Morgan
announced today a withholding of appraisement on iron and
sponge iron powders (excluding alloy powders) from Canada
pending a determination as to whether they are being sold
at less than fair value within the meaning of the Antidumping
Act of 1921, as amended. These powders are used in the
powder metallurgy industry to fabricate a variety of pressure
cast products such as gears, magnets, welding rods and
various automotive components.
The decision will appear in the Federal Register of
July 19, 1973.
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 "Withholding 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 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.
During the period of January 1972 through March 1973,
imports of iron and sponge iron powders from Canada were
valued at approximately $5.7 million.
# # #
DepartmentoftheTREASURY
[HINGTON,
20220
T E L E P H O N E W04-2041
Ill
FOR IMMEDIATE RELEAS.E
July 18, 1973
The Chairman of the Federal Reserve Board and the
Secretary of the Treasury have jointly issued the following
Statement:
"At the March 16, 1973 meeting of finance ministers
and central bank governors in Paris,
it was agreed that
official intervention in foreign exchange markets may be useful
at appropriate times to facilitate the maintenance of orderly
market conditions.
In view of the inherent strength of the
dollar, and following consultations by the Federal Reserve,
the Treasury, and representatives of other countries, inter
vention by the Federal Reserve in the New York exchange market
began on July 10.
Active intervention will take place in
the future at whatever times and in whatever amounts are
appropriate for maintaining orderly market conditions."
-
S2 53
0
-
Removal Notice
The item identified below has been removed in accordance with FRASER's policy on handling
sensitive information in digitization projects due to copyright protections.
Citation Information
Document Type: Transcript
Number of Pages Removed: 6
Author(s):
Title:
"The Today Show" Interview With Treasury Secretary Shultz
Date:
1973-07-19
Journal:
Volume:
Page(s):
URL:
Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
Department of th e fR EA S U R Y
Washington,d .c .20220
|
TELEP H O N E W04-2041
m o .\
FOR RELEASE ON DELIVERY
STATEMENT BY THE HONORABLE PAUL A. VOLCKER
UNDER SECRETARY OF THE TREASURY FOR MONETARY AFFAIRS
BEFORE THE
SUBCOMMITTEE ON INTERNATIONAL FINANCE OF THE
HOUSE BANKING AND CURRENCY COMMITTEE
THURSDAY, JULY 19, 1973, AT 2:00 P.M. (EDT)
Mr. Chairman and Members of the Subcommittee:
In the year since the Subcommittee’s earlier hearings
on progress toward international monetary reform, important
steps have been taken toward the negotiation of a reformed
world trade and payments system.
New measures have also
been introduced for handling the immediate monetary
problems which nations faced.
Consequently, the formal
negotiating process has been paralleled by a pragmatic,
evolutionary process.
I believe these processes properly
should react upon each other; in the negotiating process
we should be sensitive to the political and economic
realities exposed by events, while our reactions to those
events should be shaped with an awareness of our longer run
goals for the monetary system»
S -2 5 3
2
The main steps taken during the past twelve months to
move toward reform are, I am sure, already familiar to the
Subcommittee:
In July of last year, agreement was reached
on a forum for the reform negotiations -the Committee of Twenty -- and the scope of
their deliberations.
This important procedural
move gave assurance that the reform effort would
be a comprehensive one, that the negotiations
would be undertaken at a politically
responsible level, and that the forum would be
a limited but broadly representative group.
The main technical work has been done by a
subordinate committee of the Committee —
the
so-called Deputies -- under the Chairmanship
of Jeremy Morse, formerly an Executive Director
of the Bank of England.
In September, Secretary Shultz, building in
part on the expressed views of other nations,
tabled a comprehensive and interlocking set of
reform proposals.
These proposals have since
been elaborated in further detail.
They take
as one point of departure the concept that
a system of stated exchange rates -- par or
central values -- supported by convertibility
into an international reserve asset should be
the "center of gravity" of the new exchange
rate regime.
However, a substantially
greater degree of flexibility in exchange
rate practices than characterized the Bretton
Woods System would be permitted, partly
through wider margins around par values and
partly through permitting countries to float
in some circumstances under appropriate IMF
surveillance.
To support this exchange rate
framework, the proposals envisage more
effective disciplines to encourage prompt and
effective restoration of balance in inter
national payments, partly through the use of
fluctuations in levels of international
reserves as an "objective indicator" of
adjustment needs.
I believe these proposals
- 4 -
set forth a balanced, effective, and
logically consistent system thatwould
provide equitable and evenhanded treatment
to all nations.
These American proposals have provided a focus
for much of the discussion.
While no equally
comprehensive set of proposals has been
advanced as an alternative, other countries
have pressed for modifications in some
features; in some instances, they have set
forth more sharply different views on one
aspect or another of the system.
A tentative
’'outline" has been developed for discussion
purposes, attempting to identify points of
consensus as well as the differences to be
reconciled.
I
should also note that
related to monetary reform —
in two areas closely inter
trade and investment ~
new
important initiatives have also been launched in the past
year.
In May of this year, comprehensive trade
legislation was submitted to the Congress,
p 'U
- 5 -
to give the President necessary tools to
engage in multilateral trade negotiations
scheduled to begin formally in September.
Other nations are also in the process of
developing negotiating approaches.
Consequently, prospects remain favorable
that, as we reach conclusions on the monetary
system, we can look forward to a reduction
of trade barriers and the introduction of
fair trading rules consistent with the
objectives we seek in the new monetary order.
Earlier this month, after extensive discussion,
the OECD agreed upon a wideranging work program, that we hope can break
new ground with respect to the issues
associated with international investment,
complementing the review of trade and monetary
rules.
I believe the Committee of Twenty is tackling the
challenge of monetary reform in a workmanlike way.
While
frequency of meetings is no measure of progress, it is
6
perhaps a useful yardstick of the intensity and breadth
of the effort.
Since September the Deputies, coming
together each month or two, have met for 15 days; several
technical groups have prepared papers between meetings; and
the Ministers have themselves held two meetings.
A third
Ministerial working session is scheduled for the end of
July.
I can well understand the concern and impatience for
more visible evidence of concrete accomplishment in the
form of a finished agreement.
However, I have never felt
it realistic to believe a new agreement governing our
monetary relationships for a generation could be hammered
out in a matter of weeks or months.
The work of the past
year has been, I think, an essential prerequisite for
ultimate success:
the debating of different concepts of
reform; a technical analysis of alternative mechanisms;
and a useful cross-fertilization of ideas and viewpoints.
In the process, much has been learned by all the partici
pants, and much of the underbrush cleared away, so that we
can understand the fundamental points of consensus and
where basic disagreements may still lie.
It seems to me
7
essential, too, that both legislative and public interest
be better focused on these issues, for agreements on the
monetary system have important implications for the
conduct of national economic policies and the relationships
among nations.
As part of the clarification of views on all sides,
I believe there is now better understanding of certain
points that we have emphasized in presenting our own
proposals.
Most importantly, we have insisted that the
various elements in the monetary system -- convertibility,
the exchange rate regime, the adjustment process, and the
supply and the nature of irternational reserve assets —
must
be developed as part of a balanced and consistent whole.
Thus, if a system of convertibility is to work effectively,
we need a technique for assuring that the incentives to
adjust apply not just to deficit countries losing reserves,
but evenhandedly to surplus and deficit countries.
The
tolerance we wish to permit for temporary imbalances in the
system -- and some tolerance is necessary -- must be
consistent with the availability of reserves to finance
^balances.
There must be a broad consistency between the
8
amount of reserves that countries in practice wish to hold
and the availability in the system of such reserves.
The
assets used as international reserves should not be subject
to speculative distortions, and must be available for
nations to use freely and flexibly.
Unless a new monetary system achieves such balance and
consistency, new strains and breakdowns seem sure to arise.
The necessary disciplines and pressures will bear
unevenly on different countries.
Instead of assuring a new
stability, we will inadvertently create uncertainty and
political tension.
I believe it is fair to say that the members of the
C-20 in principle have already reached certain more or less
unanimous conclusions.
We are joined in a search for more
effective mechanisms to assure more timely and effective
balance of payments adjustment operating symmetrically on
both surplus and deficit countries -- the lack of which
contributed heavily to the breakdown of the Bretton Woods
system.
There is a general willingness to accept the proposition
that international incentives and pressures may be necessary
to "discipline" the adjustment process.
At the same time,
most countries want to leave in the hands of individual
countries as wide a range as possible of discretion as to
how the adjustment is made -- while discouraging those
forms of adjustment that damage the fabric of inter
national trade and payments.
We have agreed that the exchange rate regime should
be based on stable but adjustable par values, with floating
rates a useful technique in particular situations.
We
have agreed that there should be better international
management of global liquidity, that the role of gold and
reserve currencies should be reduced, and that a modified
SDR (perhaps renamed) should become the principle reserve
asset.
We have agreed that more effective means are needed
to deal with problems of short-term capital flows, although
a considerable amount of disagreement remains as to the
appropriate role of controls in that effort.
10
Agreement on these points is important and a source
of encouragement.
I do not, however, delude myself into
thinking that the area of agreement on these points,
important as they are individually, is enough to ensure
the over-all consistency, balance, and coherence of which
I spoke.
In particular, we have much ground to cover to
make these principles operational, in the sense of specific
and defined rules of behavior acceptable to all.
As one illustration, in concept we all want a better
process of balance of payments adjustment.
But in practice,
that dull and abstract phrase "balance of payments adjust
ment" translates into difficult economic judgments and
sensitive
political issues for any government.
Who is to
decide what action will be taken, when, and by which
country?
In practice, we need to find workable answers
to those questions, and answers satisfactory to the trading
community as a whole, as well as to individual nations.
We
must, for instance, settle the appropriate scope for
national discretion, the role of the International Monetary
Fund, and the extent to which "objective indicators" can be
usefully employed.
In all these areas, a full consensus has
not yet been reached.
/f
11
The target we set last September was to reach agreement
on the broad outline of reform by next September's IMF
meeting in Nairobi.
Our objective, befc^§nnhb$n£ M o:i eds^idßra
as feasible, so that work can proceed on the operational
rules to implement those principles.
3
As this implies,
Nairobi will not end the work of reform; under the most
favorable of assumptions, there will be> iscich[:lÄÖ^ßfb ^ ¥ J4fBt?e1,°
by way of forging the operational rules^ a n d - r j p c W bhrÿ
legislative action.
For this reason, it is of particular importance that
Vf;
we have a workable interim system while we proceed with refbritf;
In the past two years the monetary systtem hasJbeen <
j%&l3:e3lsr*'i
to sharp upheaval and unprecedented chang&siBrl- JiW0 Q®iag%#
rency realignments,, including substantial devaluations of -thè0-^
dollar, and more recently decisions by a number of the major 38
industrial nations to allow their currencies jointly or in
dividually to float.
-•xs.fia arid dsjid 9don blnow
The genera.], arrangements under whiaha^c^uBÎbé^^of ^tKÎs^^^09
currencies are floating were worked out at a joint meeting of5
the Group of Ten and the European Community last March 16. ^
srn
12
The participating governments made clear that while they
assumed no general obligation to intervene in exchange
markets to
ied margins, official intervention
in ^£g|^igq£exeh§qge $§rjkets could be useful at appropriate
times to facilitate the maintenance of orderly market
conditions.
That understanding and undertaking guides and
motivates our approach toward intervention.
To assure our
con^^pingc<^P^ityiDte carry out such operations, reciprocal
credit: Jac^lifijes;,ha;ve; been enlarged.
Since March there have been sizable movements in some
market exchange rates, particularly between the dollar and
some European currencies.
I believe, and many others believe,
thartcithe appreciation no£ certain currencies vis-a-vis the
dolias hgS.smoved far&hfir than warranted or needed to restore
long-term international payments equilibrium, including
specifically equilibrium in our own balance of payments.
In appraising the recent movements in exchange rates, I
would note that the sharp moves have been confined almost
entirely>:jtq the European countries participating in a joint
-- the so-called nsnake.M
Indeed, the dollar has re
mained rather steady for months against the currencies of
13
countries accounting for some three-quarters of our trade.
This includes our major trading partners outside Europe —
Japan, Canada, and most of the developing countries -- as
...
,.......iW -
it. ,
aonBdtttocfm i: s r i J
well as some important European countries, for example, the
U.K. and Italy.
In appraising this recent experience, I would draw
several conclusions of relevance to longer term reform:
xoiii a ui> ‘j.
First, in a situation marked by large payments
..
¡31 still' 3.D
disequilibria built up over a long per iod of
time, with accompanying uncertainties and
speculative tendencies, attempts to maintain
fixed currency relationships led to repeated
-frnir DjiHonooe
I |j •J
j
strains and crises.
...
These strains were
i ij,
r ,
mi '-bis y£onnzrm,&
aggravated by the fact that the disequilibria
strongly affected the main currency of the
system —
the dollar.
In a situation of this
sort, in contrast to the available altemar
............
,.
n q 3 on ob y s n l
tives, the floating of currencies has provided
. ogtt
gk&f
v id B ilO o B S S
bnB
a broadly acceptable modus operandi during the
period before equilibrium can be restored, and
the present evidence suggests flows of trade
- 14
and long-term investment have not been
seriously affected.
Second, I believe this experience underlines
the importance, in terms of achieving more
stable currency relationships, of establish
ing equilibrium in the payments of the United
States.
No international monetary reform can
substitute for that requirement.
We can, as
part of the reform process, reduce the degree
to which the system has been dependent on the
dollar, but we cannot escape the facts that
the United States will remain the largest
economic unit, and that the health of our
currency is important to other countries as
j, rriLTosaib
sdb
well as to ourselves.
Third, the interim arrangements now in place
are not a substitute for long-term reform.
They do not provide the framework of agreed
and reasonably clear rules needed to meet the
longer term requirements of the system.
is the task of reform.
That
- 15
Fourth, as implied by my earlier remarks, the
difficulties we have encountered demonstrate
the dangers of allowing payments imbalances
to build up over an extended period.
Although
the February devaluation was almost universally
regarded as adequate, the inevitable lag in its
effects and the resultant period of uncertainty
until those effects can show through fully, have
contributed to the market disturbances which
followed.
This underscores the need for
effective incentives for countries —
for the
U.S. as well as others - - t o adjust promptly to
emerging disequilibria.
This, again, is the
task of reform.
Fifth, the instability of the private market for
gold, with sharp gyrations in its price, has
demonstrated again the unsuitability of that
metal as the central reserve asset of a new
system.
Finally, while a number of countries have
increased the use of controls on short-term
16
capital in an attempt to deal with the massive
flows of mobile funds which can occur in
today's world, the limitations on the effective
ness of such controls have been demonstrated
once again.
Such controls do not appear to be
an adequate response to the problem of specula
tion and imbalance.
I
noted earlier that the Ministers will be meeting in
Washington at the end of this month.
This meeting is designed
to encourage a full and frank exchange of substantive views
on the issues developed by their Deputies.
You should not
anticipate immediate resolution of the issues on the table,
for the meeting is not intended to force agreement where basic
issues are unresolved and differences in approach and analysis
remain evident.
In other words, it is a working, preparatory
meeting, rather than a meeting for reaching final conclusions
or for laboring over a vague communique.
We do believe it can be an important meeting, in the
sense that responsible political officials need an opportunity
to explore the principal problems and possibilities fully and
informally together, testing their thinking, one against
- 17 -
another, before sound conclusions are possible.
We also
anticipate that the Ministers, on the basis of their dis
cussion, will want to set out a work program for Nairobi and
beyond.
In this manner, I believe the process of developing the
needed consensus on monetary reform is proceeding.
I
particularly welcome this opportunity to explore the issues
with you today, for no one could be more conscious than I
that our efforts must rest on a broad base of legislative
and public support.
ooOoo
Department oftheTREASURY
ASHINGTON, D ,€ . 20220
\
T H E P H O iy f W 04 2041
FOR IMMEDIATE RELEASE
July 19, 1973
TREASURY ANNOUNCES REDUCED TIME FOR PROCESSING CASES
AND INCREASED ANTIDUMPING DECISIONS
Assistant Secretary of the Treasury Edward L. Morgan
announced today that during FY 1973 the average time for
processing antidumping cases has been reduced over 50 per
cent from the time required in FY 1968.
The average number of days Treasury took to complete
an antidumping investigation in FY 1968 was 560, with some
cases taking 2 years or longer. During FY 1973 the average
completion time was reduced to 270 days. Mr. Morgan cred
ited the "concentrated effort by the Treasury to revitalize
the administration of the Antidumping Act in defending
American industry and labor against unfair foreign pricing
practices" for achieving these improved results.
"Long
investigations," he pointed out, "are bad for all concerned
the domestic complainant who is seeking a speedy remedy if
dumping is, in fact, taking place; and the foreign manu
facturer and American importer, who wish to know as soon
as possible where they stand in terms of the complaint so
that they can properly price their merchandise in selling
to American firms."
Mr. Morgan, in releasing statistics on the number of
cases processed from FY 1967 to FY 1973, also reported that
due to a decline in the number of antidumping complaints
received, 12 less cases were initiated in FY 1973 than
FY 1972. However, there was a continuing increase in the
number of decisions made under the Act, an increase of
6 from FY 1972, and 31 more than were made in FY 1967.
oOo
Tables attached
2
AVERAGE NUMBER OF DAYS FOR PROCESSING
ANTIDUMPING CASES AT TREASURY
______BY FISCAL YEAR INITIATED_____
Year
Davs
1968
560
1969
540
1970
483
1971
364
1972
357a/
1973
270^/
a/
Includes three cases which were delayed pending
resolution of a novel issue under the Antidumping
Act, the treatment of below cost sales. Although
final action has not been taken on these cases,
a tentative action has been taken. For purposes
of this table, it has been estimated, based on
past experience, that final action will occur
3 months after the tentative action.
b/
Eight of the 27 cases intiated in FY 1973 had been
completed at Treasury by the end of the fiscal year.
Tentative action had been taken in two cases.
Using the assumption in footnote a/, a good estimate
was obtained for their final completion times.
ACTIONS TAKEN UNDER THE
ANTIDUMPING ACT OF 1921, AS AMENDED
Fiscal Years 1967-1973
Fiscal
Year
Invest.
Initiated
Total Final Determinations
Actions by of Sales at Less
Treasury
Than Fair Value
Determinations of
Final
No Sales at Less
Than Fair Value
Discontinuances*
Findings <
Dumping
1967
10
11
1
10
-
1
1968
15
16
6
10
-
1
1969
22
6
1
5
-
5
1970
26
24
7
17
-
6
1971
23
23
14
6
3
7
1972
39
36
23
5
8
18
1973
27
42
25
11
6
8
♦Discontinuances were not issued prior to FY 1971
Dtpartment ofIh e JR EA S U R Y
ASHIN6T0N, DC 20220
TEtEPKONE W04-2041
II
FOR RELEASE FRIDAY, JULY 20, 1973
MAY 1973 RESIDUAL OIL PRICES MIXED
The average price of East Coast tanker, pipeline and barge
quantities of residual fuel oil delivered to purchasers for resale
went from $4.01 a barrel in April to $4.02 a barrel in May, according
to Treasury Department Deputy Secretary William E. Simon, who also
serves as Chairman.of the President’s Oil Policy Committee.
The average price of residual fuel oil picked up by purchasers
for resale increased from $2.91 a barrel in April to $3.00 a barrel
in May.
This oil averaged a lower price than others because of
sulfur content and other characteristics.
Tanker and pipeline
deliveries to East Coast electric utilities averaged $4.00 a barrel
in May, an increase of 11 cents from April.
For tanker, pipeline and barge quantities, East Coast marketers
paid an average of $4,13 a barrel for residual fuel oil with sulfur
content of one percent maximum, a decrease of nine cents from April;
$2.89 a barrel for oil with sulfur content of 1.5 percent through
2*2 percent, an increase of five cents; and $2.84 a barrel for oil
with sulfur content over 2.2 percent, an 11 cent increase.
The survey is part of the surveillance under the Presidential
Proclamation on oil imports.
This report is limited to No. 6
residual fuel oil, both domestic and imported.
Excluded are
intracompany business, sales to the Department of Defense, and sales
outside the U. S.
These results are obtained from the summation of
individual company submissions and include business on contracts
of various vintages and spot transactions.
A tta c h m e n t
S-252
DEPARTMENT OF THE TREASURY SURVEY OF NO. 6 RESIDUAL FUEL OIL
1/
2/
3/
EAST COAST SALES
, REVENUE AND COSTS PER BARREL , BY REGIONS
MAY 1973
PART I.
All Regions
(1)
(2)
Delivered
Picked up
to
by
Purchaser
Purchaser
SALES
A. To resellers:
1. Tanker, pipeline or barge
2. Truck or tank car
Region A
(45
<3)
Picked up
Delivered
by
to
Purchaser
Purchaser
Region B
(6)
(5)
Delivered
Picked up
by
to
Purchaser
Purchaser
$4.02
4.44
$3.00
4.07
$4.06
4.61
4/
$NR3.78
$4.80
4.55
$NR
5.00
4.00
3.93
4.10
4.60
4.57
—
4.56
NR
NR
NR
NR
--
4.22
4.36
--
C. To other consumers:
1. Barge
2. Truck or tank car
3.80
4.42
3.17
3.44
4.67
4.60
NR
2.86
4.45
4.85
PART II.
PURCHASES BY MARKETERS
Tanker. Pipeline or Barge
All Regions
B. To
1.
2.
3.
electric utilities:
Tanker or pipeline
Barge
Truck or tank car
•'v:’*
Sulfur Content:
A. 1% maximum
B. Over 1% thru 1.5%
C. Over 1.5% thru 2.2%
D. Over 2.2%
K
$4.13
—
2.89
2.84
Region C
(8)
(7)
Picked up
Delivered
by
to
Purchaser
Purchaser
Region D
(10)
(9)
Delivered
Picked up
by
to
Purchaser
Purchaser
$NR
4.36
$4.00
4.00
$NR
3.62
—
NR
--
3.51
3.70
NR
4.58
gjf-
3.35
3.68
4.06
NR
NR
NR
4.50
3.73
4.19
2.93
3.50
2.80
3.43
3.22
3.00
Region A
Region B
Region C
$4.21
--
$4.17
““
$4.11
NR
NR
NR
NR
—
NR
Region D
$NR
NR
2.87
$NR
3.09
2
APRIL 1973
PART :
I.
SALES
A. To resellers:
1. Tanker, pipeline or barge
2. Truck or tank car
All Regions
(1)
(2)
Delivered
Picked up
to
by
Purchaser
Purchaser
$4.01
4.42
Region A
(4)
(3)
Picked up
Delivered
by
to
Purchaser
Purchaser
$2.91*
4.14
$3.89
4.63
$NRr7
3.83
Region B
(6)
(5)
Delivered
Picked up
by
to
Purchaser
Purchaser
$4.41
4.60
$NR
5.00
B. To electric utilities:
.1*,. Tanker or pipeline
: 2. Barge
3. Truck or tank car
3.89*
4.05*
4.04
4.31
4.57
--
3.95
NR
NR
NR
NR
—
4.11*
4.44*
—
NR
--
C. To other consumers:
1. Barge
2. Truck or tank car
3.77
4.44
3.15
3.55
4.65
4.62
NR
2.95
4.32
4.95
NR
4.59
PART II.
PURCHASES BY MARKETERS
Tanker, Pipeline or Barge
All Regions
Sulfur content:
A. 1% maximum
B. Over 1% thru 1.5%
C. Over 1.5% thru 2.2%
D. Over 2.2%
$4.22*
—
2.84
2.73
Region A
Region B
$4.18
$4.40*
—
•
NR
NR
NR
NR
Region C
(8)
(7)
Picked up
Delivered
by
to
Purchaser
Purchaser
Region D
Delivered
to
Purchaser
(10)
Picked up
by
Purchaser
$NR
3.08
m
$NR
4.20
$3.51
3.86
$NR
3.71
3.39
4.00
NR
4,54
—
3.55
3.78
3.99
NR
NR
—
3.70
4.28
2.84
4.03
2.80
3.19
NR
2.96
Region C
Region D
$4.07
- --
$NR
—
NR
NR
NR
* Revised
JL/ Excludes intracompany transactions in which exchanges of goods and/or services are significant, sales to the
Department of Defense, and sales outside the United States.
2/ Reflects all allowances and charges, including delivery charges of vendor.
3/ Regional classification by destination. Regions consist of: A, New England; B, New York and New Jersey; C, Pennsylvania, Delaware,
Maryland, District of Columbia, and Virginia; and D, North Carolina, South Carolina, Georgia and Florida.
4/ NR - not released in order to avoid possible disclosure of individual company information
W A S H IN G T O N
July 17, 1973
Dear Mr. Chairman:
At the direction of the President,
I hereby enclose a letter relative to
testimony by the Secret Service to
Congressional Committees.
Sincerely yours,
(Signed) George P. Shultz
George P. Shultz
The Honorable
Sam J. Ervin, Jr.
Chairman, Senate
V7ater gate Committee
United States Senate
Washington, D.C.
Enclosure
T H E W H IT E H O U S E
W A S H IN G T O N
July 16, 1973
D e a r S e c r e t a r y S h u ltz:
.
I h e r e b y d ir e c t th a t no o ffic e r o r a g e n t o f the S e c r e t
S e r v ic e s h a ll g iv e ,te s tim o n y to C o n g r e s s io n a l c o m m itte e s
c o n c e r n in g m a t t e r s o b s e r v e d or le a r n e d w h ile p e r fo r m in g
p r o te c t iv e fu n c tio n s fo r the P r e s id e n t or in th e ir du ties
a t the W h ite H o u s e .
T h is a p p lie s to th e Se n a te S e le c t C o m m itte e w h ich i s
• in v e s tig a tin g m a tte r s r e la tin g to th e W a te r g a te b r e a k -in
and th e c u r r e n t e ffo r ts w h ich I a m in fo r m e d a r e b e in g m a d e
to subpoena p r e s e n t or fo r m e r m e m b e r s o f the W h ite H o u se
d e ta il o f the S e c r e t S e r v ic e .
Y o u w il l p le a s e c o m m u n ic a te th is in fo r m a tio n to the
D ir e c t o r o f the S e c r e t S e r v ic e p r o m p tly and e ith e r you
or he sh o u ld then p e r s o n a lly n o tify th e C h a ir m a n o f the
S e n a t e 'S e le c t C o m m itte e . Y o u sh o u ld fu r th e r a d v is e the
C h a ir m a n th a t r e q u e s ts fo r in fo r m a tio n on p r o c e d u r e s in
th e W h ite H o u se w ill be g iv e n p r o m p t c o n s id e r a tio n w hen
r e c e iv e d b y m e .
H o n o ra b le G e o r g e P .. S h u ltz
S e cre ta r y
. „
T r e a s u r y D e p a r tm e n t
W a sh in g to n , D.^C.
mmm
Deparlmentof th e T R E A S U IlY
OFFICE
OF REVENUE
SHARING
v'
^ “-^ÉÊÊÈÊSÊËgÈÊÊIm
çt
FOR INFORMATION, CALL (202) 634-5248
FOR RELEASE,TUESDAY, JULY 24, 1973, A.M.
Estimates of general revenue sharing payments to be
made in fiscal year 1974 to more than 38,000 state and local
governments were announced today by the U.S. Treasury Departments
Office of Revenue Sharing.
Totalling $6.055 billion, payments
will be made quarterly in October, 1973 and January, April and
July, 1974.
The amounts to be distributed in the fourth entitlement
period were printed on Planned Use Report forms mailed to
all state, county and local governments.
Recipients are required
by law to report their plans for use of fourth entitlement period
money to the Office of Revenue Sharing by September 20, 1973*
A copy of the report must be published by each recipient in a
local newspaper of general circulation.
The legislative history
-
2
-
of the State and Local Fiscal Assistance Act indicates that
Congress included the reporting requirement to provide citizens
with information needed to participate in local decision-making
about uses of shared revenues.
In announcing the entitlements to be paid over the next
twelve months, Graham W. Watt, Director of the Office of
Revenue Sharing, described the factors that went into the cal
culations of the amounts.
They were the following:
-- a. $413 million increase in the total amount
to be distributed in fiscal year 1974 over fiscal
year 1973.
This increase is provided in the five-year
schedule of appropriations approved in 1972.
-- release of funds totaling $160 million withheld in
the first and second entitlement periods.
One percent
of first entitlement period funds and five percent of
second entitlement period appropriations had been
reserved by the Office of Revenue Sharing to make
adjustments as data were improved and used to compute
final entitlements.
-- establishment of an Obligated Adjustment Reserve.
One-half of one percent of appropriated funds will
be set aside in each period to make individual adjust
ments that may be required after the close of an entitle
ment period.
-3“
f c .(
Lr
-- introduction of more current data not previously
available to calculate entitlement amounts.
New
data for taxes and intergovernmental transfers were
used to calculate the estimates announced today.
These data had not been available from the Bureau
of Census when previous entitlement amounts had been
calculated.
-- changes in the numbers of eligible jurisdictions.
Newly P incorporated, merged and disincorporated
governments have changed the total number of units
of governments eligible to receive shared revenues.
A few jurisdictions have waived participation in the
program.
Secretary of the Treasury, George P. Shultz, appointed
Graham W. Watt as Director of the Office of Revenue Sharing
shortly after President Nixon signed the State and Local Fiscal
Assistance Act, in the fall of 1972.
Since the inception of
the program, the Office of Revenue Sharing has distributed
$8,121 billion of the total $30.2 billion appropriated for
five years.
oOo
|^■;4fÿ?s
^ïi
I1I11IB1
iâjMi
;VT OP
ÉSlÉï
KSHINGTON, D.C : 2Ô22Ô
T E L E P H O N E W 04-2041
s>-: '-.:.V * -t: '
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MEMO TO CORRESPONDENTS:
^ w &
'
%1fc£afe?
f> im m
fefc/789
July 19, 1973
Attached is a notice that appeared in the
Federal Register of Thursday, July 19, 1973.
It deals with Treasury's handling of national
security information.
?11
oOo
19322
RULES AND REGULATIONS
f31-“-Money: and finance: Treasury Subpart D—Downgrading *nd Declassification Subpart K— Administrative and Judicial Action
isec.'w"..
■
I
ec.
A—-OFFICE OF T H E SECRETARY S
2.30. Authoritytodowngrade and declassify. 2.110 Enforcement policy.
OFTHE TREASURY
§
2J31 Guidelines for downgrading and'de- 2.111 Applicability.
;;
'
2.112 Disciplinary action.’
w'
classification. ;
PART 2— classification, downgrad ,
ing, DECLASSIFICATION AND SAFE 2.32 Dates or events carried forward. '
A p p e n d i x " A— T r e a s u r y D e p a r t m e n t O b o e r
GUARDING OF NATIONAL SECURITY 2.33 General Declassification Schedule. > * v i N o . 160, R e v i s e d , D e l e g a t i o n or A u t h o r .34 Exemptions from General Declassifica- r r r . concernxng I mplementation op E x
INFORMATION-AND MATERIAL —v : 2v
.tion Schedule.. A -y'i- *}/
ecutive O rder 11652, as amended, and t h e
This document puts into the form of 2.35 .Applicabilityofthe General Declassifi- ' ■ N
S ecurity Directive op May 17,
oation Schedule to previously clas- 19ational
regulations the Department of the Treas
72V/.
-.
_1 i
ury procedures for the classification, . ~V slfiedmaterial.'t « 55 ..V.:
2
.
3
6
Mandatory
r
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v
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u t h o r i t y :' E
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1
1
6
5
2
,
37
FR
5209; Na
downgrading, declassification and safe
-:V;■yearsold. ' ^~ **■*%
tional Security Council Directive of May 17,
guarding of national security informa 2.3
7 Declassificationofmaterial over thirty 19.72,37 FR 10053.. . - v
tion and material, required under Execu
.years'old. .
tive-Order 11652, 37 FR 5209, and the 2.38 Automatic declassification of thlrty- ‘ i Subpart A—General Provisions
National Security Council Directive of
year-old material- originated aftery § 2 . 1 r P u rp o se .
Wm June 1,1972.
May 17,1972, 37FR 10053. These regula
2
.
3
9
S
y
stematic review of thirty-year-old The purpose' of the regulations in this
tions incorporate and revise the proce
- material originated before June;1, rpart is to insure that information or ma
dures on this subject embodied in Treas
‘
1972.%
|gj terial originated within the Department
ury Department Order No. 160, Revised,, '
2.40. Mandatory review' of material over i of the Treasury which requires classifica
of August 3,. 1972, 37 FR 20990. That >
\>
.thirtyyearsold. §1 .. |
'Z r ;'/'|
Treasury Department order is super 2.41 Departmental Committee on National tion in the interest of national security
is classified in accordance with the proseded by these regulations as of their
t '■Security Information.. ‘ i:'
?visions of Executive Order 11652, 37 FR
-.-...- |||
effective date, July_l, 1973. A new Treas 2.42 “Burden ofproof.- v
ury Department Order No. 160, Revised, 2.43 Notificationof change in classification 5209, and the National Security Direc
-or of declassification.
||
tive of May 17,1972,37 FR 10053 (hereinis being issued contemporaneously with
•
Iafter referred to as the Executive Order
these regulations to provide appropriate 2.44-2.49 [Reserved] * ;
and Directive), as supplemented by the
delegations of authority under the Exec-i V- fS T O P B Subpart E-rAeeess - -i.
regulations in this part, and that official
utive Order, the Directive and these 2.50 General."V,-.O.'L'
regulations. ■ r.,
;; 2.51 Access by historical researchers. : l* • information and material originating in
These regulations have been approved 2.52 Access by certain officials and em- or coming under the control or jurisdic
t ployees of Federal Reserve Banks.
tion of the Department of the Treasury,
bythe Interagency Classification Review
Access by former Presidential ap- which is classified in the interest of na
Committee, as required by the Executive /2A3
,•.-.v- pointees. .
security and in accordance with
Order and directive. They are issued pur-" 2.
54 Dissemination by the Department of tional
the provisions of the Executive Order and
suant to 5 U.S.C. 553 without notice of
classified information .or material Directive,
is protected, but only to the
proposed rulemaking and without a 30originated by another department.
extent and„for such period as is necesday delay in their effective date, as they i 2.55-2.59., [Reserved]
rsary. In addition, these regulations estabare rules of agency organization, pro
Subpart F—Accountability ' s
•lish -a* monitoring system to insure the
cedureandpractice.
2.60 Top SecretControlOfficers.
effectiveness of this security program
In consideration of the foregoing, 31 2
.
6
1
C
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n
t
r
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o
f
Top
S
e
c
r
e
t
m
a
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r
i
a
l
.
;
;
throughout _ the Department of the
CFR, Subtitle A, is amended by adding 2.62 Accountabilityofclassifiedmaterial.
Treasury.-■
Part 2 to read as follows:
|
2.63 .Restraint on reproduction. ;
\ , Subpart A—General Provisions
\,V 2^4 -Data IndexSystem.
§ 2.2 Definitions.
| ;
2.65^-2.69. [Reserved] 1
\
Sec.
f .
J -"I
H
As
used
in
the
regulations
of this part
2.1 'Purpose.
'’
’/ s
Subpart G— Safekeeping and Storage
the following terms shall have the mean
2.2 Definitions. ’
2
.
7
0
G
eneral
p
o
l
i
c
y
v
'
*
;
ing indicated:
2S Responsibility for implementation.
2.71 Standards for storage equipment.
. (a) Classification. The determination
2.4 Material restricted under the Atomic' 2
.
7
2
S
t
o
r
a
g
e
o
f
c
l
a
s
s
i
f
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d
m
a
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r
i
a
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.
that official information or material re
Energy Act.
.73 Security stm-ageequipment, i2S Specialdepartmentalrequirementswith 2
quires, in the interests of national secur
2
.
7
4
C
l
a
s
s
i
f
i
e
d
document
c
o
v
e
r
s
h
e
e
t
s
.
respect tomaterialor information'or 2.75 Responsibilities ofcustodians.
ity, a specific degree of protection against
1'material relating to Intelligence or 2.76 Reportoflossorcompromise.
Unauthorized disclosure, coupled with a
k ''cryptography.
.77 Inquiry. '' c. '
^^ '
v• designation signifying that such a deter
2.6 Material or information furnished by a 2
2.78-2.79\ [Rre.
s>
e
>ig v
mination has been made.
';rv-ed] i.• «•f
foreign government or international ; .
i (b) Classified information. Official in
Subpart H—Transmission
organization.
formation or material which has been
2-7 Exemption from public disclosure.
2.80 General policy.
■
;2S Bureau responr-Mlity.' * determined by an appropriate authority
231 Preparation.
' -. v -•
2S.Individual responsibility.
' !2.82 TransmissionofTopSecret.
to require, in the interests of national
security, protection against unauthorized
^**part B—Security Classification Categories 2.83 Transmission of Secret.
2.84 Transmlsslon of Confidential.
disclosure and which has been so desig
i2.10'GeneraL
l 11
ission by personnel in travel nated.
I2*1® Thp Secret.
- ; ' 2.85. Transm
s
t
a
t
u
s
.
2.12 Secret.
- ■*;
•
'
(c); Classifier. An individual who de
2.86 Telecommunications transmissions.
[2
.13 Confidential.
termines that official information or ma
2
.
8
7
—
2
.
8
9
[
R
e
s
e
r
v
e
d
]
;
•2.14-2.19 [Reserved]- .• ' '
terial, not known by him to be already
Subpart I—Destruction of Classified Information classified, currently requires, in the in
Subpart C—Classification and Markings • ,
. and Material
terests of national security, a specific de
If? ^^gioai classification authority.
2.90 Methods ofdestruction.
Records of officials with classification 2.91 Approvalofuseofmulchingandshred- gree of protection against unauthorized
•299 S a"thorityding machines.
*
, disclosure and, having authority to do so,
I
®uideliuesfor classification.
designates that official information or
2.92 Destructionby burning., <
9 9I ®?r
ivaMve classification.
r* ,_i>V 2.93 Records of destruction. : " .
material as Top Secret, Secret, or Con
I
Marking of documents.
2.94 Destruction of nonrecordmaterial.
fidential.
I,
Classification, markings on documents. 2.95-2.99 [ReservedJ
Cd) Compromise. The known or sus
[2 ® Additional warning notices.
Subpart J—Training and Orientation
pected exposure of classified information
I-, P7®**1*marking and page marking. 2.100 Briefing ofemployees.
or material to an unauthorized person,
I Marking 6f material other than docu- .2.101 Debriefingofemployees. ' <
f
(e)' Declassification. The determina
|
ments.
2.102 Departmental administration. '
tion that particular classified informa
| -29 Downgrading, declassification and up- 2.103 Bureau administration.
?
. grading markings.
»•
- 2.104^-2.109 (Reserved] v. aaE
tion or material no longer requires, in
Title
SUBTITLE
FEDERAL REGISTER, VOL 38, NO. 138— THURSDAY, JULY 19, 1973
i
V . RULES AND REGULATIONS ^
he interests of national security, pro- quirements that another department or sècurifcy shall be classified in one of three
‘Ttion against unauthorized disclosure, agency may impose as to classified infor categories, namely. Top Secret, Secret, or
loupled with a removal or cancellation mation or material relating to com Confidential, depending upon the degree
munications Intelligence, intelligence of its significance to national security. No
oí theclassification designation.
|(f) Departmentg The Department of sources and methods, communications other categories shall be used to identify
fe Treasury, including all bureaus, of | security,'cryptography, and related mat official information or material as requir
fices, services and divisions.'
*.\v ters originated by th%t department or ing protection to the interests of national
1(g) Doumgrading. The determination ; agency.security, -except' as otherwise expressly
\at particular classified information or
§ 2.6 Material or information furnished provided by statute.-/'^ ■ ■ yxy-x^yy- v;
Material merits a lower degree of protec; by a foreign government or interna § 2.11 Top Secret, * ; V ' ; ‘
fconagainst unauthorized disclosure than
tional organization.
¿A
irrently provided, coupled with a chang
:= Top Secret refers to. that national
ing of the classification designation to ; ; Classified information or materisil fur security information or material which
nished to the United States by a foreign requires the highest degree of protection.
Trflect such lower degree. "
■ ih) information. Knowledge which can. government or an international organi The test for assigning a Top Secret clas
;becommunicated by any means.
í . sation *shall "either retain ; its original sification shall be whether its unauthor
■ Ü) Material. Any document, product, classification or be assigned a' United ized disclosure could reasonably be ex
forsubstance on or in which information States classification. In either case, the pected to cause exceptionally grave dam
classification shall assure a* degree of age to the national security. Examples
mayberecorded or embodied.
f(j) National security. ■ Atiy matters protection equivalent to that required of “exceptionally grave damage” include
earing directly on the effectiveness of by. the govëmment or international or armed hostilities¡$against ;the United
|henational defense and the conduct of ganization which furnished the informa States or its allies; disruption of foreign
t,/y:-.
yyJfo foreign relations of the "United tion or'material.
relations vitally, affecting the national
States. '
*§ 2.7 Exemption from public disclosure. ' security; the compromise of vital na
j(k) Nonrecord, material. Extra copies
Official information or material, which tional defense plans or complex crypto
End duplicates, Shorthand notes, pre- has
been classified to accordance with logic and communications intelligence
Iminary drafts, used carbon paper, one-;
the revelation of sensitive in
the
provisions
_the Executive Order systems;
fcmetypewriter ribbons, and other mate- and Directive, of
telligence operations; and the disclosure
is
expressly
exempted
pals of a similar temporary nature.; f
oqpL public *disclosure by section./552 of scientific or technological develop■ fl) Record material. AH documentary î•fr
(b)
(1) of title 5, United States Code. - ments vital to national security. This
ffaterial made or received by a depart- Wrongful
disclosure of such information ..classification shall be used with the
Bient or agency of the Government in of material
is. recognized in the Federal utmost restraint.,. / ■
■ mnection with the transaction of pub Criminal Code
as providing a basis for § 2.12^/Secret,
y
lic business and preserved as .evidence"
%
,
&&&*. §2 Secret refers to that national security
rbf the organization, functions, policies, .prosecution. ■ :f«
- information or material which requires a
Operations, decisions, procedures or other, § 2.8 -Bureau responsibility. ^
activities of any department or agency
Each , bureau head shall designate a -substantial degree of protection. The test
of the Government, or because of the ... member or members of his staff to con- for.assigning Secret classification shall
jmfonnational value of. the data, con-;' duct.a continuing review, of the imple- " be whether its unauthorized disclosure
ffeined therein. ' “
>
mentation of., the Executive Order and could reasonably be expected to cause
3
Restricted data. All data (infor- Directive^ and these regulations within serious damage to the national security.
■ ation) concerning:
.
his bureau. The Office of Administrative Examples of “serious damage” include
■ ^(1) Design, manufacture, or utiliza- Programs, Assistant Director,-(Physical disruption of foreign relations signifi
ponof atomic weapons;
gjMj
; Security) shall coordinate-bureau re- cantly affecting the national security;
Bf2) The production of special nuclear views and is authorized to determine pe- significant impairment of a program or
material; or .
I riodic or special reports, which may be policy directly related to .the national
f§
hse of special nuclear mater -required.. Copies of all régulations and security; revelation of significant mili
nai in the production of energy, but not procedures of general applicability issued tary plans or intelligence operations; and
jo include data declassified or removed , by heads of bureaus' shall be forwarded compromise of significant scientific or
horn the Restricted Data category pur- tothe Office of Administrative Programs, technological developments relating to
Igaot to section 142 of the Atomic Assistant
Director (Physical Security). national security. The classification Se
■ nergy Act, as amended, 42 UJS.C. 2162.
cret shall be sparingly used.
§ 2.9 Individual responsibility.
B2.3 Responsibility for implementation.
§ 2.13 Confidential.
/:
/ . Each employee, special Government
J¡Tbe Assistant Secretary for Adminis- employee, or consultant and each indi
Confidential refers to that national
wauon shall be respoi : hie for insuring vidual permitted access to classified in security information or -material which
ton tlVe.compliance wiih the implemen formation or material shall comply with requires protection. The test for assign
to?0*°I í?e ^ecuWve Order and Direc- the requirements of these regulations. ing Confidential classification shall be
lve an<1the regulations of this part.
The collection, obtaining, recording or whether its unauthorized disclosure could
Material restricted under the removing for any personal use whatso reasonably be expected to cause damage
..
•
.
I At°nnc Energy Act.
> ; \ ever, of any classified information or to the national security.
material
is
prohibited.
A
holder
of
classi
§§2.14-2.19
[Reserved]
these regulations shall súinformation or material shall observe
SdeTthfX re^uirements made by or fied
and respect the classification assigned Subpart C— Classification and Markings
Kttnenrt^6
Energy Act of 1954, as by
the originator. If a holder of classi § 2.20 Original classification authority.
Bf®8®cL Restricted Data” and mateinformation believes that there is
The authority to originally classify of
hata'*
P8 “formerly Restricted fied
Ked
^^^ied, protected, clas- unnecessary classification, that the as ficial information or material is re
iwiformit^fífí^ and declassified to signed classification is improper, or that stricted to the officials authorized under
4tomlr -evL
the provisions of the the document is subject to declassifica -Appendix A of these regulations. The
[and thA1161^ iAc^ i1
®
54*as amended, tion under the Executive Order, the authority inheres to the office and may
be exercised by the person acting in that
iergy CoSSom 118 °f ^
At0mlC holder shall so Inform the originator.
-office. Officials authorized to classify in
î . Subpart B—-Security Classification
formation or material as Top Secret or
departmental requirements "
.. . u
. Categories
Secret shall not redelegate such author
i terinireSiPeí:t to information or ma- §2.10 General. - •
ity. However, as provided by Appendix A,
[ tography!*1" 6 l° in te lliSe n ce o r « 7 P ; Official information or material which such officials are authorized to delegate
^ these regulations shall pro- requires protection against unauthorized Confidential classification authority
Pliance with any special re-. disclosure to the interests of national Delegations of such authority shall be
W
FEDERAL REGISTER, VOL 38, NO. 13B— THURSDAY, JULY 19, 1973
19324
RULES ÀNDYREGULATIONS
reported in writing to the Assistant Se- roriginal classifier When known, 'Tn ! ¿11 '(TOP SECRET, SECRET ORiOONDFIDENtcretaryior Administration. These delega- bases, the'official responsible for execut-* TIAL) CLASSIFIED BY
___
:tions shall be limited to the minimum ing the "classified by" line on the stamp EXEMPT FROM GENERAL DECLASSIFICA
Inumber absolutely required for efficient shall establish and retain adequate rec TION SCHEDULE OF EXECUTIVE ORDER
11652 EXEMPTION CATEGORY (§5B (1),
^administration.
1
ords to support his action.
(2). (8), or (4)) AUTOMATICALLY DE§2.21Record of officials with classifica- § 2 .2 4 M ark in g o f docum enta.
’ . vi •■CLASSFIED ON__ __________
... tion authority.,
•
’*-4.-,-.vv,;r',v (effectivedateorevent,ifany)
/ Ha) Purpose of designation. Designa
The Assistant Secretary for Adminis-. tion by physical marking, notation or
The "Restricted Data” and "Formerly
tration shall maintain a listing by name 1-other means, serves to inform and to Restricted Data” stamps (see §2.26 (a),
and position of the officials in the | 'warn the holder of the classification of .(b) ) are in themselves, evidence of ex
Office of the Secretary who are au the information involved! the degree of emption from the General Declassifica
thorized under these regulations to protection against unauthorized dis tion Schedule.. ... %t*....>
*ti ...
originally classify documents as Top closure which is required for that partic - <d) Failure to mark document. Should
Secret, Secret, or Confidential. Officials ular level of classification, and to facili the classifier inadvertently' fail to mark
within the Office of the Secretary with tate downgrading and declassification a document with one of .the foregoing
“Top Secret” or "Secret” classification actions.
| stamps, the document shall be deemed
fM . r'r.
authority shall report in writing to the . (b) Wholly unclassified material! to be subject to the General Declassifica
;Assistant Secretary for Administration Normally, unclassified material should tion Schedule. The person who signs or
the names of the officials designated in not be marked or stamped “Unclassified” finally approves a document or other
writing to have original Confidential unless it is essential to convey to its •material containing classified informa
classification authority. The head of recipient that it has been examined spe tion shall be deemed to be the classifier.
each bureau shall maintain a listing of cifically for the need of a security classi- ’. If the classifier is another person, the
the,officials in his bureau authorized to fication or control designation and has individual shall be identified on the
apply an original Confidential classifica been determined not tos require such . stamp as indicated.-:..’.'
tionand shall furnish a copy of each list classification or control. However, pre
ingtothe Assistant Secretary for Admin printed forms such as telegrams which § 2.26 Additional warning noticed
istration. This listing shall be compiled make provision for an assigned classifi - In addition to the foregoing.marking
as of July 1, 1972, and updated at least cation shall include the term “Unclassi- -' requirements, warning notices-shall be
ona quarterly basis.
. , . : ¡¡ggsv? "■fied” if the information contained in the prominently displayed on classified docu
text is not classified. Envelopes contain ments or materials as prescribed below.
§2.22 Guidelines for classification.
. When display of these warning notices
Each person possessing original classi ing unclassified information to be sent by ' on the documents or other materials is
fication authority shall be held account diplomatic pouch must be marked or - not feasible, the warnings shall be inable for the propriety of classifications stamped “Unclassified” on both, sides.
eluded in the written notification of the
attributed to him. Both unnecessary § 2.23 Classification markings on docu- ' assigned classification.
//
classfication and over-classification shall 3■ i ments.
(a)
Restricted data. FoiTclassified in
be avoided. Classification shall be solely _, At the time of origination, each docu formation or material containing Re
on the basis of national security con- ment or other material containing classi stricted Data as defined in the Atomic
»derations. In no case shall information fied information shall be marked with its EnergyAct of 1954, as amended:. 5.
be classified in order to -conceal in assigned security classification and
; . - .
j§ R e s t r i c t e d D a t a efficiency or administrative error, or to whether it is subject to the General De-,
T
his
document
contains Restricted Data
prevent embarrassment to a person or classification Schedule, whether it can.
the Department, to restrain competition be declassified earlier, or whether it is ' as defined in,the Atomic Energy Act of 1954,
as amended. Its dissemination or disclosure
or independent initiative, or to prevent exempt from the General Declassifica t
o any unauthorized person isprohibited.
for any other reason the release of in- - tion
Schedule. -«
, \4 J."
,formation which does not require pro(b) Formerly restricted data. For clas. (a) General Declassification Schedule. techon in the interest of national se For
sifted information or material containing
marking
documents
which
are
sub
curity. If the classifier has any. sub
to the- General Declassification solely Formerly Restricted Data, as de
stantial doubt as to which security ject
Schedule, the following stamp shall be fined In section 142.d, Atomic Energy Act
classification category is appropriate, or used: - 5V->..
-I ,.
\
•;/
\ of 1954, asamended: . .,
to whether, the material should be
*
F o r m e r l y R e s t r ic t e d D a ta
(TOP
SECRET,
SECRET
OR
CONFI
classified at all, he should designate the
DENTIAL) CLASSIFIED BT..___‘l___■
UnauthorizeddisclosuresubjecttoAdmin
less restrictive treatment.
SUBJECT TO GENERAL DECLASSIFICA istrative and Criminal Sanctions. Handle as
TION SCHEDULE OF EXECUTIVE ORDER'..Restricted Data in Foreign Dissemination.
§2.23 Derivative classification.
'.
11662 AUTOMATICALLY DOWN GRADED
• Any person who incorporates into a* AT TWO-YEAR INTERVALS AND DE Section 144.b,Atomic Energy Act, 1954.
(c) . Other ' classified information
new document or"ether material infor CLASSIFIED ON DEC. 31 (Insertyear) .
iotfCer than restricted data or formerly
mation or material previously classified
(b) Accelerated <rj Declassification restricted data). For classified informa
oy an authorized official, as a.result of,
^ connection with, or in response to ex- Schedule: For marking documents which tion or. material furnished to persoiis
song material dealing with the same are to be automatically declassified on outside the executive branch of Govern
bject which already bears a classifies^- a given event or date earlier than the ment other than as described, in items
'
.
- on, shall reflect the original classifica- General Declassification Schedule the (a) and (b) above:
rl^n ,^nc* the identity of the original following stamp shall be used:
N a t io n a l S e c u r it y I n f o r m a t io n
assifier on the new document or other (TOP SECRET, SECRET OR CONFIDEN
Unauthorized Disclosure Subjectto Crimi
material.Performance of this duty shall TIAL) CLASSIFIED BY _______ ____ nal
Sanctions.
sb ^^titute original classification. If AUTOMATICALLY DECLASSIFIED ON
(
e
f
f
e
c
t
i
v
e
d
a
t
e
o
r
e
v
e
n
t
)
Example:
Date
o
f
(d)
Sensitive intelligence information.
t , J" “be classified information con- Public Release - -.
. ,.... -,
For classified information or material re
document is classified due to
(c) Exemptions from General De- lating to sensitive intelligence sources
snnr« Ca^on ^Posed by a single outside
no orteinal classification is classification Schedule. For marking and methods, the following warning no
“classified by” line of the documents which are exempt from the tice shall be used, in addition to and in
identify the source docu- General Declassification Schedule, pur- . conjunction with those prescribed in
-offi . Chiding its date and also the suant to §2.34, the following stamp shall paragraphs (a), Ob), or (c) of this sec
cial title and organization of the be used:
„ H
. ■ . ■ • • -'V tion, as appropriate:
.
>
FEDERAL REGISTER, VOL 38, NO. 138-—THURSDAY, JULY 19, 1973
RULES AND REGULATIONS
I
19325
BaRNING NOTICE— SENSITIVE INTELLI- V (a) Books or pamphlets. Permanently chine and Automatic Data Processing
MGENCE SOURCES AND METHODS IN-; bound books or pamphlets are to be con (ADP) tapes shall bear external mark
1-yoLVED;
spicuously marked with the assigned ings and internal notations sufficient to
§2.27 Overall marking and page mar&-;£ classification or control designation at assure that any recipient of the tapes,
T ing.
v*y^îV*''.y~Z~i the top and bottom on the outside of the or of the classifiedInformation contained
cover, on the title page, on the first, therein when reproduced by any medium,
KThe overall classificatioii of a docu-; front
page, on the back page, and on the out will know that classified information of
*ent, whether or not permanently^ side
of the back cover. Other required a specific classification category is
‘Çnd, or any copy or reproduction markings
■■■
must be placed on. the outside _involved.-: I.';-- y - t y ^ y
[ereof, shall be conspicuously marked of the front
cover..
(g)
Pages
of
Automatic
Data
Process
toistamped at the top and bottom of the
Ktside of thé front cover (if any), on ;i (b) Reproducible masters. Reproduc ing listings. Classification markings on
feetitle page (if any), on the first page, ible masters such as airgrams, mimeo pages of listings produced by1ADP equip
|6hthehack page,'and on the outside of . graph stencils, hectograph masters, pho ment may be applied by the equipment
% back cover (if any) . To the extent tostatic negatives, or multilith plates provided that the markings so.applied
cticable, each interior page of a docu used in the reproduction of classified or are clearly distinguishable on the face of
m
ent which is not permanently bound administratively controlled documents the document from the printed text. As
be conspicuously marked ; or are to be marked so that each copy made a minimum, such listings shall be marked
mped at the top and.bottom accord-1 from,them will show the classification or with the security classification on the
tngtoits own content, including the des- control designation and other required first and last pages of the listing and on
ition “Unclassified” /when appro-, markings. ’ Preprinting of paper with" the front and back covers,, if any, as
|classification control designation, or previously prescribed in §2.25.
ate. j
|
.>
declassification
[(a) Paragraph marking. Whenever a _ other pertinent markings, Is authorized. | § 2.29 Downgrading,
and upgrading markings.
ified document contains either more * (c) Photographic negatives, prints,"
ianone security classification category slides and filme. Whenever possible, pho- $ Whenever a change is made in the
■ unclassifiedInformation, çach section, tographic negatives and slides are to be original classification or in the dates of
'rt, or paragraph should be marked to marked with the assigned classification downgrading or declassification of any
.eextent practicable to show its class!- : or control designation at the top,and classified Information or material, it
ation category or that it is unclassi- bottom on the front. Photographic nega shall be promptly and conspicuously
,Whenappropriate, the classification ~tives to roll form contain the assigned marked to indicate the change, the au
f eachparagraph (including “Unclassi- classification or control designation at thority for the action, the date of the
JSed”) may be indicated by closing the the beginning and end of each roll. In all action, and the identity of the person
iph with the appropriate classl- cases, photographic prints are to be taking the action. In addition, all earlier
tion symbol for that paragraph, as marked at the top and bottom of the classification markings shall be canceled,
front and on the back with the classifi Jf. practicable, /but in any event on the
■ lows: (TS), (S), (C), (UNCLAS).
§(b) Subjects, titles, abstracts and cation and control designation. If addi first page. ■' -yyy^-r-yt
'ex terms. Subjects, titles, abstract^ tional special markings are required, ap- * v: (a) Markings for large quantities of
**ï
'd indexterms shall be selected, if pos- . ply them conspicuously.
material, JTVhen the volume of informa
,le, so as not to require classification.- 5 (d) Charts, maps and drawings. Oaurbs, tion’or material is such that prompt re
^wever, a classified subject, title, ab- maps and drawings shall bear the appro- ! marking of each classified item could
' or index term may be used when priate classification marking .under the not.be accomplished without unduly in
^cessary.to convey meaning1
. To show legend, title block or scale, in such man terfering with operations; the custodian
;classified of unclassified status, each ner as to differentiate between the clas may attach downgrading, declassifica
.h item shall be marked with the ap- sification assigned to the document as a tion, or upgrading notices to the storage
jopriatesymbol, (TS), (S), (C),or (U)£ whole and .the classification assigned to -unit in lieu of the re-marking otherwise
lacedimmediately following and to the the legend or title, and so thatit can be required. Each notice shall indicate the
Jht of the item. When appropriate, the : reproduced on all copies made. The change, the authority for the action, the
abois (RD) and (FRD) shall beadded. markings also shall be Inscribed at the date of the action, the videntity pi the
fc>m e, folder or group of documents. top and bottom of each such document. person taking the action, and the stor
foyers or groups of..documents Where the customary method of folding age units to which it applies. When in
11be conspicuously marked to assure, or rolling charts, maps or drawings would dividual documents or other materials
i f Protection to a degree as high as cover the'classification markings, addi are withdrawn- from such storage units
m
the most highly classified docu- tional classification markings shall be they shall be promptly re-marked in
Jpat included therein. Documents sep- placed so as to be clearly visible when Accordance with the change, or if the
documents have been declassified, the
.tedfromthe file,'folder or group shall the document is folded or, rolled.
n*i?arIîe<*85 Prescribed herein for in- ■ Ce)- Decks of . accounting m achine old markings shall be canceled. How
«Fidual documents.
cards* A deck of classified accounting : ever, when information or material
transmittal documents. A trans- machine cards need not be marked in subject to a posted downgrading,' up
, tai document shall carry on it a dividually. but may be marked as one grading, or declassification notice„are
notation as to the highest single classified document so long as they withdrawn from one storage unit solely
ikt^-Caf'101?' °t the information which remain within the deck. A deck so for transfer to another, or a storage unit
%
tt, and a legend showing marked shall be stored, transmitted, de containing such documents or other ma
^toiajS^ca^0n*tt any, of the trans- stroyed and otherwise handled in the terials is transferred from one place to
document standing alone. For ex- manner prescribed for other classified another, the transfer may be made with
eL*fo,~e case of an unclassified doc- " documents of the same classification. An out re-marking if the notice is attached
W «,
transmits as an attach- additional card shall be added, however, to or remains with each shipment.
(b)
Upgrading.' When material Is up
£ fQ^,classi^ed document, it shall bear to identify the contents of the deck and
^ follows: “RE- the highest classification involved. Cards graded under the provisions of these reg
UNCLASSIFIED WHEN SEP- removed for separate processing or use, ulations, it shall be-promptly and con
IC iS ot? 051 CLASSttlED AT-. and not immediately returned to the deck spicuously marked, except that in all
after processing, shall be protected to such cases the old classification mark-'
prevent compromise of any classified in ing shall be canceled and the new sub
J
of nimeriül olher than formation contained therein, and for . stituted therefor.
.
■#. documents.
p i à fc S f# this purpose shall be marked individually
»•-(c) Marking of classified telegrams.
•-material ; cannot' be as prescribed herein for’ an Individual .Information contained in Top Secret,
notification of the ordinary document. v" ‘ Secret, and Confidential telegrams is
V S 1
°aotherwlserequired in mark--; (f) Electrical machine ctnd Automatic ' subject to automatic downgrading, deL
accompany such material, ; Data' Processing .Tapes. Electrical ma- classification, and decontrol procedures
2
TEDERAL REGISTER, ' V o S p S ? N O . ' 138— THURSDAY, JULY 19, 1973
19326
RULES AND REGULATIONS;
to the same extent as the substantive ■ § 2.31 Guidelines for downgrading and "event for automatic declassification. The
;;declassification.:
É
contents of nontelegraphic documents.
use of the exemption'authority shall be
In o rd er to eliminate costly transmis
■•The individual exercising original cías- f kept to the absolute minimum consistent
sions, standard abbreviations for required sifying authority shall, to the maximum with national security requirements and
notations have been substituted, and will extent practicable, predetermine at the shall be restricted to the following cate
appear-as the final unnumbered para time of origination, dates or events on gories: . s| ' ~graph of the message text, as follows: > which downgrading and declassification ; ~(a) Classified information or material
(1) For classified information that has shall occur. These dates shall be as early furnished by foreign governments or in
been assigned to the General Declassifi- ; as the national security will permit, and ternational organizations and held by the
cation Schedule, add the abbreviation: shall be in accordance with the limits of! United States on the understanding that
GDS. : :
. - ' flj - ¿'¿¿3' H
the dates of the General Declassification it be kept in confidence. |
(2) For classified information that is. Schedule, as set forth in 52.33, only if ? : (b) Classified information or material
to be declassified without reference to earlier dates; cannot be predetermined/ specifically covereckby statute, or per
the General Declassification Schedule,
taining to cryptography, or disclosing inadd: ADS (Accelerated Declassification § 2.32 Dales or events; carried forward. ■;telligence sources* or methods. ; H
Schedule) r DECLAS (insert date or 4 Downgrading / and declassification
.(c) Classified information or material
other event or condition for declassifi dates or events established in accordance disclosing a system, plan, installation,
cation) .
&RS with §2,31 shall be carried "forward and /project or specific foreign relations mat
: (3) For classified information that applied whenever,the classified informa ter the continuing protection of which is
hasbeenexempted from the General De- tion or. material is incorporated in other essential to the national security.
classification Schedule, add: XGDS (in ,documents or material. .
1Ip? Td) Classified information or material
sert the category number 5B (1), (2),
the disclosure of which would place a
§
2.33
General.
Declassification
Sched-.
(3), or (4) ; DECLAS (insert appropriate
|person in immediate jeopardy. ;.
É
ule.
.
‘
■
iv
.
_
%
/
•
|
g
|
date).;
(4) The following abbreviations may ’ Classified information and material, §2.33 Applicability of‘tKè General Declassification Schedule to previously
be submitted for the warning notices unless downgraded or declassified ear
classified'material. ;jj^SB
indicated in §2.26: RD (Restricted lier under the provisions of §2.31 or
Data)' FRD (Formerly Restricted exempted from the General Declassifi ' Information or material classified be
Data) ; NSI (National Security Informa cation Schedule under §2.34, shall be fore June 1, 1972, and which is assigned
tion); SIS (Sensitive intelligence assigned a date or event on which down to Group 4 under Executive Order 10501,
Sources and Methods).
'
v ;s
grading and declassification shall occur as amended by »Executive Order 10964,
(5) While the above abbreviations of in accordance with the prescribed limits shall be subject to the General Declassi
warning notices are accéptabïe for tele of the General Declassification Schedule fication Schedule. All other information
grams, the preferred method is to include outlined below:
. : .
or material classified before June 1, 1972,
the warning notice as part of the mes
(a)
Top Secret. Information or matewhether or not assigned to Groups 1, 2
sage text. This procedure will immedi rial originally classified Top Secret shall or 3 of Executive Order 10501, as
ately alert all recipients to the sensitivity become automatically downgraded to Se amended, shall be excluded from the
of themessage and the possible special cret at the end of the second full calen General Declassification Schedule. Howhandling requirements, For example, dar year following the year in which it 'ever, 'St any time after the expiration of
when classified information pertaining was originated, downgraded to Coxifi- ten years from the date of origin it shall
to sensitive intelligence sources and dential at the end of the fourth full cal be subject to a mandatory classification
methods is used in a telegram, the first endar year following-the year in which' 'review and disposition under the same
line of the message, text shall read as it was originated, and declassified at the conditions and criteria that apply to
follows: i ■ ';•-âspgfj r
end of the tenth full calendar year fol classified information and material
WARNING N OTICE—
M
lowing the year in , which it was ; created after June 1, 1972, as set forth in
§ SENSITIVE IN TELLIG EN CE
originated. ; '
§§2.34 and 2.36. r ,
*
SOURCES AND METHODS
’’
• (b) Secret. Information and material § 2.36 Mandatory jreview of material
INVOLVED
.
originally classified Secret shall become
over ten years old.
In all instances, drafters incorporating automatically downgraded to Confiden
classified information from materia tial at the end of the second full calendar
Members of the public or other depart
bearing a~warning notice or exemption year following the year in which it was ments wishing to request review of clas
fromthe General Declassification Sched originated, and declassified at the end sified material over ten years old in the
ule must ensure that the warning notice of the eighth full calendar year following custody of the Department of the Treas
and/or exemption is “carried over” to the year in which it was originated.
u ry shall apply in writing to the Office
thenewdocument.
<(c) Confidential. Information . and of Assistant Secretary for Administra
The record copy of' all electrically material originally classified Confidential tion, Department of the Treasury, Wash
transmitted messs is must, of course, 'shall become automatically declassified ington, D.C. A request must describe the
contain all information required by the at the end of the sixth full calendar year material desired to be reviewed with
Executive Order. It therefore must con following the year in which it was sufficient particularity to enable the De
tain the name and initials of the official originated. r
v ^ > •- ¡ partment to identify it and obtain it with
authorizing the classification, the dea reasonable amount of effort.
classification schedule' and exemption § 2.34 Exemptions from General De(a) Action upon receipt of request for
classification Schedule.
_ ;
irom the schedule, if appropriate.
review. The Assistant Secretary for Ad
Certain classified information or ma ministration shall immediately forward
Subpart D— Downgrading and •
terial may warrant some degree of pro the request for review of records over
; .
Declassification
tection for a period.exceeding that pro ten years old to the appropriate officer
§2.30 Authority to downgrade and de vided in the General Declassification of the Department of the Treasury hav
classify.
Schedule. An official authorized to orig ing Top Secret classification authority
au^°rity to downgrade and de- inally classify information or material and shaU acknowledge receipt of the re
■mof •rnational security information or Top Secret may exempt from the Gen quest to the requester in writing. If the
rrv0,?na* w^hin the Department of the - eral Declassification Schedule any level request requires the rendering of services
asury shall be restricted to the offi of classified information or material for which fair and equitable fees should
cials authorized under Appendix À of originated by him or. under his super be charged pursuant to 31 U.S.C. 483a,
if it falls within one of the cate the requester shall be so notified. The
ihyf regu*a^ons-Delegations of author- vision
gories described below. In each case such officer to which action has been assigned
to downgrade or declassify shall be official
shall specify in writing on the shall, whenever the request is deficient
ported in writing to the Assistant Sec material the exemption category being in
its description of the record sought,
tary for Administration.
*
•
«
*
«
claimed and, unless impossible, a date or ask the requester to provide additional
FEDERAL REGISTER, VOL. 38, NO. 138— THURSDAY, JULY 19, 1973
.
RULESAND REGULATIONS
-p ;
19327
[identifying. information _ whenever tion is authorized to assign'personnel to formation' and material on the ground |
assist the Achivist of the United States of exemption under 5 U.S.C, 552(b) (1)
Ipossible, 1- (b) initial determination. The request .,in the exercise of this review responsi ^except decisions of the Secretary of the
fshall be reviewed and a detenpination
bility with respect to classified material ^Treasury continuing the classification of
originating within the Department of the material over thirty years old under Part
Treasury. Such personnel shall: (a) pro m D of the Directive and §2.40.
vide guidance and assistance to archival
(c) Action upon complaints in the ad
employees in identifying and separating ministration of the Executive Order and
those, materials originated in the De Directive and these regulations.
partment which are deemed to require
(d) Establish the' policy of the De
continued classification; and (b) develop partment with respect to the enforce
a list for submission to the Secretary of ment of the Executive Order and Direc
the Treasury, with recommendations tive and these regulations.
{ &.
concerning continued classification. The ; § 2.42 Burden of proof. Î '
Secretary of the Treasury will then de
termine which of the materials listed re-i ' i For purposes of administrative deter
prithacopyof that statement. ^
.quire continued protection because such minations under1§§2.36 and 2.40, the
(c)
Right of appeal to the Depart“-continued protection is essential to the burden of proof is on the originating
[mental Committee on National Security national security or disclosure would office In the Office of the Secretary or
IInformation. If the request is denied or place a person in immediate jeopardy. the bureau to show that continued clas
mo answer is received after sixty days, The Secretary of the Treasury will pro sification is warranted within the terms
[therequester may appeal to the Depart- vide the Archivist with a list which iden-. of the Executive Order and Directive.
imental Committee on National Security tifies the documents deemed to require § 2.43 ' Notification of change in classi¡Information as provided by Appendix A. continued classification, indicates the;
fication or of declassification.
¡The Departmental Committee shall act reason for continued classification and
;
When
classified information or mate
upon the appeal within thirty days. JT ; specifies the date on which such material j
rial Is downgraded or declassified in a
(d> Right of appeal to the Interagency shall be declassified.
:
manner other than originally specified,
[Classification Review Committee. If the
Mandatory, review ofp material. whether scheduled or exempted, or is up
¡Departmental Committee determines ,§ 2.40
o
v
e
r,
thirty
.years
old.
graded, or is subject to a change in ex
[that continued classification is required,
(&") Action upon receipt of request. The emption status, the classifier or the cus
¡K shall also,so notify the requester and
[that he may appeal that denial to the Assistant Secretary for Administration todian of the records shall, to the extent
[interagency
Classification
Review shall immediately forward the:request practicable,, promptly notify .all ad
for review of'records more than thirty dressees to whom the information or ma
[Committee.
f
terial was originally officially trans
[§2.37 Declassification of material over. years old to an appropriate office of the mitted. The recipients of thiis notifica
Department
of
the
Treasury
and
shall
I thirtyyearsold.
7
acknowledge receipt of the request to tion shall notify addressees to whom in
[ All classified information or material * the requester in writing. >^ n v , f j turn they have transmitted the classified
[which is thirty years old or more over
(b) Determination by the Secretary. information or material. > ;/ ; *
which the Department exercises exclu That office shall review the request and >§§ 2.44—2.49— [Reserved] “ 1 7:
sive or final original classification au- within twenty-one days forward to the
| 7; Subpart E—-Access
jthority is subject to declassification as Secretary of the Treasury through the
|provided in §§2.38-2.40.
Assistant Secretary for Administration § 2.50 —General.'¿i
IS2.38 Automatic declassification of a recommendation whether continued
Access
to
classified
information
shall
thirty-year-old material originated classification is required under the be granted only In accordance with the
criteria of §5 2.38-2.39. The Secretary
after June 1,1972.
regulations provided in Part VIA of the
shall
make a determination based on. Directive as supplemented by the regu
All information and material 'dassi- that recommendation.
.\v*. Ined after June 1, 1972, whether or not
(c) Right of appeal to the Interagency lations of this part. No individual shall
¡declassification has been requested, be- Classification Review Committee.: J1 the be entitled to receive or handle classified
|comes automatically declassified at the Secretary of the Treasury determines information or material solely because
fwtd of thirty full calendar years after that continued classification is required, of his official position or because he has
[the date of its original classification ex the Assistant Secretary, for Administra- . a valid security clearance. He must have
cept for such specifically identified in- tion shall promptly notify the requester in addition the need for access to the
Ijormation or material which the Secre- that he may appeal that denial to the particular classified information or ma
the Treasury personally deter- Interagency Classification Review Com terial sought in connection with the per
[mines in writing at that time to require mittee, and, whenever possible, shall fur formance of his official duties or con
gWtaued pr°tection against unauthor- nish .the requester with a brief state tractual obligations. The determination
iLw ^l?c^
osure because such continued ment why continued classification is re of the need shall be made by the official
having the responsibility for the safe
protectiQnis essential to the national se- quired. : -L—ir
guarding of the classified information
hrTtor ^ctosure would place a person „
1- - _
'•
■ remediate jeopardy. In such case, the- § 2.41 -Departmental Committee on Na- or material.
— tional Security Information. _
^ § 2.51 Access by historical researchers.
[oecretaryof the Treasury shall also specA Departmental Committee on Na
[tion^ Per*0<*
continued classifica(a)
-Requirements for grant of access.
tional Security Information is established Persons
outside the executive branch
which
shall
be
composed
of
the
Assistant
|§2.39 Sygtcmatic review of tliirty-yearSecretary for Administration, as chair engaged in historical research projects
1 1972tCrial or*®
*na*e<^before June man, the General Counsel and the Spe desiring to request access to classified
information or material under the con
cial Assistant to the Secretary (National
m Æ ^formation and material classl- .Security), as members. The functions trol of the Department shall apply in
E P ® 6 June 1, 1972, and more than of the Departmental Committee shall writing to the Office of the Assistant
Secretary for Administration* Depart
revwZf*rs °b* ^ to be systematically include the following: ,
ment of the Treasury, Washington, D.C.
decl&ssification by the Ar(a) Review of and action upon appli The request for access may be granted
oftho
States by the end
I
thirtieth full calendar year follow- cations-and appeals regarding requests provided that the Secretary of the Treas
for declassification, as provided in 52.36. ury determines that: | * %-‘ '
ITh» fear ^ “wbicb it was originated.
(b) Review, upon request, of all deci- | (IX Access is clearly consistent with
| Assistant Secretary for Administra- sions denying Treasury Department in- the interests of national security. ; ,
¡made within thirtydays after the receipt
lof Identifying information whether con-;
Itinued classification is required under the
¡criteria of §2.34. If the request is denied,
¡the determining officer must indicate to
¡the Assistant Secretary for Administraftion in a brief statement the reason-for
¡continued classification and, unless im- î
¡possible, specify the date on which^such
[matter shall be declassified. Whenever
[possible, the Assistant Secretary for AdIministration shall furnish the requester ;
FEDERAL REGISTER, VOL. 38, NO, 138— THURSDAY, JULY 19, 1973
■9328':
I I J
R U L K AN D ^ R E G U M T lO N S t ^ ;
«2) The information or material re sistént with the Executive Order and; | (b) Top .Secret ' documents shall be
vested is reasonably accessible and can .Directive.
sequentially numbered in a calendar year
[belocated and compiled with a reason
(b) Upon request of any'such former; series by Top Secret Control Officers as
able amount of effort.,Ï S'
official, such information or material as received, by them; and the' number shall
K(3) The historical ^researcher agrees he may identify shall be reviewed for be posted to the Top Secret document,
•"tosafeguard the information or material declassification in accordance with the Treasury Form 403f and Treasury Form
|in a manner consistent with the Execu provisions of Subpart D. The former. 2747 Revised (Classified Document Ac
tive Order and Directive.
Presidential appointees referred to herein countability Record).
v(4) The historical researcher agrees do not include the White House staff, or
(c)
Top Secret Control Officers shall
[to authorize a review of. his notes and members of special Presidential commit
maintain current records of persons
Kanuscript for the sole purpose of deter tees or commissions. ;Q
.'.within their respective office or bureau
mining that no classified information or
§ 2.54 Dissemination by theDepartment"- who are cleared for access to Top Secret
material is contained therein, \ ■
of classified information or material information or material.
K (b) Period of access authorization. An
authorization for access shall be valid v ; originated by another department. . -1§2.62 Accountability of classified maifor the period required butano longef . Classified information or material, ■;■ ■terial. "
ft**' YyfQpfc/ ■ban two years from the date of Issu originating in another department and
Treasury Department Form 2747 Re
ance unless reviewed by thè Secretary made available to the Department of the
(Classified Document Account
['of the Treasury upon written applica Treasury shall not be disseminated out vised
ability Record) shall.be the exclusive
tion to the Office of the Assistant Secre side the Department without the consent classified document accountability record
tary for Administration, Department of of the originating department.
for usé within the Department of the
«he
Treasury,
Washington,
D.C.
■' •
..
--v>V.^
->| §§ 2.55—2.59—-[Reserved]
.Treasury. No other logs or records fehall
§2.52 Access by certain officials and
be required except for the use of Treas
v < Subpart F— Accountability
K employees of Federal Reserve Banks. ury Form 4031 for Top Secret material.
§ 2.60 Top Secret Control Officers.
Form 2747 shall be used for single or
■ (a) Requirements for grant of access.
Each Treasury bureau and'the Office multiple document receipting, internal
officials' and employees of-Federal re
serve banks, which are authorized to of the Secretary shall designate a Top and external routing, and as a certifi
ferve as fiscal agents of the United Secret Control Officer. Top Secret Con cate of destruction. The inclusion of
[States and perform functions related to trol Officers so designated shall receive, classified information on Form 2747 is
the issuance and redemption of United maintain current accountability records prohibited. In' the event the subject title
¡States securities,-may be granted access- of, and dispatch Top Secret material, and is classified, a recognizable short title
[toclassified national security' informa shall also conduct an annual physical in shall be used, e.g„ first letter of each
tion or material by the Under Secretary ventory of all Top Secret material. Top letter word in the subject title. Several
gor Monetary Affairs, or his designee, Secret Control Officers shall conduct the items may be transmitted to the same
Jpen: (1) the information is classified required physical inventory in the pres addressee under the cover of one Form
M-a Treasury officials or consent for ence of a disinterested individual and 2747. When thé original and/or copies
»semination to the Federal Reserve shall complete the same by the first day of the document are destroyed, the de
bankhas been obtained from the origi- of May. Any Top Secret document un struction^certificate section of the form
[gatingdepartment, under §2.54; (2) the accounted for must be reported to the shall be*completed to include the date
pederal Reserve bank officials or em- Assistant Secretary for Administration. and method of destruction and signed by
»yees need to have knowledge of such Top Secret Control Officers shall conduct the individuals accomplishing the.de
^■ formation or material in connection periodic reviews of Top Secret documents struction. Form. 2747 may be. destroyed
■ m activities approved by the Under within their control to insure that those three years after the date of the final
secretary for Monetary Affairs, or his Top Secret documents subject to the Gen disposition of the document.
fsignee, as being in the interests of the eral Declassification Schedule are down-,
(a) Top Secret material. Top Secret
pted States; and (3) the Federal Re- graded or declassified as required.
'material shall be subject to a continuous
?rve
officials and employees are
receipt system regardless of how brief
pared by the Department of the Treas- § 2.61 Control pf Tojj Secret Material. the period of 'custody..Treasury Form
^ under the procedures and standards
(a) A Treasury Department Form 4031 2747 shall be used for this purpose. Top
Elcfees
Treasury officials and :(Top Secret Document Record) shall be Secret accountability records shall be
attached to the first page or cover of the maintained by Top Secret Control Offi
(b) Adjustment or vnthdrawal of se- original and each .copy of Top Secret cers separately from the accountability
J 1$ foran ee. The Under Secretary material. The Top Secret Document Rec records of other classified material.
shniiM°ne^
ary Affairs, or his designee, ord shall be completed by the Top Secret
(b) Secret material. Receipt on Treas
snauaiso be responsible for adjusting or Control Officer, and shall identify the Iury Form 2747 shall be required for
Top
Secret
material
attached,
and
shall
the purity clearance of
transmission of Secret material between
Reserve bank official or em- serve as a permanent record of the ma- -bureaus, offices and saparate agencies.
terial.
All
persons,
including
stenographic
ckLfiJj110 no longer needs access to
Responsible officials shall determine ad
^at,ional security information and clerical personnel, having access to ministrative procedures required fgr the
û e c ï ï « a particular level in con- the material attached to the Top Secret internal control within the respective
duties11
the official performance of Document Record must sign and date_ offices or bureaus. The volume of clas
the Treasury Form 4031 prior to accept-"* sified material handled and personnel
ing responsibility for its custody. The resources available must be considered in
P.53 Access by former Presidential Treasury
Form 4031 shall indicate those determining the practical balance be
» appointees.
individuals to whom only oral disclosure tween security measures imposed and
■ iw
who previously occupied is made. The Top Secret Document Rec the attainment of operating efficiency.
Positions to which they ord shall remain attached to the Top
(c) Confidential material. Receipts
Xhoiwi^^ by the President may be Secret material until it is either trans for Confidential material shall not be
to classified informa- ferred to another U.S. Government required unless the originator clearly
reviewed sÉ S ÏÏ Which they originated, agency, downgraded, declassified or de indicates that receipting is necessary.
lieoffice
°I received while in pub- stroyed. Whenever any one of these ac
theTreasirv^?^ tï at the Secretary of tions is taken, the Top Secret Control § 2.63. Restraint on reproduction.
(1) access
‘ Documents or portions, of documents
of nationa,consistent with the interests Offlcér shall record the action on the Top containing Top Secret information shall
dentiSaTS i^ unty: and (2) the Presi- Secret Document Record and retain it not be reproduced without the consent of
InformatSÜÎ ^ tgrees to safeguard the for a period of three years at which time the originating office and any reproduc
■
nor material in a manner con- it may be destroyed.
. y É -T
tion so authorized must be appropriately
FEDERAL REGISTER, VOL. 38, NO. 138— THURSDAY, JULY 19, 1973
3 ;
RULES AND REGULATIONS ^
1
m
19329
introlled. The authority for reproduc case may be, established under §2.71 and § 2.74. Classified document coyer sheetsT
Z syfc.-l
en shall be noted on the copy from Appendix A of the Directive*in order to alert personnel to the fact
laichthe reproduction is made. The of- § 2.73 ' Security storage equipment. •
that a document or folder is classified
Jce reproducing Top Secret material
(a) Combinations. Combinations to and to protect it from unauthorized
Tallplacethis material under Top Secret
scrutiny, cover sheets, available through
Bmtrol and shall maintain appropriate security equipment and devices shall be normal supply channels, will be used to
changed
only
by
persons
having
appro
cords to reflect the number of copies
cover classified documents when in use.
■ produced and shall observe all other priate security clearance, and shall be Classified document cover, sheets will be
changed
whenever
such
equipment
is
JLuirments concerning the control of
removed before classified material is
distribution of such copies. The repro- placed in use, whenever a person knowing filed. Classified document cover sheets
lüuctlonof Secret material shall be placed the combination is transferred from the will be removedfrom classified documents
ader the same control as the parent office to which the equipment Isassigned, prior to transmission except when the
Ücument. Confidential documents may, whenever, a .combination has. been sub transmission is made internally•within a
íreproduced without permission of the jected to possible compromise, and at
by courier or messenger or.
Miginating official, office or department, least once every year. Knowledge of headquarters
by
personal
contact.
.. r /- ' combinations
shall
be
limited
to
the
mini
pwever, all classified material shall be
producedsparingly and any stated pro- - mum number of persons necessary for § 2.75 Responsibilities of custodians.
bition against reproduction shall be operating purposes. Records of combina
Custodians of classified material shall
ictlyadheredto.The number of copies tions shall be classified no lower than the be responsible for providing protection
of documents containing classified in- highest category of classified information and accountability-for such material at
pmation. shall he kept to the absolute or material authorized for storage in the all times and particularly for locking
0 classified material In approved security
|iuimum required to meet operational. security equipment concerned.:
(b) Safe Combination Records. Com equipment whenever it is not in use or
eds in order to decrease the risk of
bmpromise, administrative burden and binations to equipment containing clas under direct supervision of authorized
Jreducestoragecosts.
. ^-ejs ^ sified information and material shall be, persons. Custodians shall follow proce
recorded on Treasury Form No. 4032 dures which insure that unauthorized
12.64 DataIndex System.
(Security Container Information). Such persons do not gain access to classified
■ A Data Index System for documents forms shall be completed in their en information or material by sight or
Jginally classified within the Depart- tirety. Part 1 of the Form shall be posted sound, and classified infcarnation shall
fet of theTreasury shall be established on the interior of the top or locking not be discussed with or in the presence
[accordance with the Executive Order drawer of the safekeeping equipment of unauthorized persons.
IdDirective as implemented by the De- concerned. The names, addresses and
Irtment of the Treasury Administra-, home telephone numbers of personnel § 2.76 Report of loss or compromise.
jreCircular No. 236.
responsible for the combination and the
Any employee of the Department of
2.65—
2.69 [Reserved]
. .o.'. ’ classified information and material. the Treasury who has knowledge of the
stored therein must be posted on part 1 loss or possible compromise of classified
■Subpart (*—Safekeeping and Storage
of the Form. Part n shall be properly information or material shall immedi
completed, inserted in the envelope (part ately. report the circumstances to the
2.70 General policy^
HE) provided and forwarded to the desig appropriate bureau head or his designee
Classifiedinformation or material may
central "repository for safe com who shall take appropriate action forth
Nused, held or stored only where there nated
binations. Parts n and ZH shall show the with. In turn, the originating department
re facilities or under conditions ade appropriate classification marking.
and any' other interested department
pto to prevent unauthorized persons
<c) Safe or Cabinet Security Record. shall be notified about such loss or pos
pmgaining access to it.
\
.
y
Each piece of equipment used for the sible compromise.
B.71 Standards ifor storage equipment. storage of. classified material will have
§ 2.77 Inquiry. ' ;•;ii-; 'V- .‘f*
General Services Administration attached conspicuously to the outside a
If the loss or possible compromise oc
fcblishesand publishes uniform stand- General Services Administration Op
|s,specifications, and supply schedules tional Form 62 (Safe or Cabinet Security curs in any Treasury bureau, the Assist
i containers, vault doors, alarm sys- Record) on which an authorized person ant Secretary for Administration shall be
r?3, ^d associated security devices will record the time and date each time notified. He shall then direct an immedi
forthe storage and protection of he unlocks or locks the security equip ate inquiry to be conducted for the pur
psified information throughout the ment, followed by his Initials. In addi pose of taking corrective measures and
bvemment. Storage equipment used for •tion, at the close of each working day or assessing damages. Based on the results
(j,Protection of classified information when a security container is locked at of the inquiry recommendations shall be
KL^terial within We Department times other than normal duty hours, the made to the Assistant Secretary for Ad
person locking the security container ministration as to the appropriate ad
pi meet or exceed these standards.
will be required to check it to insure that ministrative, disciplinary, or legal action
1*72 Storageof classified material.
.. ......... :■,k
it Is.locked, and will record the time and to be taken. ^
■ M p classified material is not date he checked the security container §§ 2.78-2.79— [Reserved]
p r the personal control and observa- followed by his initials. The checking
Subpart H— Transmission , _
■ r^an au^horized person, it will be procedure stated above applies for each
ufir* or stored in a locked security normal working day regardless of §2.80 General policy.
,' r . x k r * * •
whether or not the security container
“prner as prescribed below:
Classified
information
or
material
(¡SÍ» Secret. Top Secret informa-, - was opened on (hat particular day. A shall be transmitted between Treasury
security
container
will
not
be
left
un
Xf^+ma^
er^
al sllalt be stored in a safe
bureaus and buildings and outside the
»lilt vu6s^
ee^ container having a attended until it has been locked by an Department only in accordance with the
authorized
person
and
checked
by
a
sec
istm« tn1"66-Position dial-type comond person. Additional safe security requirements of this subpart. However,
im
or in a vault, vault-type requirements
within the Main Treasury Building and
are:
lets thl °th®r storage facility which
within each separate bureau building,
(1
)
Reversible
“OPEN-CLOSED”
signs
IlishS6 stfndar<is for Top Secret essuch information or material may be
pisneaunder §2 .7 1 .
which are available through normal transmitted between offices by. direct
Confidential. Secret supply channels, shall be used as addi contact'of the officials concerned in a
■ a s * » material may be stored tional reminders on each security con single sealed opaque envelope with no
MbrWSer authorized for Top Secret tainer containing classified information, security classified category being shown
(2)
. The tops of security containers
Eg®
material, or in a con
on the outside of.the envelope. Classified
i ' w j ault which meets the stand- shall be kept free of an extraneous Information or material shall never be
| I(* ««aet or Confidential, as the matter.
I
tfi
it l
- ' ■ delivered to unoccupied rooms or offices.
,19330
RULES AND REGULATIONS
ditions and essential operational require the local UJ3. diplomatic representative
, §2.81
Classified Information and material ments, provided that the material does at the port of entry or departure. **
<5) Upon completion of the visit, the
shall be enclosed in opaque inner mad not at any time pass out of United States
outer covers before transmitting/The Government and United States citizen, Individual shall have the material re
inner cover shall be a sealed wrapper or control and does not pass through a for turned to his office by approved means.
All material taken for the purpose of the
envelope plainly marked with the as eign postal system. A
visit shall be accounted for. If any clas
signed classification and address. The § 2.84 ^Transmission of Confidential.
sified items are left with the office being
outercover shall be sealed and addressed
Confidential
information
and
material
with no indication of the classification shall be transmitted within the forty- visited for its retention and use, the in
dividual shall obtain a receipt. ~
’ofits contents. _■/|
eight contiguous states and the District
:§2.82 Transmission, of Top Secret. ' . V of Columbia, or wholly within Alaska, § 2.86 Telecommunications . transmis• sions. | síÉ ,
•
The transmission of Top Secret infor-' Hawaii, the Commonwealth of Puerto
Classified information shall not be
;mation and material shall be effected Rico' or a United States possession, by
preferably by,oral discussion in person .one of the means established for.higher communicated by telecommunication
between the officials concerned. Other |classifications, or by certified or first- transmission, except as may be author
wise, the transmission of Top Secret in- class mail. Outside these areas, Confi ized under §§ 2.82-2,84 with respect to
:formation and material shall be by spe dential Information;and material shall /the transmission, of classified informa
cifically designated personnel, by State •be transmitted In the same manner,as tion ever approved communications cir
;_
,4^4;r,"
IDepartment diplomatic pouch, by a mes authorized for higher classifications, gjp! cuits or systems,
senger-courier system especially created § 2.85 Transmission by personnel in . §§ 2.87—2.89—-[Reserved]
;for that purpose, over authorized com I travel status. $3 f 8 t m „
v Subpart I—-Destruction of Classified
munications circuits in encrypted form
(a) General provisions. Personnel in
information and Material
lor byother means authorized by the Na travel status shall physically transport
tional Security Council. *
§
2.90
Methods of destruction. J ,
: classified material across international
When information or material classi
boundaries only in exceptional circum[r§2.83r Transmissionof Secret. .
f The transmission of Secret material stances. In each instance, a determina fied under the authority of Executive
\shallbeeffectedin the following manner: tion shall be made on a case by case Order 11652 is to be destroyed, destruc
I (a) The Fifty States, District of Co basis, by a responsible official that it is tion shall be by burning, mulching, or
lumbia, Puerto Rico. Secret information necessary for the appropriately cleared shredding in the presence of an individ
andmaterial may be transmitted within traveler physically to transmit classified ual or individuals^specifically designated
î &nd between the forty-eight contiguous material. Whenever possible, and when by the appropriate bureau head.
states and the District of Columbia, or time permits, classified material shall be § 2.91 Approval of use of mulching and
shredding machines.
wholly within the State of Hawaii, the transmitted by other authorized means
|State of Alaska, or the Commonwealth to the location being visited. The physi
Prior to á bureau obtaining a mulching
cal
transportation
of
classified
material
of Puerto Rico by one of the means atior shredding machine, the Office of Ad
[thorized for Top Secret information and on non-UJS. flag aircraft shall be ministrative Programs, Assistant Direc
.
•
.
Imaterial, the United States Postal Serv avoided.
(b) . Specific safeguards. If it be deter tor (Physical Security) shall approve the
it® registered mail and protective servuse of such a machine.
»,
Mcesprovided by the United States air or mined that the transportation of classi
fied material by an Individual in travel *■§ 2.92 Destruction by burning.
Isurfacecommercial carriers.
[ (b) Other areas, vessels, m ilitary status is in the best interest of the UH.
Any classified information or material
IPosfaZ services, aircraft. Secret informa Government, the following specific safe vto be destroyed by burning shall be torn
guards
will
be
provided
for:
t
.
•
it011and material may be transmitted
and placed in containers designated as
(1) Classified material shall be in the burnbags
*om or to or within areas other than
and shall be clearly and dis
¡those specified in paragraph (a) of this physical possession of the individual tinctly labeled “Bum.” Burnbags await
Isection, by one of the means established with adequate safeguards at all times if ing destruction shall be protected by se
liorTop Secret information and material, proper 'storage at a UJ3. Government curity safeguards commensurate with
Icaptains or masters of vessels of United facility is not available. Under no cir- the classification or control designation
lotates registry, under contract to a de- cunistances, shall classified material be of the material Involved.
■ partmentof the executive branch, United stored in hotel safes or rooms, locked
§
2.93
.
.
Records
of
destruction.
locates registered mail through Army, automobiles, private residences, train
Ijjavy or Air .Force Postal Service facili- compartments, or any vehicular detach
. Each bureau head shall, cause appro
, .~v
r® Provided that material does.not at able storage compartments.
priate accountability records to be main
(2
)
An
inventory
of
all
classified
ma
Irnnf i e*>ass0U^ United States citizen
tained for his bureau to reflect the de
I-w1
"0*aad does not pass through a for- terial shall be made prior to departure struction of classified national security
and
a
copy
of
sam
e
shall
be
retained
by
system, and commercial airinformation or material.
t un^.er charter to the United States his office until his return at which time
all classified material shall be accounted § 2.94 ; Destruction of nonrecord rnatel&ircraflfktary °r °ttier Government for.
rial."
.H*//■
■
■ . :■'
-i.
Nonrecord
classified
material
su6h
as
(3
)
Classified
material
shall
not
be
Itimfo 2ana^ an Governm ent installa^ information may be trans- displayed or used in any manner in pub extra copiek and duplicates, including
v . shorthand notes, preliminary drafts,
United States Govem- lic conveyances or rooms.
Ition«°r ^^adian Government installa(4) The Individual shall have in his used carbon paper and other material of
loonti’cm^r
■*111 the forty-eight possession a written Department of the similar temporary nature, shall also be
E f t g P St£^
tes*Alaska>the District of Treasury authorization to transport destroyed by burning, mulching, or
P n S l^ and Canada by United States classified material. This courier authori shredding as soon as it has served its
iterprt
registered mail with regis- zation, along with official travel orders,
I^red mail receipt.
should In most instances permit the in purpose, but no records of such destruc
tion need be maintained.
£ases- Tlle nse of the dividual to pass through any customs
k
Itnaii onfJl!feS4.iPost'al Service registered without the need for subjecting the clas §§ 2.95-2.99— [Reserved] * ,
Pates thf6™1? forty-eight contiguous sified material to inspection. If difficulty
Subpart
j
—
Training
and
Orientation
S S ’of w! B P S * of Columbia, the is encountered, the individual should
jthe Coriv^Waii’ the State of Alaska, and tactfully refuse to exhibit or disclose the § 2.100 Briefing of employees.
P«-horiS??Wealth xof Puerto Rico is classified material to customs inspection
All new employees concerned with
F
^zod if warranted by security con and should insist on the assistance of- classified information and material shall
FEDERAL REGISTER, VOL. 38, NO. 138— THURSDAY, JULY
9, 1973
RULES AND REGULATIONS
-19331
afforded a security briefing regarding responsible for any unauthorized release istrationIsspecificallydelegated the author
|eExecutiveOrder and Directive, Those or disclosure of national security infor ity to assign personnel to assist the Archi
ist of the United States in the exercise of
iewemployees concerned with classified mation or material shall be notified that v
hisresponsibilitytoreviewsystematicallyfor
^formationor material pertaining to in his action is in violation of the Execu-* d
eclassificationallTreasuryDepartment ma
digence sources, methods, operations, tive Order, the implementing National terialclassifiedbèioreJune 1,1972,and more
Security
Coimcil
Directive,
or
these
regu
fr plans shall be required to read and
than thirty years old,and to perform other
|gna Security Agreement. All new em lations. In addition, he shall be subject functions specified in part II D of the
D
ployeesafforded a security briefing shall - to prompt and stringent action includ irective.".;;
S ec . 2.Authority to classify— (a) Top Se
t provided with copies of applicable ing, as appropriate in the particular case,
tws and pertinent security regulations a warning notice, formal reprimand, sus cret. The authorityto classifyinformationor
material as Top Secret, Secret, or Confiden
Ittingforth the procedures for the pro pension without pay, or dismissal, in ac t
ial within the Department of the Treasury
motion and disclosure of classified in- cordance with applicable personnel rules, ishereby delegated to the Deputy Secretary,
lormation and material. All employees regulations and procedures. Where a the.UnderSecretaryforMonetaryAffairs,the
‘•ncemed with classified "information violation of criminal statutes may be in Under Secretary, the General Counsel, the
:dmaterial shall receive periodic reor- volved, any such case shall be promptly Deputy Under Secretaries,the Assistant Sec
fentationbriefings during their employé referred to the Department of Justice. retaries, the Special Assistant to the Secre
(b) Repeated abuse of the-classifica tary (National Security), the Special Assist
Tentwhichare designedto impress upon
ant to the Secretary (Public Affairs), and
jhemtheir responsibility for exercising tion process, either by unnecessary or the
ssistanttothe SecretaryforLegislative
\e andvigilance in complying with the over-classification, or repeated failure, AffairA
s.-'-:.
¿vS'-vfw’
provisions of the Executive Order and neglect or disregard of established re(b) Secret..The authority to classify in
plementing regulations.
. v ' j ; ^. quirements for safeguarding -classified formation or materialasSecret-or Confiden
^information or material by any officer tial within the Department of the Treasury
{§2.101 Debriefing of employees.
- or employee shall be grounds for appro ishereby delegated to the heads of bureaus.
(c) Confidential. Officialswho possess Top
S'Any personnel possessing a/security priate adverse or disciplinary action.
Jearance, at all levels of 'employment . Such action may include a warning no Secret or Secret classification authority are
“dwithoutexception, when terminating tice; formal administrative reprimand, hereby delegated the authority to designate
in writing by titleof position other officials
ploymentor contemplating temporary* suspension without pay, or dismissal, as who
may exercise Confidential classification
^paration for a sixty-day period or appropriate in the particular case, in a
uthority, within the Department of the
‘ore,shall be debriefed concerning-their accordance with applicable personnel Treasury,f " . tnjr'ty
Lntinued responsibility to safeguard rules, regulations and procedures. ■. ;, ;
S ec . 3. Authority to downgrade and' def classify. The authoritytodowngrade and de
assified information and material, and § 2.112 Disciplinary action.
‘
c
l
a
ssifynationalsecurityinformationorma
‘mindedof the provisions,of the CrimAfter an affirmative adjudication of a terial within the Department of the Treas
jalCodeand other applicable provisions
shall be exercised by the following offi
|lawrelating to penalties for unauthor security violation and as the occasion ury
s:-.':''', _ . . .
-r,X;..,/
iseddisclosure,
-■ . —
Hdemands, reports of accountable security cial
(a) The official authorizing the original
violations
may
be
placed
in
the
em2.102 . Departmental"administration. '‘‘i ployee’s official personnel folder and se classification,a successorinthat capacity,or
a supervisoryofficialofeither.;
|The Office of Administrative Pro- curity file. The security official of the
(b) An official specifically authorized in
os, Assistant Director (Physical Se- bureau or office concerned shall recom- writing by an official authorized to classify
pity),under the direction of the Assist- ;ffmend to the respective management of- information or material as'Top Secret or
(t Secretary for Administration, shall - ficiaT or bureau head that disciplinary Secret.
S ec , 4. Departmental Committee on Na
tablish, coordinate and maintain ac* | action be taken when such action is in
Security Information. There ishereby
Retraining, orientation and inspection dicated. However, should circumstances 'tional
stablished a Departmental Committee, on
jograms.for employees concerned with warrant, the Department may take ac .e
National Security Information which shall
Rsslfiedinformation or material to as- tion under provisions of these^regula be.composed of the Assistant Secretary for
~
,ethatthe provisions of the Executive tions, 6f Executive Orderi11652, any im Administration, as chairman, and the Gen
i.der and Directive are effectively ad- plementing National Security Council eralCounseland the SpecialAssistanttothe
Secretary (National Security), as members.
stered throughout the Department
Directives, and Executive Order 10450, or The functionsofthe Departmental Commit
I the Treasury.;
any superseding applicable Executive teeshallincludethefollowing:
K>103 Bureau administration. ’ .
. (a) Review of and action upon applica
I Order.’
tions and appeals regarding request for-de
fcach bureau head shall designate an . Effective date: July 1*1973.
classification, as provided in the Treasury
pclal to coordinate and supervise ther
egulations,31 OPR Part2,implementingthe
Datedf July 9, 1973.
tivitles applicable to his bureau to
ExecutiveOrderandDirective..
, ffitaln the programs of training, ori(b) Review, upon request, of alldecisions
[SEAt]
" George P. Shultz,
denying Treasury information and material
inspection established by
- Secretary of the Treasury.
on the ground of exemption under 5 U.S.C.
I®Office of Administrative Programs,
Lsistant Director (Physical Security) A p p e n d i x A— D e p a r t m e n t o p t h e T r e a s u r y , 552(b)(1) except decisions of the Secretary
T r e a s u r y D e p a r t m e n t O r d e r No . 160, R e v i s e d
ofthe Treasury continuing the classification
r
out related activities of secof material over thirty years old under Part
DELEGATION OS' A U T H O R ITY CON CERNING I M - .
i:n
^3) of the Executive Order.
III D of the Directive and the Treasury
PL EM EN T A T IO N O P EX EC U T IV E ORDER 1 1 6 5 2 , '
regulationthereunder,31CFR 2.40.
!2.104-2.109— [Reserved]
' A S AMENDED," AND T H E NATIONAL SE C U R IT Y
. (c) Actionupon complaintsintheadmin
istrationoftheExecutive OrderandDirective
By virtueofthe authoritydelegatedtome and the Treasury regulations thereunder.
as Secretary of the Treasury by Executive . (d) EstablishthepolicyoftheDepartment
Enforcement policy.
Order-11652, 87 FR 5209, and National Se- withrespecttotheenforcementofthèExecu
TvrÜîi6
Committee on Na- ’curity Council Directive ofMay 17, 1972, 37 tive Order and Directive and the Treasury
v Security Information shall have FR 10053 (hereinafterreferredtoastheExec-z regulationsthereunder. - . ;
ttve Order and Directive),it ishereby or Se c . 5. Data Index System. The Assistant
I*responsibilityfor establishing the De- u
deredasfollows:
.
'V■ SecretaryforAdministrationisdelegatedthe
, . entspolicy with respect to the enS e c t io n 1. Compliance responsibility. The authority to establish a Data Index System
LÜÜen^ the ,Executive Order and Assistant Secretly for Administration is inaccordance with PartVII ofthe Directive.
i ve,^d these regulations.
- /delegated the authority to insure effective The Office of Administrative Programs, As
with the implementation of the sistant Director (Physical Security), shall
r 1^1. Applicability. ï < - ;cExoemcpultiance
iveOrderand Directive;and theTreas maintain the Departmental Data Index Sys
regulations published thereunder In tem control file for all national security
individual, at any level of ury
Part2ofTitle31ofthe CodeofFederalReg information or material originally classified
determined to have been . ulations.The AssistantSecretaryforAdmin- .withintheDepartment.
-X..
•
^Part K—Administrative -and Judicial
- Action . -,
£5%*? •
D IREC TIV E OP M A Y 1 7 , 1 9 7 S S
^FEDERAL REÇISTER, V o£ 38, NO. .j3 8 r—THURSDAY,. JULY 19, 1973
19332 .
Sec. 6.
*\
S
RULES AND. REGULATIONS
Training, orientation and inspec
ceroed with classified information or mate- underExecutive Order 11< V, August 8,.1972
rial to assure that the provisions of the '37PR 20990.
assistant Director (Physical Security)', is Executive Orderand Directivecueeffectively = ■
1,19737;*
r
Effective date:,July lj
herebydelegated,subject tothe direction of administered throughout the Department of
Tr.ea7s.ur
,ersession. This Treasury De- :Dated
lllv9
Dated:;
9,1973^
theAssistant Secretary for Administration, the
Sec
Sy
up
^»aiea.-JJuly
JUiy
y
.1973"
iy
the functions of establishing, coordinating partment Order supersedes TreasuryDepart- ; f
rS
sEAL]
H
j;
'
' G eeorge
OI P. Schultz,
andmaintaining active training,orientation: ment Order No. 160, Revised, 'entitled
| SSecretary
e cre ta ry tof the.Treasury.
andinspectionprograms for employees con-. "National Security Information,” issued : [
PR Doc.73-14505P
Filedd1
[PR
7-18-73:8:45am]
tion. The Officeof Administrative Programs,
FEDERAL REGISTER, VOL 38, NO. 138—-THURSDAY, JULY 19, 1973
theTREASIIRK
Department of
OFFICE
OF REVENUE
SHARING
WASHINGTON, D.C. 20226
FOR INFORMATION, CALL (202) 634-5248
FOR RELEASE, MONDAY, JULY 23, 1973 A.M.
BOOKS CLOSE ON FIRST THREE REVENUE SHARING
PERIODS AND REGULATIONS ARE AMENDED
The Office of Revenue Sharing of the U.S. Treasury Department
announced today that it has completed its review of data, cal
culated adjustments to past payments based on new data and
closed the books on the first 18 months of the revenue sharing
program.
In making the announcement, Graham W. Watt, Director of the
Office of Revenue Sharing, said that except for jurisdictions
with requests for substantiation or correction of data that date
from before July 1, 1973, no further adjustments will be made for
payments covering the period from January of 1972 through
June of 1973.
Notice of the final date for determination of allocations
and entitlements was published in the Federal Register of
July 18, 1972 (38 F.R. 19140).
-
2
-
Adjustments made before the books were closed will be
reflected in the amounts being paid during the fourth entitlement
period, July 1, 1973-June 30, 1974.
Estimates of shared revenues to be paid each jurisdiction
during the fourth entitlement period will be announced by the
Office of Revenue Sharing Tuesday/ July 24, 1973.
In addition, the Office of Revenue Sharing has published
amendments to the permanent regulations governing the adminis
tration of general revenue sharing.
Notice of the amendments was given in the Federal Register
on July 13, 1973. (38 F.R. 18668).
According to Graham Watt, "These amendments clarify the
procedure for effecting compliance with the State and Local Fiscal
Assistance Act of 1972 (P. L. 92-512) that established the general
revenue sharing program.
The Secretary of the Treasury,
George P. Shultz, is empowered by the regulations to delay
revenue sharing payments to recipient governments that fail to
comply with the reporting requirements of the Act until he
determines that compliance has been achieved."
"The new provisions also clarify the procedures for
to waive their participation in general revenue sharing.
regulation requiring the report on actual uses of shared
has also been changed.
r e c ip ie n ts
The
re v e n u e s
Minor changes for clarification were made
to the sections of the regulations regarding the transfer of money
by recipient governments to other units of government or private
-3#
organizations, and the maintenance of state transfers to local
levels of government."
The revised regulations (Section 51.25 (a)) establish
a new Obligated Adjustment Reserve fund to be made up of one
half of one percent of the funds appropriated for each entitle
ment period.
The fund will be used to make extraordinary pay
ments to jurisdictions for which revised allocations are required
after the books have been closed on an entitlement period.
When
more than enough funds for this purpose have been accumulated,
the excess will be returned to eligible recipients from the
fund according to the same formula that is used to allocate entitle
ment funds during regularly-scheduled payment periods.
30
i—
T E L E P H O N E W 4 -2 G 4 1
FOR IMMEDIATE RELEASE
July 23, 1973
TREASURY ANNOUNCES ELEMENTAL SULPHUR FROM CANADA
_____IS BEING SOLD AT LESS THAN FAIR VALUE______
Assistant Secretary of the Treasury Edward L. Morgan
announced that elemental sulphur from Canada is being, or is
likely to be, sold at less than fair value within the meaning
of the Antidumping Act of 1921, as amended. Notice of this
determination will be published in the Federal Register of
July 24, 1973.
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 decision, dumping duties will be assessed on all
entries of elemental sulphur from Canada which have not been
appraised and on which dumping margins exist.
A notice of "Withholding of Appraisement" was issued on
April 23, 1973, 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.
Elemental sulphur produced and sold by Texasgulf Inc.
(formerly Texas Gulf Inc.) and Canadian Occidental Petroleum
Ltd., is excluded from the withholding of appraisement ordered
in this case and this determination of sales at less than fair
value since 100 percent of the export sales to the United States
by both companies during the period under consideration were
examined and the adjusted home market prices of each company
were found to be lower than the appropriate purchase price in
every instance.
During the two-year period from January 1971 through
December 1972, imports of elemental sulphur from Canada were
valued at approximately $18.5 million.
M B ’ H O N E W 04-2041
IaSHIN8TQN. D.C. 20220
EMBARGOED FOR RELEASE UNTIL
2:00 P.M./' EDT, JULY 23, 1973
TESTIMONY BY DR. WILLIAM A. JOHNSON
ENERGY ADVISER TO THE DEPUTY SECRETARY OF THE TREASURY
BEFORE THE
SPECIAL JOINT SUBCOMMITTEE OF THE SENATE COMMITTEES
ON INTERIOR AND INSULAR AFFAIRS,
COMMERCE AND PUBLIC WORKS
MONDAY, JULY 23, 1973
Mr. Chairman and Members of the Committee:
I
am delighted to appear before you today to discuss
the energy needs of the nation.
In particular, I plan to
focus on the economic benefits of very large crude carriers
and the construction of deepwater ports to accommodate
these carriers.
ment.
This issue is covered in my prepared state
In addition, I will discuss some environmental benefits
which are not contained in the statement.
This statement
is, incidentally a precis of a larger study done under my
direction several months ago.
I am submitting it for the
record and will only summarize it here.
In trodu'ction
It now appears to many observers that the United States
will have to increase significantly its crude oil imports
In the near future.
Projections of import demand vary widely.
2
Those used as the basis of this study have been made by the
Interior Department for both the East and Gulf Coasts.
CSee Tables 1 and 2].
The level of throughput for each region will depend on
the locations of new refinery capacity and domestic produc
tion of oil and natural gas.
Projections for the East
Coast range between 0.8 and 6.6 million barrels per day; for
the Gulf Coast, between 0 and 14.7 million barrels per day.
Future import requirements will be minimized if reserves on
the Outer Continental Shelf can be exploited and U.S.
production of alternative fuels, such as natural gas, is
increased.
The most efficient means of transporting large tonnages
of crude oil over long distances is the "supertanker" or very
large crude carrier (VLCC).
The definition of a VLCC varies.
At a minimum, it is capable of hauling in excess of 80,000
to 100,000 DWT of crude oil.
Some argue, however, that a
more appropriate definition now is a vessel with a capacity
in excess of 200,000 DWT.
The largest VLCC to date is
477,000 DWT.
Vessels of this size would require deepwater ports*.
The Gulf Coast has no natural harbors capable of accommodating
this class of tanker, and where suitable depths exist along
the East Coast, such as in Maine, Long Island Sound, and
Delaware Bay, the development of a deepwater port has been
“ A port capable of handling 250,000 DWT tankers must have
With restricted draft it
is possible $ however, to operate with lower depths depending
on vessel design and height of the tide.
a minimum depth of about 75 feet.
}
/
£
3
EAST COAST IMPORTS THROUGH DEEPWATER PORTS
(thousands of barrels per day)
1975
1980
1985
2000
Case I
765
1,135
1,572
2,500
Case II
765
3,505
5,106
6,600
Case III
765
1,135
1,572
2,500
Case IV
765
2,000
1,200
3,200
Case V
765
1,000
600
800
2B
Table 2
GULF COAST IMPORTS THROUGH DEEPWATER PORTS
(thousands of barrels per day)
1975
1980
1985
2000
Case I
1,573
1,805
3,248
10,900
Case II
1,573
1,805
3,248
10,600
Case III
1,573
4,175
6,782
14,700
Case IV
1,573
400
Case V
1,573
1,400
- 0 -
- 0 -
600
2,400
f
-
3 -
impeded by state governments and is likely to encounter
strong opposition from environmentalists.
Yet, if the United
States is to receive VLCCs, it must build these ports.
The purpose of this document is, first, to determine
whether, given cost considerations alone, it would benefit
the nation to have one or several of these ports along the
East and Gulf Coasts.
comparison.
To do this, we must have a basis for
Deepwater ports now exist, are being constructed,
or have been proposed in the Canadian maritime provinces,
the Yucatan Peninsula, the Bahamas, Haiti, Puerto Rico, and
the Virgin Islands.*
In the absence of an East or Gulf
Coast deepwater port, oil shipments from relatively distant
sources, such as the Persian Gulf, are likely to be carried
by VLCCs to one of these sites and then transhipped by
smaller tankers to the United States.
We have assumed, there
fore, that the benefits of a U.S. deepwater port will be the
savings likely to result if, instead, crude oil were shipped
to a U.S. port by supertanker and t h e n transferred to main
land refineries by pipeline, tug-barge, or smaller tanker.
If these savings are positive, a case could be made that a
U.S. deepwater port is economically justified.
A second objective of the study is to determine which
of several alternative technologies for building a U.S.
deepwater port and transferring oil to the mainland are most
desirable given cost considerations alone.
Three basic port
. ,.BecausG of its restricted draft, some experts question
wnether the Virgin Islands port can, properly, be called a
aeepwater port. Several of these port schemes are also
ought not to be serious proposals by knowledgeable observers
4
technologies exist:
the monobuoy; the sea island; and the
artificial island*.
There are also three alternative
technologies for transferring the imported crude oil to main
land refineries: pipeline, tug-barge and small tanker.
Which
technology or combination of technologies is most economic
will depend on the relative costs of each alternative.
Finally, the study estimates the additional costs of
various environmental safeguards thought necessary to prevent,
contain, or clean
up oil spills.
In this way, it determines
whether these increased costs could affect the choice of a
location or technology for a U.S. deepwater port, particularly
if the safeguards required by the U.S. Government are not
required by foreign governments.
Methods of Analysis
The basic method of analysis used in this study is a
comparison of all costs of landing a given amount of crude
oil at East and Gulf Coast refineries through U.S. and
foreign deepwater ports.
Because throughput is held constant,
savings in costs can be treated as a rough measure of benefits.
Of course, a number of other factors, such as environmental
considerations and national security, will have a bearing on
* A monobuoy is also calleda single point mooring or single
buoy mooring. As its name implies, it is a mooring facility
at which the tanker can connect with pipelines distributing
oil to mainland storage facilities and refineries. The term
"sea island" is often used interchangably with the term "plat
form", although the two are by no means synonymous. The sea
island assumed in this study is a platform connected by pipeline
to the mainland storage areas. Discharge of oil may also occur
by ship-to-ship transfer at the platform. An artificial island
is a man-made island built up with fill. Aside from its
construction, it differs from a sea island primarily in that
storage facilities would be located on the island and not on the
shore.
whether a U.S. deepwater port would be beneficial and should
be built.
Our study measures only the economic benefits of
a superport.
We divide our analysis into four "modules".
The first
three are sequential:
the supertanker, the deepwater port,
and the transfer leg.
Crude oil must first be shipped from
the origin to the deepwater port.
from the port to the refinery.
It must then be transferred
The fourth module, environ
mental safeguards, is additive to the first three.
On each
leg, additional investment, operations, and maintenance
costs will be required to meet environmental standards
specified by the government.
Originally, we had hoped to include two additional
modules:
the refinery and post-refinery leg.
The refinery
costs probably account for the largest share of the total
costs of processing imported crude oil.
each region, the additional
However, within
refinery capacity required by
greater U.S. consumption of imported crude oil should cost
more or less the same regardless of which alternative is
chosen or whether a deepwater port is built at all.
If
so, exclusion of refinery costs should not bias our results.
Exclusion of the post-refinery leg may pose some
difficulties.
Opinions vary on whether, in a free market,
a particular deepwater port location would affect or be
affected by the location of refinery capacity.
Some feel that
a port location would be determined by the refineries1
location and the refineries1 location by the internal distribution
-
•system.
6
-
Others argue just the opposite.
A deepwater
port will determine the location of refineries and petro
chemical complexes and, in turn, the internal distribution
system.
In any final analysis, one must consider whether
the post-refinery leg does have an impact on the economics
of a deepwater port.
Our treatment of capital costs in this study poses at
least two difficulties.
First, the time required to build
and install each capital input varies from 0.5 years to
6 years.
Second, the anticipated lifetime of each component
also varies from 15 to 99 years.
Differences in construction
period and lifetimes may have a bearing on which type of
facility should be built.
These differences must also be
taken into account in any estimate of the total costs of a
port facility.
Using a 10 percent discount rate, the cost of each
capital input are compounded annually to present value during
the initial year of operation.
The present value for each
input is then converted to an equivalent annual cost by
dividing by an annuity factor.*
This method of handling
capital costs is logically identical to the more familiar
present value and internal rate of return calculations.
However, it has three major advantages.
First, the different
lifetimes of each capital input can be handled easily
without having to make assumptions about the length of service
of the deepwater port or the scrap value of its components.
An annuity is an annual incane paid in equal installments for a specified
period of time. This incane is equivalent vhen discounted to a fixed initial
payment by the investor. The annuity period assumed is the anticipated
lifetime of each capital *-— I—
/#
7
Second, equivalent annual cost best meets the primary
objective of the study —
to estimate cost differentials
for alternative port facilities•
The equivalent annual cost
is an annualized measure of capital costs; the differences
between the equivalent annual costs of two port facilities,
the annual cost differential or measure of benefits resulting
from the construction of one alternative rather than another.
Operating and maintenance costs can be added directly
to the equivalent annual costs of capital inputs.
Some 0
and M costs are associated with each major component of the
deepwater.
Others are spread over all components.
two types of 0 and M costs:
linear and step.
We assume
A cost is
judged to be linear if, within each increment, it increases
with throughput.
It is judged to be step if it increases
only at ’the beginning of the increment.*
In Table 3, we present a sample print-out summarizing
the cumulative equivalent annual costs of all increments
required to raise the capacity of a monobuoy off Long
Branch, New Jersey, from 0 to 6 million barrels of crude oil
per day.
This print-out
indicates the costs of all four
modules
The total equivalent annual cost for the Long
Branch monobuoy is $368.8 million for 1 mbbl/day through
put.
This cost rises to $765.4 million for 2.2 mbbl/day and
$2.0 billion for 6 mbbl.
y
Most capital costs are treated as step costs. There are
two major exceptions, however: tug-barges and tankers.
Table 3
ESTIMATED COSTS OF A LONG BRANCH MONOBUOY WITH PIPELINE DISTRIBUTION TO EAST COAST REFINERIES
USE OF FOREIGN SUPERTANKERS AND 0 TO 6 MBBL/DAY THROUGHPUT ASSUMED
(thousands of dollars equivalent annual costs)
THRUPUT
0.0+
1.01.0+
2.2- .
2.2+-3.43.4+
4.7-
4.7+
6.0-
LONGBRANCH MONOBUOY PIPELINE
FOREIGN TANKERS
NON ENVIRONMENTAL COSTS
SUPERTANK
PORT
TRANSFER
0.
301967.
•301967.
659560.
659560.
1017152.
1017152.
1398584.
1398584.
1787962.
12839.
14593.
20118.
21174.
28329.
29543.
36697.
37911.
45065.
46279.
15899.
. 18768.
19755.
19806.
21121.
23737.
25052.
25120.
26435.
29051.
___
SUBTOTAL
28738.
335329.
341840.
700539.
709009.
1070431.
1078900.
1461614.
1470084.
1863292.
______________ CODES=______ 4
ENVIRONMENTAL COSTS
BARGE DB
TANKER DB OTHER ENV
0.
0.
255.
255.
255.
255.
510.
510.
510.
510.
764.
. 27821.
27821.
59209.
59202.
90597.
90597.
131970.
131970.
165397.
3017.
5417.
5417.
5417.
5417.
5417.
5417.
5417.
5417.
5417.
29
54
79
SUBTOTAL
TOTAL
3017.
33493.
33493.
64881.
64881.
96523.
96523.
137896.
137896.
171578.
31755.
368821.
375332.
765420.
773890.
1166954.
1175423.
1599510.
1607980.
203487 0".
-*sl
>
8
Table 3, in effect, traces a cost curve for the Long
Branch monobuoy.
This curve is plotted in Figure 1, along
with a similar curve for a sea island located in Nova
Scotia and supplying crude oil to the East Coast U.S.
market by means of tanker.
These cost curves provide the basis
for our comparison of alternative
deepwater ports.
The least cost
port facility will have the lowest curve for a given level of
throughput.
For the two cases illustrated, the Long Branch monobuoy
is clearly optimal for all but the lowest level of through
put.
The vertical distance between the curves measures the
savings or benefits resulting from relying on the Long Branch
rather than the Canadian facility.
For example, at 6 mbbl/day,
the annual savings made possible by the American port would
be about $346 million or about 16$ per barrel.
This, in brief, is how our analysis of alternative deepwater
port facilities is structured.
In all, 23 U.S. and three
foreign port facilities are considered.
(See Table 4).
The
investment in each of these facilities is converted to equiva
lent annual cost measures and then added to annual 0 and M
costs.
In this way, cost functions are generated for each
port oyer a range of throughputs.
Finally, for given levels of
throughput, each of the facilities is ranked and the
differences in costs between these facilities and the lowest
cost alternative are computed.
We should stress at the outset that our choice of loca
tions is illustrative only.
We have selected as wide a
9
cross-section of alternative sites as possible where suitable
engineering and cost data were available.
In the end, the
chdce of particular locations will depend on the companies,
states, and local communities involved, and not a study by
the Federal Government.
In the next section, we discuss the many assumptions
underlying this study; in the following section, some of its
basic conclusions.
Finally, in the last section, we
estimate the benefits (or losses) likely to result from
reliance on the least cost U.S. superport rather than its
least cost foreign alternative.
Basic Assumptions
We have had to make a number of assumptions.
In
several cases, we have been able to test the sensitivity of
our analysis to these assumptions; in most cases, however,
we have not.
Throughout, we have tried to make these
assumptions as realistic as possible.
In this section, we
also try to make them as explicit as possible.
1.
The Locations of U.S. and Foreign Superports.
As
we have indicated in Table 4, we examine seven locations on
the East and Gulf Coasts and two locations abroad.
Additional
U.S. sites have been suggested, particularly along the Gulf
Coast.
Additional foreign sites have also been suggested
including Mexico, Puerto Rico, and New Brunswick, Canada.
For our purposes, the sites selected are more than ample.
They cover the general areas likely to be chosen as locations
for deepwater port facilities.
However, because grime potential
10
sites have be e n omitted, our study cannot and should not
be considered the definitive answer to where a deepwater port
ought to be located.
Specific site studies w ould be
necessary before m a k i n g such a determination.
2.
Choice of the Base C a s e s .
We have chosen as a
basis for comparison deepwater ports in the Canso Straits
in Nova Scotia, and near Freeport in the Bahamas.
These
ports now exist or are under construction at these sites.
None, however,
States.
involves crude oil transshipment to the United
Instead, these ports are intended,
for the most
part, to handle imported crude refined nearby to supply
certain finished products to U.S. markets.
The hypothetical
foreign superports assumed in this study would allow transfer
of large tonnages of oil destined for the United States from
supertankers to smaller vessels.
These vessels would then
enter existing U.S. ports.
There are alternative bases for comparison.
For example,
the supertanker might discharge its crude by lightering at
sea.
We have not chosen this alternative,
among other
reasons, because it is generally thought to be environmentally
unsouild.
Some feel that the base case should be continued
use of regular port facilities and tankers averaging,
us say, 40,000 DWT.
let
The p roblem with this option, however,
is that the economic benefits of the larger tankers have
been demonstrated and, for this reason, both supertankers and
foreign deepwater ports are now being built.
It seems unlikely
that, once they are completed, the domination of smaller tankers
on longer runs w ould continue.
11
The base case chosen is not ideal.
considered,
However,
all things
it appears to be the m o s t realistic choice
possible.
3.
The Choice of Technologies for the Dee p w a t e r Ports.
We assume one of three port technologies.
a.
Monobuoy.
The m o n o b u o y is an offs h o r e m o o r i n g
connected to m a inland storage facilities by a pipeline.
It
would not have the protec t i o n of a breakw a t e r and the s u p e r
tanker would be free to rotate around the buoy.
The m o nobuoy
is the simplest and cheapest of the three alternatives.
k-
Sea I s l a n d .
piles to the ocean floor.
The sea island w o u l d be fastened by
The sea island is,
studied, protected by a natural breakwater.
in each case
The supertanker
would be tethered on one side at bo t h the b o w and stern.
The
crude oil w o u l d then be transferred from the tanker to storage
facilities on shore by means of one or mor e pipelines.
c.
Artificial I s l a n d .
A n island w o u l d be constructed
w i t h fill and protected by a natural or m a n - m a d e breakwater.
The primary function of the island, over and above that of
a sea island or monobuoy, w o u l d be to house storage facilities.
Transfer to the main l a n d could occur by pipeline,
or small tanker.
and, generally,
t u g —barge,
The artificial island is the m o s t elaborate
the mo s t costly of the three alternatives.
12
Not all technological alternatives are assumed at each
site.
We have excluded those alternatives for both American
and foreign ports that,
in its judgment,
from an engineering point of view.
are not feasible
The technologies assumed
at each site are also listed in Table 4.
4.
Sources of Imported Crude O i l .
We assume that all
crude oil shipped through East and Gulf Coast deepwater ports
will come from the Persian Gulf.
assumption.
However,
This ma y seem an extreme
in terms of reserves,
easily outranks all other producing areas.
the Persian Gulf
A l though some
oil imports may also come from Libya, Nigeria, and Venezuela,
the source of mo s t new oil imports will be the Persian Gulf
fields.*
Moreover, not all imported crude oil will be shipped to
the United States in VLCCs and through deepwater ports.
economics of the supertanker will depend,
on the length of the haul.
among other things,
This fact, alone, rules out use
of the supertanker to carry Venezu e l a n o i l .
Venezuela,
The
Imports from
and possibly Libya and Nigeria, will still be
carried by smaller tankers through conventional port facili
ties.
There is provision in our estimates of throughput for
some imports of crude oil by other than supertankers and
through other than deepwater p o r t s .
* For example, see U.S. Department of Commerce, Maritime
Administration, Feasibility of a North Atlantic Deepwater
Oil Terminal, Soros Associates, July, 1972.
pp. 8-11.
12A
One mi g h t also consider oil shipments via VLCC from
the eastern Mediterranean.
These shipments w o u l d c arry both
Libyan and Pers i a n Gulf oil,
the latter transported to the
eastern M e d i t e r r a n e a n by means of pipeline.
instability in the M i d d l e East,
Because of pol itical
the v u l n e r a b i l i t y of the p i p e
line, and the policies of the p r e s e n t L i b y a n regime,
it n o w
seems highly unlikely that the United States w o u l d find it
possible to rely heavily o n this source of foreign oil.
have,
therefore,
5.
We
chosen to ignore this alternative.
The Level of Th r o u g h p u t at U.S. D e e p water P o r t s .
Because the study estimates the costs of each al t e r n a t i v e at
various levels of throughput,
it is important to k n o w the
range of throughput over w h i c h one m u s t carry the analysis.
For all E a s t C o a s t and one Gulf C o a s t port, w e assu m e 0 to 6
million barrels per day;
0 to 10 m i l l i o n barrels.
for the r e m a ining Gulf C o a s t port,
These estimates are ba s e d on t h r o u g h
put projections d i s cussed in the first section.
The level of throughput is increased segmentally for ea ch
deepwater port.
The size of each segment w as d e t e r m i n e d by
the Army Corps of Engineers to be co n s i s t e n t w i t h b e s t
engineering practice.
In general,
four or five d i s c r e t e steps
are required to reach an ultimate throughput
barrels per day.
of 6 m i l l i o n
mm4
•
i3A
PORT Ai ID TR AN SFER T E CH N O LO G IES FOR SUPERPORT S I T E S
Kachias
Sea Island
(Platform)
- T u g Barge
Raritan Bay
Sea Island (Platform)
Sea Island (Platform)
Island - P i p e l i n e
Island - T ug B a r g e
- Pipeline
- Tu g B a r g e
Long Branch
»
Island Island • Monobuoy
Monobuoy
Cape M ay
T ug B arge
Pipeline
- Pipeline
- T u g Barge
Sea Island (Platform)
Island - Tu g B arge
Island - Pipeline
Sea Island (platform)
Cape Kenl o p e n
Monobuoy
Monobuoy
I s land Island -
Bayou LaFourche
- Pipeline
- T u g Ba r g e
- Pipeline
- i’ug Barge
Pip e l i n e
T ug Barge
Island - Pipeline
*
Island - Tu g Ba r g e
M o n o b u o y - T ug B arge
Monobuoy - Pipeline
Free p o r t
Monobuoy - Pipeline
M o n o b u o y - T u g B arge
Nova Scotia
Sea Island (Platform) - T a n k e r
1.
D i s t r i b u t i o n to E a s t C o a s t
R e fin e rie s
Sea Island (Platform) - T a n k e r
lJ
D i s t r i b u t i o n to E a s t C o a s t
2.
D i s t r i b u t i o n to G u l f C o a s t
R e f i n e r i e s
Bahamas •
V
R e f i n e r i e s
14
6.
The Size, Type, and Number of S u p e r t a n k e r s .
We
also assure throughout a 250,000 DWT supertanker.
Since choosing 250,000 DWT, Shell Oil has announced
contracts for two 520,000 ton tankers and trade journals have
begun discussing the possibility of one million ton tankers
in the not too distant future.
The 250,000 ton tanker may,
by 1980 or 1985, be as outdated as the 20,000 ton tanker is
now.
To assume a larger supertanker would require considerable
reworking of the data.
For our purposes, however,
it is
sufficient to note that the larger the tanker, the more likely
that those deepwater port alternatives relatively close to
the shore
(i.e., sea islands and artificial islands) would
be placed at a greater cost disadvantage.
Much would depend
in the amount of dredging and the length of berths required
to accommodate the larger tankers at the various port sites.
By contrast, because the monobuoys are further out at sea,
their costs should be less affected by changes in tanker
size.*
Some observers believe
it is possible to design larger
tankers with minimal addition to draft.
If so, use of
larger tankers m ay not affect appreciably the relative costs
of deepwater ports close to the shore.
However, the reduced
draft may be achieved at still another price, less efficient
handling of the vessel.
15
We have computed costs for bo t h U.S. and foreign flag
su p e r t a n k e r s .
The choice of ,5 lag is critical to the study
of the economics of U.S. and foreign deepwater ports.
all assumption,
Under
the V L C C is r e s ponsible for over 80 percent
of the total costs of deepwater p o r t operations.*
The equivalent annual cost of a foreign vessel is about
60 percent that of a domestic vessel.
Clearly,
anything that
influences the relative costs of VLCCs wil l influence the
relative costs of deepwater po r t operations.
We also assume two types of tanker construction:
tional and double bottoms.
conven
Double bottoms are co n s i d e r e d by
EP A and CEQ to be among the m o s t important e n v i r o nmental safe
guards necessary to assure r e asonable p r o t e c t i o n agai n s t
maj o r oil spills.
additive.
We treat the c o s t of d o uble bottoms as
In this way, w e are able to estimate w h e t h e r a
U.S. requirement that supertankers have double bottoms,
whi c h is not imposed by Canada or the Bahamas, m i g h t put
U.S. deepwater ports at a significant cost disadvantage.**
Finally, we mu s t estimate the number of supertankers
required for each level of throughput,
and each technology.
*
each dee p w a t e r port,
This number varies w i t h b o t h level of
For the example of the Long B r anch monobuoy,
see T able 3.
** In estimating the higher costs of double bottoms w e not
only consider the higher cons t r u c t i o n costs, b ut also the
lower carriage capacity of double b o t t o m vessels h a ving
the same dimensions as conventional vessels.
imports and distance.
It also v a ries w i t h w e a t h e r c onditions
and the existence of natural or m a n m a d e breakw a t e r s at each
site.
For example,
for a cert a i n number days m o n o b u o y s in
the Atlantic m a y be inoperable beca u s e of the weather.
Super
tankers would have to stand-off b e f o r e b eing able to m o o r e
and discharge their cargoes.
By contrast,
p r o t e c t e d sea
islands and artificial islands along the A t l a n t i c C o a s t w o u l d
have a greater all-weather c a p a b i l i t y and would,
reason, allow mo r e efficient use of VLCCs.
for this
This co s t d i f f e r e n
tial should be c onsidered in our analysis of a l t e r n a t i v e p o r t
sites and technologies.
7.
A s s umptions a bout the W e a t h e r .
weather was, perhaps,
the study.
The t r e a t m e n t of
the m o s t d i f f i c u l t issue c o n s i d e r e d in
Originally, w e assumed a w e a t h e r d i f f e r e n t i a l
which we then expressed in terms of less e f f i c i e n t use of
VLCCs serving b o t h Atla n t i c and Gulf C o a s t monobuoys.
(All
sea islands and artificial islands w o u l d be p r o t e c t e d by
natural or man - m a d e breakwaters?
assumption did not affect,
m o n o b u o y s w o u l d not.)
appreciably,
the East Coast alternatives?
This
the r e l a t i v e costs of
sea islands and a r tificial
islands in N e w York Harbor and D e l a w a r e B ay are favored by
extreme assumptions about w e a t h e r d i f f e r e n t i a l s in the A t l a n t i c
The monobuoy alternatives are favored by the abse n c e of
weather differentials.
17
Disagreement w i t h our initial treatment of the weather
differential stemmed,
in part,
from objections to our implicit
assumption that monobuoy practices w ould continue wi t h little
improvment in the near future.
In fact, monobuoy operations
are relatively recent and have been evolving rapidly.
There
is a consensus in the industry that, as experience in the use
of monobuoys grows,
where downtime
technology will improve to the point
because of w eather will be minimized.
the monobuoys w o u l d suffer little,
of adverse w eather conditions.
If so,
if any, disadvantage because
Second, the primary constraint
imposed by weather is not in the discharging of oil in high
seas, but in the tanker's mooring at the monobuoys.
conditions of weather,
In most
it w ould b e possible for pumping to
occur as long as there w e r e a break in the weat h e r sufficient
to allow mooring.
gueueing.
Third, the p r o b l e m is essentially one of
Adverse w eather would result in a line-up of
tankers at the monobuoy.
Work by E P A suggests that the size
of the queue and, hence, waiting time could be reduced sub
stantially by the simple and relatively inexpensive expedient
of adding one additional monobuoy.
Finally,
the island, too,
may b e *inoperable during bad weather if the tugs needed to
assist tankers to their berths are unable to put to sea.
For these reasons, we also estimate the costs of the
various alternatives assuming no weather differential at a
given location.
This assumption,
in effect,
sets a lower as
well as an upper boundary to the impact of weather conditions
on the choice of deepwater port locations and technologies.
For the most part, we restrict ourselves in this paper
to the second case only.
We assume no weather differential
at each port site.
8.
The Discount R a t e .
of 10 percent.
This, we feel,
We use throughout a discount rate
is a realistic measure of the
value of capital in the United States.
It is also the standard
now used by OMB.
Our choice of 10 percent has stirred some controversy.
This, it is argued,
is much too low and unacceptable to
industry given the substantial risks involved in constructing
a deepwater port.
What are these risks?
For one, recent
changes in U.S. oil import policies m ay result in a reduced
need for imports beyond,
let us say, 1980 or 1985.
Or,
there may be changes in policies affecting other energy
sources, such as natural gas, that increase the consumption
of these sources and, because of this, decrease import demand
for crude oil.
In each case, the risks involve, primarily,
the useful or economic lifetime of the deepwater port facility.
We account for these risks by varying the lifetime of the
facility to determine whether,
in fact, this would result
ln different port sites and technologies providing the least
cost means of importing Middle Eastern crude oil.
In effect,
i therefore, 10 percent represents a tisk-free rate of return
on investment.
19
9.
The Lifetime of the F a c i l i t y .
We assume,
first,
that each capital input w o u l d be used for its full physical
lifetime.
We then assume m a x i m u m economic lifetimes of 20
and 10 years in the e x p ectation that the po r t w o u l d be used
only for a finite number of years,
after w h i c h alternative
sources of fuel or energy w o u l d come into being and terminate
a substantial U.S. r e q uirement for imported oil.
However, we
exclude from this constraint capital inputs that are not
committed to the po r t itself, bu t wo u l d have alternative
uses w e r e the port to cease operations.
These inputs are
assigned their full physical lifetimes throughout.
The
m o s t important are supertankers.
Imposition of a 20-year lifetime o n n o n - r e u s a b l e capital
inputs yields results little d i f f e r e n t fro m our initial assump
tion of full physical lifetime.
However,
i m position of a
10-year economic lifetime does resu l t in some change in our
conclusions.
As a general rule,
the shorter the lifetime,
the mo r e the mono b u o y and tug b arge m o d e of transfer are
favored over the islands and p i peline transfer.
event,
the cost differentials are not that great.
purposes, w e can assume full physical lifetime.
computations are available, however,
a di f f erent assumption.
In any
For our
Alternative
for those w h o w o u l d prefer
10.
The L o cation of N e w Refi n e r y C a p a c i t y .
The
destinations to w h i c h throughput is transferred
on the location of n e w refinery capacity.
depe n d
In the absence
of any guidelines, w e have assumed that the g eographic
dispersion of Ea s t and Gulf C oast refineries will,
in the
future, be the same as the d i s p e r s i o n at present.
O n the
East Coast, this means transsh i p m e n t of large amounts of
crude oil to N e w York and the Upper Dela w a r e Bay and a small
amount of crude oil to the N e w Yo r k River.
O n the Gulf Coast,
this means transshipment to the m a n y r e fineries located on
or near the Gulf of Mexico.
The p e r centages of throug h p u t
assumed to be d i s t ributed to each r e finery site on each
coast are presented in Table 5.
Some have d i s a greed w i t h this choice of locations of
future demand for crude oil.
W h e r e d e m a n d w i l l be located
in the year 2000 is anyone*s guess.
refinery capacity,
Some d i s p e r s i o n of
p a r t i cularly on the east coast,
now
seems likely.
11.
The Choice of Te c h n o l o g y for the T r a n s f e r L e g .
We also assume three means of t r a n s ferring the crude oil from
the deepwater port to refineries:
small tanker.
pipeline,
tug-barge,
and
In no case is a pure transfer te c h n o l o g y assumed.
On the East Coast,
for example,
the imported crude oil m a y
be pumped ashore by p i peline and then trans s h i p p e d by
20A
Table 5
THE ASSUMED DISTRIBUTION OF CRUDE OIL TO VARIOUS REFINERY SITES
East Coast
Percentage to:
Yorktown
N e w York
Wilmington
4.0
26.0
70.0
Gulf Coast
Percentage to:
N e w Orleans
Baton Rouge
Lake Charles
Pascagoula
Houston
Beaumont
Corpus Christi
Texas City
Freeport
15.0
8.9
6.4
5.8
19.7
26.7
6.3
9.4
1.8
21
tug-barge to a refinery.
Pipeline transshipment would be
used only if there is sufficient throughput.
the case for thfe York River refinery which,
This is not
it is assumed,
would under all circumstances receive its crude oil via
tug-barge or tanker.*
We were also faced wit h a choice between tug-barges
and small tankers.
A n examination of costs suggested that,
for short hauls close to the shore, tug-barges provide much
the more efficient alternative.
For relatively long hauls,
however, the opposite is the case.
The reason for this is
that the higher costs of tankers are then nullified by the
greater speeds obtained on the open seas.
The breakeven
point appears to occur at about 1000 miles round trip*
Therefore, to simplify our analysis, we assume that tugbarges would be used for transfer from a U.S. deepwater port
while tankers w ould be used for transfer from a foreign deep
water port to U.S. refineries.
We assume throughout that the tug-barge and tanker would
have a 40,000 DWT capacity.
We also assume both conventional
and double bottom tug-barges and tankers.
Finally, we assume
that tug-barges carrying crude oil to U.S. refineries would
be subject to the Jones A c t and would, under all circumstances,
In retrospect, we should have ignored distribution to the
York River refinery altogether on the assumption that, were
this refinery to depend on foreign crude, it could be
accommodated by smaller tankers sailing directly to the
York River from origins other than the Persian Gulf.
22
sail under the U.S.
-
flag, w h i l e tankers carr y i n g crude oil
from foreign deepwater ports w o u l d have an a d v antage in
their ability to sail under a foreign flag.
12.
Restriction of Refinery Demand to PADs I and I I I .
We also assume that all imports of crude oil t hrough E a s t
Coast deepwater ports will serve PAD I
(East Coast)
refineries,
while all imports through Gulf C o a s t deepwater ports will
serve PAD III
(Gulf C o a s t ) .r e f i n e r i e s .
assumption that,
practice,
This is an extreme
in retrospect, w e w i s h w e had varied.
In
some of the crude oil e n tering the U n i t e d States
through PAD I will be transshipped to other PADs.
This is
especially true of Gulf C o a s t ports w h i c h w o u l d also
supply PAD II
(the central states)
and PAD III refineries.
Our r e s t riction of t hroughput to the PAD in w h i c h the
port is located p r obably does not have that gr e a t an impact
on the relative costs of Ea s t C o a s t dee p w a t e r ports.
it does bias our results for the Gulf.
about throughput,
However,
U nder all assumptions
a m o n o b u o y at Freeport,
Texas,
appears
from our analysis to be a better choice than a m o n o b u o y at
Bayou LaFourche,
Louisiana.
The r e ason for this is apparent
in the d a t a on the d i s t ribution of import d e mand pre s e n t e d
in Table 5.
Sixty-four perc e n t of the r e fining of crude oil
in PAD III is concentrated in Texas in areas r e l a t i v e l y close
to the proposed F r eeport facility.
If,
instead,
substantial
23
amounts of crude oil we r e to be imported thro u g h a Gulf
Coast deepwater port for eventual t r a n s s hipment to the
central or eastern states,
the optimal po r t site w o u l d m o s t
likely be off the Louisiana coast.
In other words,
the
disadvantage of the Bayou L a F o urche site is m o r e appa r e n t
than real.
It
is the result of a simplifying assumption.
Here, more than anywhere else, one can see the dangers of
using the results of this study as a justification for or
against a particular deepwater port site.
13.
The Mutual E x c lusivity of Port A l t e r n a t i v e s .
the most part, we assume that, w i t h i n each PAD, each po r t
facility w o u l d operate to the e x c lusion of all others.
In
other words, we assume that each dee p w a t e r po r t on the E a s t
Coast would, by itself,
supply all Ea s t Co a s t r e fineries and
that each deepwater po r t on the Gulf C o a s t w o u l d supply all
Gulf Coast refineries in the proportions a ssumed in Table 5.
In the real world, one m i g h t e x pect mo r e than one deepwater port on each coast w i t h some m a r k e t spe c i a l i z a t i o n and
resulting economics of operation.
This is p a r t i c u l a r l y
likely on the Gulf C oast w here b o t h pro j e c t e d imports and
dispersion of refineries are c o n s iderably greater than on
the East Coast.
In Section 5 of this repo r t we do,
in fact,
consider the possibility of two d e e p water ports op e r a t i n g
simultaneously on the Gulf Coast.
To do this w e have had to
For
24
make several adjustments, notably in the transfer module,
to take into account the economies likely to result from
market specialization within the Gulf Coast region.
14•
Environmental Controls.
EPA has drawn up a list
of minimum standards necessary to prevent, contain, and
clean up spills resulting from operations at each type of
facility.
They have also estimated the costs of implementing
these requirements from port to port depending on the type
of facility and transfer leg used.
For the tanker leg, only one basic safeguard is estab
lished, the requirement that tankers using U.S. deepwater
ports have double bottoms.
For the port module, provision
is
made for curtains, screens, and other devices for preventing
and containing a spill and booms, skimmers, and launches for
cleaning up a spill once it occurs.
These devices are
essentially the same for the sea island and artificial island.
Devices for prevention and containment of minor spills are
not likely to be effective at a monobuoy and are, therefore,
omitted.
Environmental safeguards also vary with the type
of transfer leg assumed.
Double bottoms are required for
tug-barges and small tankers.
Also, for both vessels, pro
vision is made for prevention, containment, and clean up of
spills at the refinery end of the transfer leg.
Provision
is also made for storing the dirty ballast generated by
tug-barges and tankers either on the island or at on-shore
storage facilities.
The pipelines at sea are assumed to be
25
buried to EPA specifications and to be equipped with bleeder
and block valving systems.
In all instances, we have tried to estimate the incremental
cost of environmental safeguards.
and, in at least one instance,
dirty ballast,
This has not been easy
storage tanks for receiving
it would appear that the Army Corps data on
port module costs and the EPA data on environmental costs
overlap to some extent.
One major environmental cost is excluded because it is
unpredictable.
This is the cost of damage to adjacent
property because of spillage.
The amount of these costs
will depend, among other things, on probability of occurrence,
currents, weather conditions, and value of the property,
and is impossible,
at least within the time frame of our
study, to predict wit h any accuracy for each of the alter
natives .
26
SOME GENERAL CONCLUSIONS OF THE STUDY
In this section w e outline the mo r e important conclusion^
of this study.
lj
Under m o s t c i r c u m s t a n c e s , the c o n s t r u c t i o n of a U.S,
deepwater port would result in significant savings to the
United States.
The dollar amounts of these savings are
estimated in the next section.
It is sufficient to note
here that the amount of these savings per barrel tends to
increase wi t h throughput.
However,
the cost advantage of a
U.S. deepwater port disappears at ver y low levels of through
put and wh e n vessels serving a U.S. port are required to
have double bottoms wh i l e vessels serving a foreign port
are not.
Even under the w o r s t case, however,
the differential
between the least cost U.S. and foreign po r t is small.
2.
There is a m ajor exception to this first conclusion
however, wh e n U.S.
flag is required for tankers docking at
U.S. ports w hile foreign flag is permitted for tankers docking
at foreign ports.
The flag of the vessels could be the
decisive factor in a private d e c i s i o n to o pt for a foreign
deepwater port.
For example, comparing the Lo n g Branch mono
buoy wi t h a Canadian sea island and assuming a 6 mbbl/day
throughput, use of U.S. VLCCs w o u l d convert a 15 percent cost
advantage for the U.S. port* into an 18 p e r c e n t cost dis
advantage.**
* See Figure 1.
** This assumes that crude oil m u s t also be transshipped from
Canadian to U.S. ports by U.S. flag tanker.
Legislation re^jui^ing use of U.S. tankers for 50 p e r c e n t of oil imports was
narrowly defeated by the last Congress.
The same legislation
has been introduced again in this C o n g r e s s • Our results sug9eS
that the effect of such legislation m ay we l l be to drive oil
importers away from both U.S. tankers and U.S. deepwater ports'
26 A
Table 6
SAVINGS RESULTING FROM AN EAST COAST U.S. DEEPWATER PORT
(cents per barrel)
Throughput
(mbbl/day)
0.600
0.800
1.000
1.135
1.200
1.572
2.000
2.500
3.200
5.106
6.600
W o r s t Case*
Best Case
-4.0
-1.6
-0.2
0.4
3.3
5.7
7.2
7.8
8.4
10.5
12.7
14.0
14.8
15.5
16.5
1.0
3.2
5.3
6.6
7.4
8.1
9.1
SOURCE: Tables 1.1, 2.1, 3.1, 4.1, and 5.1 in the
Statistical Appendix.
Co s t p r o jections above 6 m b b l /
day have been b ased on linear e x t r a p o l a t i o n of cost
functions estimated by simple r e g r e s s i o n analysis.
* Tankers serving U.S. deepwater ports are r e q u i r e d to
have double bottoms w hile tankers serving foreign ports
are not.
** For the m o s t part, tankers serving b o t h U.S. and
foreign ports are r e quired to have d o uble bottoms.
26B
Table 7
SAVINGS RESULTING FROM A GULF COAST U.S. DEEPWATER PORT
(cents per barrel)
Throughput
(mbbl/day)
0.600***
1.400***
1.805
2.400***
3.248
4.175
6.782
10.600
10.900
14.700
Worst Case *
Best Case **
-14.2
- 0.4
- 3.6
0.1
4.0
4.6
7.7
10.0
10.1
11.1
-4.7
2.7
3.8
8.4
11.5
12.0
14.9
17.1
17.2
18.2
SOURCE:
Tables 1.2, 2.2, 3.2, and 5.2 in the Statistical
Appendix.
Cost projections above 10 mbbl/day are based
on linear extrapolation of cost functions estimated by
simple regression analysis.
* Same as in Table 6.
** Same as in Table 6.
***Tug-barge distribution of crude oil assumed.
27
3.
The reason for this is that, by far, the mo s t important
component of total costs is the tanker module.
As a result,
any factor affecting supertanker costs tends to drive the results
of the study.
The least cost alternative is of ten that which
permits the most efficient use of VLCCs.
4.
The environmental safeguards specified by E P A do not,
as a rule, add appreciably to the total costs of oil imports or
affect the economics of deepwater port alternatives.
A partial
exception occurs wh e n supertankers are equipped with double
bottoms.
Double bottoms account for over 90 percent of total
environmental costs and, when required at U.S. but not foreign
deepwater ports, reduce considerably the savings to the
United States likely to result from a U.S. deepwater port.*
5.
With one major exception, pipeline distribution p ro
vides the least cost means of transferring crude oil from
deepwater ports to refineries.
Moreover the greater the
throughput, the greater the economic benefits from pipeline
distribution.
The exception is the Gulf Coast port handling
less than two million barrels per day.
In this case,
distribution would permit slightly lower total costs.
tug-barge
This
exception results from the greater dispersion of crude oil
demand on the Gulf Coast.
In general,
this demand, as on the East Coast,
the more concentrated
the more efficient is
Pipeline distribution.
Estimates of this reduction in savings are presented in
the next section and the statistical appendix at the end of
this paper.
28
6.
For the most part, the least cost East Coast alter
native is a Long Branch monobuoy with pipeline distribution
to refineries.
East Coast alternatives that also show well
in our analysis are the Cape May sea island and island, the
Raritan Bay sea island and island, and the Cape Henlopen
monobuoy, all with pipeline distribution to refineries.
In
each case, however, the differences in costs are not par
ticularly large.
The second best East Coast alternative, the
Cape May sea island, typically adds about a penny to the cost
of a barrel of crude oil for most levels of throughput, whereas
the maximum differential for these sites is no more than 4 cents
per barrel.
Our analysis suggests, in other words, that
factors other than costs are likely to be the dominant con
siderations in the choice between the six East Coast locations.
7.
The Long Branch monobuoy ceases to be the least
cost alternative when extreme assumptions are made about the
effect of weather conditions on the operations of an East
Coast deepwater port.
In this case, the Cape May sea island,
which is naturally protected, tends to be the least cost
alternative.
However, the cost advantage on the Cape May
sea island, relative to the Long Branch monobuoy, is only
2 to 3 cents per barrel for all levels of throughput.
Even
under the worst possible conditions for the Long Branch mono
buoy, the monobuoy still proves to be, in the terms of costs
at least, a reasonably attractive alternative.
29
8.
By contrast,
the m o n obuoys are clearly p r e f e r a b l e in
the Gulf of Mexi c o for all levels of t h roughput and under all
assumptions about w eather and tanker utilization»
Moreover,
the savings resulting from c o n s truction of a m o n o b u o y rath e r
than an island are considerably greater, v a r y i n g b e t w e e n 5»5
and 10 cents per barrel.
Of the two m o n o b u o y s in the Gulf,
our analysis suggests that the F r e e p o r t site is to be preferred.
However,
for reasons given in Sections 3, this appa r e n t
advantage is more the resu l t of assumptions about the d i s t r i
bution of imported crude oil than any inherent defects of the
Bayou LaFourche site.
Under real w o r l d assumptions b o t h w o u l d
be advantageous as m o n o b u o y sites.
Indeed,
there are no w
serious proposals by industry to b uild m o n o b u o y systems at
both locations.
9.
The reason w h y the sea islands and islands are
relatively mo r e competitive in the A t l a n t i c than in the Gulf
is that the Delaware and Raritan Bays are w e l l - s u i t e d for
island construction w h i l e the Gulf is not.
sites are protected.
Bo t h E a s t C o a s t
N e i t h e r requires a breakwater,
one of
the more expensive elements of sea island and island c o n s t r u c
tion.
There has b e e n industry interest in a sea island in
Delaware Bay.
One reason for this m a y be the impact of the
weather on alternative port sites and technologies.
However,
the industry m a y also anticipate the federal g o v e r n m e n t s
assumption of one of the ma j o r costs of sea island construction,
30
dredging.
Dredging would not be necessary for the monobuoy
alternatives.
10.
In summary, the study favors the monobuoy facilities
in both the Gulf and the Atlantic, although in the Atlantic
several alternatives to monobuoys would provide nearly the
same level of benefits.
In both regions, however, the
construction of U.S. deepwater ports would, under most
conceivable circumstances, result in considerable savings
than if imported crude oil were to enter the United States
through foreign deepwater ports.
31
SAVINGS RESULTING F R O M A U.S.
D E E P W A T E R PORT
In this last section, we estimate the savings likely to
result from U.S. c o n s t ruction of one or mo r e d e e p water ports.
To do so, we compare the costs of the three foreign ports
with the costs of the least cost U.S. alternatives.
For the East Coast,
forward.
the co m p a r i s o n is r e a s o n a b l y s t r a i g h t
The highest anticipated level of throughput,
6.6 m b b l /
day, and the concentration of demand on the E a s t Co a s t w o u l d
justify no more than one or two port facilities.
for this reason,
assumed one facility —
We have,
a Long B r a n c h
monobuoy system w i t h pipeline d i s t r i b u t i o n to r e fineries —
for all levels of throughput.
We also estimate the savings
for the second best U.S. alternative —
a sea island inside
Delaware Bay near Cape M ay w i t h pipe l i n e d i s t r i b u t i o n to
refineries.
The Gulf Coast is more complex.
Here,
the m a x i m u m level
of throughput and di s p e r s i o n of d e mand would, m o s t likely,
justify several facilities located along the Coast.
^ave, for this reason,
We
assumed a pair of m o n o b u o y systems,
each serving a part of the Gulf C o a s t market,
as wel l as
single monobuoy systems at Free p o r t and B ayou LaF o u r c h e
serving the entire Gulf Co a s t market.
To m e a s u r e the costs
of the Freeport and Bayou La F o u r c h e systems combined, we
roust make some rough adjustments in the transfer module;
32
regional specialization within the Gulf Coast market would
permit economies in distributing imported crude oil from
the deepwater port to refineries.
There is a trade-off,
however, between these economies and the additional costs
resulting from the duplication of port facilities.
For the
Gulf Coast we also assume different transfer technologies
depending on the level of throughput.
For cases involving
relatively high levels of crude oil imports, we assume
pipeline distribution to markets.
For relatively low levels
of throughput, we assume tug-barge distribution.
The total cost of each facility, as well as the cost
differential of each facility relative to the least cost U.S.
facility, are presented in Tables 1.1 through 5.2 in the
Statistical Appendix.
Each table represents a case con
sidered by the Department of Interior in making its through
put projections.
Table 1.1 presents the cost data for East
Coast throughput under Case I; Table 1.2, for Gulf Coast
throughput under Case I.
Similarly, Table 2.1 presents
East Case throughput under Case II; Table 2.2, Gulf Coast
throughput under Case II.
In one instance, Case IV, the
level of throughput for the Gulf Coast is too small and of
too short a duration to justify building a deepwater port.
We have, for this reason, omitted Table 4.2.*
* With one exception, we assume the same technologies through
out. The exception is Case V for the Gulf Coast (Table 5.2).
Here, because the level of throughput is rather small for the
entire lifetime of the monobuoy system, we assume tug-barge
distribution of product and exclude the Freeport and Bayou
LaFourche facilities combined.
33
Several conclusions can be drawn from these data.
xj
In most cases, the U.S. deepwater ports result in
significant cost savings.
The exceptions occur only at very
low levels of throughput and, at the same time, where VLCCs
serving U.S. ports are required to have double bottoms,
while tankers serving foreign ports are not.
2.
The cost savings for various levels of throughput
are converted to cents per barrel and summarized in Tables 6
and 7.
It is clear from the data presented in these tables
that these savings increase significantly with throughput.
There are, in other words, substantial economies of scale
from using a U.S. deepwater port.
3.
In general, the Long Branch monobuoy with pipeline
distribution to refineries would, in all cases and at
all levels of throughput, provide the least cost alternative
on the East Coast.
Assuming full environmental safeguards
at both U.S. and foreign ports, the cost savings resulting
from the Long Branch monobuoy would range between 3.3C per
barrel for 0.6 mbb/day and 16.5C per barrel for 6.6 mbbl/day.
Only at throughput levels considerably below 0.6 mbbl would
the Long Branch monobuoy be at a cost disadvantage relative
to a foreign port.
4.
By contrast, the Gulf Coast offers an array of
"best" alternatives.
For low levels of throughput (less
than one m bbl), it would not pay to build a U.S. deepwater
34
port.
For higher levels of throughput (between one and
two mbbl), it would pay to build one Gulf Coast monobuoy
system with tug-barge distribution to refineries.
At still higher levels of throughput (between 2 and 5
mbbl) it would pay to build one monobuoy system with pipe
line distribution.
Finally, at the highest levels of
throughput (above 6 mbbl), a combination of monobuoy systems
with pipeline distribution to mainland refineries would
provide the least cost option.
For the levels of throughput
considered, savings under the best of assumptions would
range between 2.7C per barrel for 1.4 mbbl/day and 18.2C per
barrel for 14.7 mbbl/day.
Gulf Coast
The only instance in which a
deepwater port facility might not be built on
the basis of costs, aside from Case IV, is Case V.
Here
the savings are small throughout and, for much of the
monobuoy's lifetime, may even be negative.
5.
A major determinant of what type of deepwater port
should be built, and even whether a U.S. deepwater port
should be built at all, will be the level of throughput for
much of the facility's anticipated lifetime.
This finding
underlines the importance of accurate demand projections
from the start.
Because the principal variants in these
projections are assumptions about changes in U.S. government
policies concerning the pricing of natural gas and the
exploitation of the outer continental shelf, this also
- 35
indicates the importance of firm decisions on these issues
being made by the government as soon as possible.
6.
In any event,
the penalties from building a deep
water port under false assumptions about throughout are
generally not that great, even in the Gulf Coast region,
while the rewards could be substantial.
In short, our
analysis suggests that, on the basis of costs, an argument
can be made for building deepwater port facilities on both
the East and Gulf Coasts.
Table 1.1
CASE I;
EQUIVALENT ANNUAL COSTS OF DEEPWATER PORTS SERVING THE EAST COAST MARKET
(millions of dollars
No Environmental
S a f e g u a r d s _____
Total Cost Differ_________________________________________ per Year____ ential
Safeguards
U.S. O n l
Total Cost
per Year
1.135 rebbl. crude/day
Long Branch, monobuoy, pipeline
Cape May, sea island, pipeline
Canada, sea island, tanker
Bahamas, sea island, tanker
382.2
390.9
410.8
417.1
8.7
28.6
34.9
419.2
432.2
420.9
424.4
-
1.572 mbbl. crude/day
Lena Branch, monobuoy, pipeline
Cape May, sea island, pipeline
Canada, sea island, tanker
Bahamas, sea island# tanker
514.9
521.8
568.8
578.2
-
6.9
53.9
63.3
563.5
575.7
581.6
588.5
2.500 mbbl. crude/day
Long Eranch, monobuoy, pipeline
Cape May, sea island, pipeline
Canada, sea island, tanker
Bahamas, sea island, tanker
799.4
813.0
913.7
926.9
13.6
114.4
127.5
872.2
893.2
932.5
944.2
21.0
60.3
72.1
Throughput/Facility
in
y _____
Differential
13.0
1.7
5.2
12.2
18.1
24.9
Safeguards at
Foreign Ports Also
Total Cost Differper Year____ ential
419.2
432.2
451.4
454.9
13.0
32.2
35.7
563.5
575.7
624.7
630.9
-
872.2 .
893.2
1000.0
1011.8
12.2
60.5
67.3
-
21.0
127.9
139.7
Table 1.2
CASE 1:
EQUIVALENT ANNUAL COSTS OF DEEPWATER PORTS SERVING THE GULF COAST MARKET
(millions of dollars)
Throughput/Faci1ity
No Environmental
Safeguards
Total Cost
Differ
per Year
ential
Safeguards in
U.S. Only
Total Cost
Differ
per Year
ential
Safeguards at
Foreign Ports Also
Total Cost
Differ•ential
per Year
1.805 mbbl. crude/day
Freeport, monobuoy, pipeline
Bayou LaFourche, monobuoy, pipeline
Freeport-Bayou LaFourche combined
Bahamas, sea island, tanker
671.5
713.0
702.8
686.9
727.3
765.0
765.6
703.5
727.3
765.0
765.6
752.2
3.248 mbbl. crude/day
Freeport, monobuoy, pipeline
Bayou LaFourche, monobuoy, pipeline
Freeport-Bayou LaFourche combined
Bahamas, sea island, tanker
1137.4
1175.9
1176.1
1251.0
10.900 mbbl. crude/day
Freeport, monobuoy, pipeline
Bayou LaFourche, monobuoy, pipeline
Freeport-Bayou LaFourche combined
Bahamas, sea island, tanker
3713.4
3710.8
3639.1
4259.6
41.5
31.3
15.4
38.5
38.7
113.6
74.3
71.7
-
620.5
37.8
38.3
-23.8
37.8
38.3
24.9
1237.2
1270.0
1283.0
1285.3
32.8
45.7
48.0
1237.2
1270.0
1283.0
1373.1
32.8
45.7
135.8
4025.0
4022.7
3984.0
4386.1
42.0
43.3
402.1
4026.0
4022.7
3984.0
4670.0
42.0
43.3
686.0
Table 2.1
CASE XI: EQUIVALENT ANNUAL COSTS OF DEEPWATER PORTS SERVING THE EAST COAST MARKET
(millions of dollars)
No Environmental
Safeguards
fötal Cost
Differ
ential
per Year
Safeguards in
U.S. Only
Differ
Total Cost
ential
per Year
Safeguards at
Foreign Ports Also
Total Cost
Differ
ential
per Year
3.505 mbb1. crude/day
Long Branch, monobuoy, pipeline
Cape May, sea island, pipeline
Canada, sea island, tanker
Bahamas, sea island, tanker
1109.8
1114.4
1275.0
1293.6
1209.7
1222.4
1298.8
1318.2
12.7
89.1
108.5
1209.7
1222.4
1393.6
1412.9
5.106 mbbl. crude/day
Long Branch, monobuoy, pipeline
Cape May, sea island, pipeline
Canada, sea island, tanker
Bahamas, sea island, tanker
1592*. 9
1616.0
1856.4
1891.2
1741.3
1770.2
1892.6
1927.9
28.9
151.3
186.6
1741.3
1770.2
2030.6
2061.5
28.9
289.3
320.2
6.600 mbbl. crude/day
Long Branch, monobuoy, pipeline
Cape May, sea island, pipeline
Canada, sea island, tanker
Bahamas, sea island, tanker
2047.1
2078.1
2411.5
2457.6
2239.8
2276.0
2638.0
2678.1
36.2
398.2
438.3
Throughput/Facility
4..6
165.1
183.8
23.1
263.5
298.3
_
30.9
364.4
410.4
2239.8
2276.0
2459.6
2506.3
„
36.2
219.8
266.5
#
12.7
183.9
203.3
Table 2.2
CASE II: EQUIVALENT ANNUAL COSTS OF DEEPWATER PORTS SERVING THE GULF COAST MARKET
(millions of dollars)
No Environmental.
Safeguards
Total Cost
Differ
ential
per Year
Safeguards in
U .S . Only
Differ
Total Cost
ential
per Year
Safeguards at
Foreign Ports Also
Differ
Total Cost
ential
per Year
1.805 mbbl. crude/day
Freeport, monobuoy, pipeline
Bayou LaFourche, monobuoy, pipeline
Freeport-Bayou LaFourche combined
Bahamas, sea island, tanker
671.5
713.0
702.8
686.9
727.3
765.0
765.6
703.5
727.3
765.0
765.6
752.2
3.248 mbbl. crude/day
Freeport, monobuoy, pipeline
Bayou LaFourche, monobuoy, pipeline
Freeport-Bayou LaFourche combined
Bahamas, sea island, tanker
1137.4
1175.9
1176.1
1251.0
38.5
38.7
113.6
1237.2
1270.0
1283.0
1285.3
—
32.8
45.7
48.0
1237.2
1270.0
1283.0
1373.1
—'
32.8
45.7
135.8
10.600 mbbl. crude/day
Freeport, monobuoy, pipeline
Bayou LaFourche, monobuoy, pipeline
Freeport-Bayou LaFourche combined
Bahamas, sea island, tanker
3612.9
3611.6
3542.4
4141.8
70.5
69.2
599.4
3917.1
3915.0
3878.0
4264.6
39.1
37.0
—
386.6
3917.1
3915.0
3878.0
4540.8
39.1
37.0
—
662 •8
Throughput/Facility
*
l
*
41.5
31.3
15.4
37.8
38.3
-23.8
37.8
38.3
24.9
Table 3.1
CASE Ills
EQUIVALENT ANNUAL COSTS OF DEEPWATER PORTS SERVING THE EAST COAST MARKET
(millions of dollars)
Throughput/Fac i1ity
No Environmental.
Safeguards
Total Cost Differential
per Year
Safeguards in
U.S. Only
Total Cost Differper Year
ential
Safeguards at
Foreign Ports Also
Total Cost Differper Year
ential
419.2
432.2
420.9
424.4
13.0
1.7
5.2
419.2
432.2
451.4
454.9
13.0
32.2
35.7
563.5
575.7
581.6
588.5
12.2
18.1
24.9
563.5
575.7
624.7
630.9
12.2
60.5
67.3
872.2
893.2
932.5
944.2
21.0
60.3
72.1
i
«
1.135 rabbi, crude/day
Long Branch, monobuoy, pipeline
Cape May, sea island, pipeline
Canada, sea island, tanker
Bahamas, sea island, tanker
382.2
390.9
410.8
417.1
1.57? mbbl. crude/day
Long Branch, monobuoy, pipeline
Cape May, sea island, pipeline
Canada, sea islaftd, tanker
Bahamas, sea island, tanker*
514.9
521.8
568.8
578.2
2.500 mbbl. crude/day
Long Branch, monobuoy, pipeline
Cape May, sea island, pipeline
Canada, sea island, tanker
Bahamas, sea island, tanker
799.4
813.0
913.7
926.9
8.7
28.6
34.9-
6.9
53.9
.63.3
13.6
114.4
127.5
872.2
893.2
1000.0
1011.8 1
21.0
127.0
139.7
Table 3.2
CASE Ills
EQUIVALENT ANNUAL COSTS OF DEEPWATER PORTE SERVING THE GULF COAST MARKET
(Millions of dollars)
Throughput/Facility
No Environmental
Safeguards____
Total Cost
DÏfferper Year_____ ential
Safeguards in
U.S. Only
Total Cost
Differper Year_____ ential
Safeguards at
Foreign Ports Also
Total Cost
Differper Year_____ ential
11.5
11.4
70.0
1593.2
1604.7
1604.6
1775.3
4.175 mbbl. crude/day
Freeport, monobuoy, pipeline
Bayou LaFourche, monobuoy, pipeline
Freeport-Bayou LaFourche combined
Bahamas, sea island, tanker
1467.6
1481.3
1479.2
1617.2
13.7
11.6
149'. 6
1593.2
1604.7
1604.6
1663.2
6.782 mbbl. crude/day
Freeport, monobuoy, pipeline
Bayou LaFourche, monobuoy ; pipeline
Freeport-Bayou LaFourche combined
Bahamas, sea island, tanker
2333.8
2334.9
2308.1
2641.9
25.7
46.8
2531.0
2548.5
2527.0
2718.5
4.0
21.5
191.5
2531.0
2548.5
2527.0
2895.6
5405.5
5386.6
5327.7
5925.1
77.8
58.9
5405.5
5386.6
5327.7
6 3 0 6 h7
14.700 mbbl. crude/day
Freeport, monobuoy, pipeline
Bayou Lafourche, monobuoy, pipeline
Bayou LaFourche,: monobuoy, pipeline
Freeport-Bayou LaFourche combined
Bahamas, sea island, tanker
4986.5
4966.6
4863.4
5752.9
-
333.8
123.1
103.2
889.5
-
-
597.4
11.5
11.4
182.2
4.0
21.5
368.6
77.8
58.9
979.0
Table 4.1
CASE IV:
EQUIVALENT ANNUAL COSTS OF DEEPWATER PORTS SERVING THE EAST COAST MARKET
(millions of dollars)
Throughpüt/Facility
No Environmental
Safeguards
Total Cost Differ—
per Year
ential
Safeguards in
U.S. Only
Total Cost Differential
per Year
Safeguards at
Foreign Ports Also
Total Cost Differential
per Year
640.8
645.9
723.5
736.1
5.1'
82.8
95.3
700.4
711.8
739.0
749.2
11.4
38.6
48.8
700.4
711.8
793.1
803.2
1.200 mbbl. crude/day
Long Branch, monobüoy, pipe1ine
Cape May, sea island, pipeline
Canada, sea island, tanker
Bahamas, sea island, tanker
401.6
410.1
434.3
441.1
8.5
24.2
39.5
440.3
453.2
444.8
448.8
12.9
4.5
8.5
440.3
453.2
477.1
481.1
3.200 mbbl. crude/day
Long Branch, monobuoy, pipeline
Cape May, sea island, pipeline
Canada, sea island, tanker
Bahamas, sea island, tanker
1010.2
1022.9
1165.3
1182.3
12.7
155.1
172.1
1101.4
1122.5
1187.6
1204.7
2.000 mbbl. crude/day
Long Branch, monobuoy, pipeline
Cape May, sea island, pipeline
Canada, sea island, tanker
Bahamas, sea island, tanker
1
21.0
86.2
103.2
1101.4
1122.5‘
1274.1
1291.2
11.4
92.7
102.8
12.9
36.740.7
21.0
172.7
189.8
T ab le
CASE V:
5 .1
EQUIVALENT ANNUAL COSTS OF DEEPWATER PORTS SERVING THE EAST COAST MARKET
(millions of dollars)
Thiroughput/Facility
TbtaÎ Cost
pfer Year
Safeguards at
Safeguards in
U.S.
Total Cost Differ
ential
per Year
Total Cost
per Year
Dif fe
entis
8.5 .
23.5
29.0
368.8
380.3
368.1
370.7
11.5
-0.7
1.9
368.8
380.3
394.9
397.5
11.5
26.1
28.7
10.5
-8.8
-7.8
234.0
244.5
241.3
242.3
_
10.5
7.3
8.3
11.0
-4.7
-2.9
301.4
312.4 •
318.1
319.9
11.0
16.7
18.5
No Environmental
Differ
ential
1.000 mbbl. crude/day
Long Branch monobuoy pipeline
Cape May, sea island, pipeline
Canada, sea island, tanker
Bahamas, sea .island, tanker
335.3
343.9
358.9
364.3
0.600 mbbl. crude/day
Long Branch, monobuoy, pipeline
Cape May, sea island, pipeline
Canada, sea island, tanker
Bahamas, sea island, tanker
212; 7'
220.8
219.7
222.3
8.1
7.0
9.6
234.0
244.5
225.2
226.2
0.800 mbbl. crude/day
Long Branch, monobuoy, pipeline
Cape May, sea island, pipeline
Canada, sea island, tanker
Bahamas, sea island, tanker
274.0
282.3
289.3
293.3
8.3
15.3
19.3
301.4
312.4
296.7
298.5
Table 5.2
CASE V:
EQUIVALENT ANNUAL COSTS OF DEEPWATER PORTS SERVING THE GULF COAST MARKET
(millions of dollars)
No Environmental
Safeguards
Total Cost Differ. ential
per Year
Safeguards in
U.S. Onlyc
Total Cost Differ
ential
per Year
Safeguards at
Foreign Ports Also
Total Cost Differ
per Year
ential
1.400 mbbl. crude/day
Bayou LaFourche, monobuoy, tug-barge
Freeport, Monobuoy, tug barge
Bahamas, sea island, tanker
512.5
513.9
528.5
1.4
16.0
563.2
563.7
541.0
0.5
22.2
563.2
563.7
576.9
0.5
13.7
0.600 mbbl. crude/day
Bayou LaFourche, monobuoy, tug barge
Freeport, monobuoy, tug barge
Bahamas, sea island, tanker
235.4
227.5
225.Ô .
-7.9
-10.4
261.3
251.6
230.1
-9.3
-31.2
261.3
251.6
246.1
-9.7
-15.2
2.400 mbbl. crude/day
Bayou LaFourche, monobuoy, tug barge
Freeport, monobuoy, tug barge
Bahamas, sea island, tanker
858.9
867.4
925.5
8.5
66.6
940.5
956.4
949.5
15.9
9.0
940.5
956.4
1014.4
15.9
73.9
Throughput/Facility
PepartmentoftheTREASURY
ASHINGTON. D C 20220
$ « §
T ftE P H O N E W 0 4 -Ì0 4 lg
FOR RELEASE AT 10:00 A.M.
STATEMENT OF
MR. RICHARD F. LARSEN, DEPUTY ASSISTANT SECRETARY
FOR DEVELOPING NATIONS FINANCE, DEPARTMENT OF THE TREASURY
BEFORE THE FOREIGN OPERATIONS AND GOVERNMENT
INFORMATION SUBCOMMITTEE OF THE
HOUSE COMMITTEE ON GOVERNMENT OPERATIONS
JULY 24, 1973, at 10:00 A.M.
Mr. Chairman and Members of the Subcommittee, I am
pleased to have the opportunity to review with you this
morning the progress made since the last hearing in the
collection and reporting of delinquent foreign debts owed
to our Government.
As a relative newcomer to the Treasury
Department, it is a privilege for me to participate in what
you, Mr. Chairman, once called a "unique partnership"
between the Congress and the Executive in this area of
foreign debt collection.
I fully share your view that the
continued existence of arrearages on foreign debts places
an unfair burden on the American taxpayer and, at the same
time, brings into question the creditworthiness of delinquent
foreign governments.
Therefore, Mr. Chairman, I can assure
you that the Treasury Department will continue giving the
same high priority to the matter of foreign debt arrearages
S-255
as has p a r t i c u l a r l y b e e n the case d u r i n g the last three years.
In line w i t h y o u r request,
o ur r e c e n t a c c o m p l i s h m e n t s ,
I shall f i r s t h i g h l i g h t
then r e v i e w the acti v i t i e s
of the N a t i o n a l A d v i s o r y C o u n c i l and the g e n e r a l d ebt
a r r e a r a g e situation,
and c o n c l u d e by b r i n g i n g yo u up to
d a t e r e g a r d i n g the p r o g r e s s w e have m a d e in the c o l l e c t i o n
and r e p o r t i n g of d a t a on f o r e i g n debts.
Recent Accomplishments
L e t m e s t a r t b y h i g h l i g h t i n g the p r o g r e s s w h i c h we
h a v e m a d e in the p a s t s e v eral months.
c o l l e c t i o n of f o r e i g n debts,
In terms of actual
a n u m b e r of g o v e r n m e n t s have
s e t t l e d or s i g n i f i c a n t l y r e d u c e d their o b l i g a t i o n s to U.S.
agencies.
For example,
u n d e r an a g r e e m e n t s i g n e d on A p ril 30,
the G o v e r n m e n t of J a p a n has p r e p a i d in full its o b l i g a t i o n
s t e m m i n g f r o m o ur p o s t - W o r l d W a r II e c o n o m i c a s s i s t a n c e to
t h a t country.
In the area of d e b t a rrearages,
P a r a g u a y and Tu n i s i a
h a v e p a i d the e n t i r e p r i n c i p a l of t h e i r long o u t s t a n d i n g
i n d e b t e d n e s s o n f o r e i g n m i l i t a r y sales.
We have r e a c h e d an
a g r e e m e n t w i t h H a i t i for the r e p a y m e n t of a p o s t W o r l d W ar
II d e b t r e s u l t i n g f r o m the d i s p o s a l of su r p l u s property.
B r a z i l has p a i d the A r m y o v e r $3 m i l l i o n on a m i l i t a r y sales
a c c o u n t w h i c h w as p r e v i o u s l y r e p o r t e d to be in arrears.
The
D o m i n i c a n R e p u b l i c has p a i d s e v eral m i l l i o n d o l l a r s on its
a c c o u n t s due to v a r i o u s
ag e n c i e s
and is n o w current.
Although progress m
some instances has been less than
satisfactory, major claims continue to receive strong
consideration.
Negotiations to reschedule the various
obligations owed by the Chilean Government to the United
States and other creditor countries are in progress —
Treasury
led the U.S. delegation to the creditors meeting in Paris
less than two weeks ago.
Our goals and those of the other
creditor nations at that meeting were to press the Government
of Chile to adopt adequate stabilization policies to enhance
our long-range prospects of collecting all debts owed us.
Some recent progress has been made on Iran's lend-lease
and surplus property debts.
In March, the Iranian Government
paid approximately $750,000 on certain accounts, and in
May it indicated that it would pay an additional $2 million
on its debt.
However, differences still remain with regard
to the status of some $12 million in delinquent interest.
Nevertheless, negotiations continue with the Iranian Govern
ment and we are hopeful that an appropriate settlement will
soon be reached.
The status of the Chinese post-World War II debt is
presently being reviewed within the Executive Branch.
Finally,
after a five year hiatus, negotiations concerning the Czechoslovak
debt are expected to begin in the near future.
Turning to the status of World War I debts, a National
Advisory Council Working Group has been reviewing this
'
-4-
problem.
On the basis of the work of this staff committee,
recommendations will be formulated and I expect we will
soon be in a position to report to you on this matter.
National Advisory Council Activities
Coordination and monitoring of agency collection
efforts by the National Advisory Council have continued
unabated since we last met with your Subcommittee.
One
of the essential considerations applied by the National
Advisory Council in reviewing U.S. Government and multi
lateral loan proposals is whether or not a particular country
has obligations in arrears to the U.S. Government.
Review and policy coordination by the National Advisory
Council was an important element in achieving collection on
a number of overdue debts in recent months.
that our work over the past few years —
by this Subcommittee —
We are convinced
strongly supported
has resulted in a greater awareness
by recipient countries of the seriousness with which the
U.S. Government views debt arrearages and the importance it
places on prompt payments in considering new loan requests.
A weekly debt status report is submitted to the Council
by the Treasury Department to assure that each potential
recipient is reviewed in light of its creditworthiness.
In
addition, the Council has continued its semi-annual review
of the status of all outstanding foreign debts.
The most
recent semi-annual meeting was held on June 24th when we
reviewed in considerable detail the various achievements and
-5-
problems connected with the collection of debts owed to each
lending agency.
The inter-agency coordination through this
forum does much to assure that our foreign debt collection
activities will continue to receive a high priority.
Debt Arrearages
When Assistant Secretary Hennessy testified before your
Subcommittee in March, we had only preliminary figures on
arrearages as of December 31, 1972.
These data, which are
now final, show $639 million in arrears excluding, of course,
World War I debt.
This figure compares with the $678 million
reported in arrears as of June 30, 1972.
in the debt picture
The improvement
is mainly due to the elimination of
the Soviet arrearage on lend-lease which evolved from
last October's settlement.
Partially offsetting this, however,
was the $50 million increase in Chilean debt which occurred
between June and December of last year.
Long-Term Arrearages
To place these arrearages in perspective, let me analyze
briefly the composition of the debt.
On December 31, 1972, the
long-term component of the arrearages totaled $334 million.
Almost $300 million of this amount was owed by five countries —
Chile, China, Cuba, Egypt, and Iran.
This list of countries
illustrates the nature of the major debt arrearages.
They
either pertain to unsettled World War II accounts, such as
with China and Iran, or result from more recent political
problems, such as those occurring with Cuba, Egypt and Chile.
The most serious debt arrearage problem
-
6
-
we have at this time is with Chile.
As of December of last
year approximately $86 million of a total of $920 million
outstanding debt was in arrears.
By March the 90-day due
and unpaid debt of Chile had risen to almost $110 million.
Short-Term and Accounts Receivable Arrearages
The largest portion of the short-term credits and
accounts receivable in arrears,which together totaled $305
million at the end of last year, can be attributed to
unique political-military events in the post World War II
period.
As has been reported to the Subcommittee on previous
occasions approximately $205 million of these claims represent
logistical support provided to our allies during the Korean
conflict and to the United Nations during its Congo operations
of the early 160*s.
Another sizeable segment of the accounts
receivable, some $25 million, represents lend-lease claims
against China and India.
Although I hope that satisfactory
settlement will be reached concerning these claims, I am
sure you appreciate, Mr. Chairman, the complex political
considerations involved in collecting these arrearages.
With your permission I offer the December 31, 1972
arrearage table for inclusion in the record.
Summary of Arrearages on Foreign Indebtedness
To U.S. Government Agencies as of December 31, 1972
(In thousands of dollars or dollar equivalents)
Agency
Total
Long-Term
Credits
Total, All Agencies
639*120
334,165
Department of Agriculture
Agricultural Stabilization and
Conservation Service
Commodity Credit Corporation
Department of Commerce
National Bureau of Standards
National Oceanic and Atmospheric
Administration
Department of Defense
Civilian
Canal Zone Government
Panama Canal Company
Military
Defense Security Assistance Agency
Department of the Air Force
Department of the Army
Department of the Navy
6,037
-
3,051
3,286
A,043
15,716
208,534
21,647
*
Department of Justice
Immigration and Naturalization Service
125
Department of Transportation
Federal Aviation Administration
U.S. .Coast Guard
Department of the Treasury
Bureau of Accounts
Independent Agencies
Atomic Energy Commission
Export-Import Bank
General Accounting Office
Social Progress Trust Fund
(Inter-American Development
Bank, Trustee)
Tennessee Valley Authority
U.S. Postal Service
U.S. Information Agency
Adjustment for Indonesian debt
rescheduling
# Amount less than $500.
9,954
-
64,103
'409
Ill
104
Accounts
Receivabl<
295,001
-
21
Department of the Interior
Bureau of Mines
Department of State
Agency for International Development
Office of the Secretary
Overseas Private Investment Corporation
6,037
-
Short-Term
Credits
21
-
-
-
-
-
3,051
3,286
4,043
— j
-
■ it--'-
76,704
38
9,506
-
15,678
199,028
21,647
-
■*
—
125
-
409
-
_
-
—'
s
143,441
118,301
-
71
144,347
* 56
129,015
-
-
7,399
Ill
104
25,140
71
15,332
56
■1 4,018
-
66
. .-
-
s
-
3.952
-
Treasury Debt Reporting
Finally, let me turn briefly to the collection and
reporting of data pertaining to foreign debts, which are
the responsibility of the Treasury Department.
As the Sub
committee is well aware, the Treasury has accomplished a
major expansion of its reporting system on foreign credits,
since these hearings began in 1970.
In response to the
interest of the Subcommittee in obtaining a complete account
of foreign debts owed to the United States Government, we
have over the past two years developed and put into operation
an entire new segment of our reporting system, to provide
for the first time data on short-term U.S. Government credits
to foreigners and on accounts receivable from foreigners.
Thus, as Assistant Secretary Hennessy has previously stated,
we are now able to give you complete figures on foreign debts
of all maturities to U.S. Government agencies, as reported
to us by the responsible agencies•
We have previously
provided these data to the Subcommittee as of June 30, 1972.
These data are included for the first time in the
published semiannual report. Foreign Credits by the United
States Government, which we expect to submit to the Congress
within two weeks.
Data for subsequent semiannual periods
will be made available to the Subcommittee as they become
available, and will be included in future semiannual reports
to the Congress.
With the completion of this major reporting innovation,
we have turned our attention to the solution of other
problems which exist in the reporting system in order to
speed up the reporting and to minimize the burden on the
reporting agencies to the extent possible.
This, Mr. Chairman, completes my report to you on the
successes and some of the problems we have had in recent
months in our effort to improve the collection of foreign
debts and to improve our system of foreign debt data reporting.
I shall be happy to answer any questions you or Members of
the Subcommittee may have.
Of
|[
Department of th e fR EA S U R Y
W
ashington, d c 20220
TELEPHONE W04-2041
/789
ATTENTION:
FINANCIAL EDITOR
July ¿3, 1973
FOR RELEASE 6:30 P.M.
RESULTS OF TREASURY’S WEEKLY BILL OFFERING
The Treasury Department announced that the tenders for two series of Treasury
(bills, one series to he an additional issue of the hills dated
April 26, 1973
, and
jthe other series to he dated July 26, 1973
, which were invited on July 17, 1973,
(were opened at the Federal Reserve Banks today. Tenders were invited for $2,500,000,000,
(or thereabouts, of 91-day hills and for $1,700,000,000, or thereabouts, of
182-day
Ib ills. The details of the two series are as follows:
¡RANGE OF ACCEPTED
¡COMPETITIVE BIDS:
High
Low
Average
91-day Treasury hills
maturing October 25, 1973
Approx. Equiv.
Annual Rate
Price
97.977 a/
97.938
97.949
8.003$
8.157$
8.114$
1/
182 -day Treasury hills
maturing January 24, 1974
Approx. Equiv.
Annual Rate
Price
95.844 h/
95.810
95.818
8 .221$
8.288$
8.272$
1/
a/ Excepting one tender of $35,000; h/ Excepting one tender of $10,000
jffl of the amount of 91-day hills hid for at the low price was accepted
98$ of the amount of 182 -day bills hid for at the low price was accepted
POIAL 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
$
24,225,000
3,201,305,000
21.690.000
30,000,000
33.525.000
19.350.000
291.520.000
38.900.000
36.155.000
33.330.000
38.885.000
117.195.000
Accepted
$
14,225,000
2,042,280,000
21.690.000
30,000,000
31.525.000
19.350.000
190,520,000
34.160.000
23.195.000
26.120.000
18.645.000
48.495.000
Applied For
$
17,265,000
2,763,515,000
11.650.000
40.215.000
24.205.000
19.745.000
370.735.000
90.400.000
24.935.000
37.625.000
38.935.000
120.730.000
Accepted
$
7,265 ,000
1,360,475 ,000
11,650 ,000
23,595 ,000
18,205 ,000
16,345 ,000
142,905 ,000
29,140 ,000
5,555 ,000
22,760 ,000
20,235 ,000
42,895 ,000
$3,886,080,000
$2,500,205,000 £/
$3,559,955,000
$1,701,025,000 d/
■ Includes $286,280,000 noncompetitive tenders accepted at the average price-of 97.949
I Includes $219,230,000 noncompetitive tenders accepted at the average price of 95.818
I These rates are on a hank discount basis. The equivalent coupon issue yields are
3*40$ for the 91-day hills, and 8.75$ for the 182 -day hills.
Washington,d.c.20220
telephone
W 04-2041
i
FOR IMMEDIATE RELEASE
r -
July 24, 1973
TREASURY ANNOUNCES ACTIONS ON TWO INVESTIGATIONS UNDER
_____
THE ANTIDUMPING ACT
Assistant Secretary of the Treasury Edward L.
Morgan announced, today actions on two investigations
under the Antidumping Act of 1921, as amended.
In the first case there was a determination of
sales at less than fair value, and in the second case
there was a final negative determination. These decisions
will be published in the Federal Register of Wednesday,
July 25, 1973.
I
In the first case Assistant Secretary Morgan
announced that papermaking machinery and parts thereof
from Sweden are being, or are Jlikely to be, sold at
less than fair value within the meaning of the Anti
dumping 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 duties will be assessed on all entries of paper
making machinery from Sweden which have not been appraised
and on which dumping margins exist. A notice of "With
holding of Appraisement" was issued on April 23, 1973,
which stated that there was reasonable cause to believe
or suspect that there were sales at less than fair value.
Interested persons were invited to submit written views
and request an opportunity to make an oral presentation
before final action was taken. During the period of
January 1968 through September 1971, imports of papermaking
machinery from Sweden were valued at approximately $10.8
million.
(OVER)
In the second case, the Department announced
that a final determination has been made that paper
making machinery and parts thereof from Finland are
not being, nor are likely to be, sold at less than
fair value. A tentative negative determination was
published in the Federal Register on April 23, 1973.
This notice invited interested persons to submit written
views or arguments, or requests for an opportunity to
present their views orally. During the period of
January 1968 through September 1971, imports of paper
making machinery and parts thereof from Finland were
valued, at approximately $12.1 million.
\
Department of th e T R E A S U R Y
ASHINGTON. D.C. 20220
TELEP H O N E W 0 4 -2 0 1
FOR IMMEDIATE RELEASE
July 24, 1973
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 $4,200,000,000, or thereabouts, for
cash and in exchange for Treasury bills maturing
of $4,301,885,000
August 2, 1973,
in the amount
as follows:
91-day bills (to maturity date) to be issued
August 2, 1973,
in the amount
of $2,500,000,000, or thereabouts, representing an additional amount of bills
dated
May 3, 1973,
and to mature November 1, 1973
originally issued in the amount of $1,800,645,000,
(CUSIP No. 912793 SB3 )
the additional and original
bills to be freely interchangeable.
182-day bills, for $1,700,000,000, or thereabouts, to be dated August 2, 1973,
and. to mature January 31, 1974
(CUSIP No. 912793
SW7).
The bills of both series will be issued on a discount basis under competitive
and noncompetitive bidding as hereinafter provided, and at maturity their face
amount will be payable without interest.
They will be issued in bearer form only,
and in denominations of $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 clos\
ing hour, one-thirty p.m., Eastern Daylight Saving time, Monday, July 30, 1973.
Tenders will not be received at the Treasury Department, Washington.
roast be for a minimum of $10,000.
$5,000.
Each tender
Tenders over $10,000 must be in multiples of
In the case of competitive tenders the price offered must be expressed
°n the basis of 100, with not more than three decimals, e.g., 99.925.
roay not be used.
Fractions
It is urged that tenders be made on the printed forms and for
warded in the special envelopes which will be supplied by Federal Reserve Banks
°r Branches on application therefor.
Banking institutions generally may submit tenders for account of customers
Provided the names of the customers are set forth in such tenders.
Others than
banking institutions will not be permitted to submit tenders except for their own
(OVER)
-
account.
2
-
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
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 acceptecj
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 August 2, 1973,
in cash or other immediately available funds or in a like face amount of Treasury
bills maturing August 2, 1973.
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 ex-'
eluded 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
am ount
actually received either upon sale or redemption a t maturity during the t a x a b le
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 issu •
Copies of the circular may be obtained from any Federal Reserve Bank or Branch.
Departmentof th eTR EASU R Y
ASHINGTON, D.C. 20220
T E LE P H O N E W O4-2041
FOR IMMEDIATE RELEASE
July 24, 1973
JESUN PAIK APPOINTED
U.S. ALTERNATE DIRECTOR TO
ASIAN DEVELOPMENT BANK
Secretary of the Treasury George P. Shultz today
announced the appointment of Mr. Jesun Paik as United States
Alternate Director of the Asian Development Bank.
Mr. Paik
will serve as Alternate to the United States Director of the
Bank, the Honorable Rex Beach.
A native of Seoul, Korea, Mr. Paik, 36, has been Senior
Vice President of the Union Bank in Los Angeles, California,
with which he has been associated since September 1961.
A
graduate of Claremont College in Claremont, California, Mr.
Paik also holds a Masters Degree in Business Administration
from the UCLA Graduate School of Management.
Mr. Paik and
his wife, Hisuh, have two children.
The Asian Development Bank, established in 1966, has its
headquarters in Manila, Philippines, and is engaged in long
term development lending in the Asian region.
oOo
S-257
July 23, 1973
NOTE TO CORRESPONDENTS:
Attached is the transcript of a televised interview in
Tokyo with Under Secretary for Monetary Affairs Paul A.
Volcker by Mr. Hiroo Ohyama, senior economic editor of Japan
Broadcasting Corporation (NHK).
The interview was televised
as a special public affairs presentation of NHK on Wednesday,
July 18, 1973.
(This transcript was prepared from a tape recording.)
NARRATOR:
International currency system in trouble.
An interview with program with Mr. Paul A. Volcker, Under
Secretary of Treasury of the United States and a U.S. dele
gate to the Ninth Bilateral Cabinet Meeting on Economic and
Trade Affairs.
Interviewer is Hiroo Ohyama,
affairs specialist of our station.
economic
The Ninth Cabinet Meet
ing concluded its two-day session yesterday.
Compared with
its preceding sessions, this year's meeting was characterized
by its emphasis on global interests as compared with the
past emphasis on bilateral interest vis-a-vis trade influence.
This year bilateral interest has been very well improved so
that our interests in this year's meeting were Japan's role
or U.S. role or mutual contributions which are made to the
global economic scene.
We have the presence of Under Secretary
Volcker of Treasury of the United States who will be talking
on international currency problems and other related issues.
May I please describe the present situation of interna
tional currency?
The critical situation has entered a
period of a lull, although basic undertones of danger are
still there.
The lull, or period of stability, is due to
the fact that Japan and other European countries have all
gone to put their currencies on a floating exchange rate,
and this accounts for the avoidance of any serious issues
from outbursting.
However, on the other hand, the trust
in the dollar has not yet been recovered and there are a
host of problems.
An inflationary tendency has been
2
manifest all over the world, and this could be the key to the
international currency system.
Mr. Volcker, 45 years old, has been with the Treasury
Department for four years and is now the most powerful man
and decision-maker with Treasury so far as international
currency affairs are concerned.
Last February this year he
successfully played hide-and-seek with the gentlemen of the
press when he made an unannounced and unscheduled visit to
Japan and other countries, and he has earned the epithet of
a "ninja"* diplomat among the Japanese people.
Mr. Volcker, welcome to Japan.
How do you like being
nicknamed a "ninja"?
VOLCKER:
Well, I am delighted to have a Japanese nick
name, and I hope the word has some favorable connotations.
But I am delighted to be associated with Japan, in any event.
QUESTION:
In February you must have gone through a lot
of trouble to settle the issues.
VOLCKER:
We made a very quick trip in February, and I
started off in Tokyo because it was important to have some
exchange of views with the Japanese Government first and
then I had to do a little quick travelling to Europe and in
the space of a relatively few days some decisions were made.
I was very happy at that point to get in and out of Tokyo
without being seen, which is not an easy achievement for me.
*ninja:
master of invisibility
3
QUESTION:
Thank you, sir.
What, in your opinion, are
the general achievements of the Ninth Cabinet Meeting?
VOLCKER:
Well, I think you were quite right in your
introductory comments to point out that these meetings, this
time, were moving away from concentration on bilateral prob
lems into a consideration of some world-wide problems where
we don't always share identical points of view but where we
find we have large areas of common interest and common ap
proach, and with important negotiations and developments
going on in the monetary area, in the trade area, dealing
with international investment, energy problems that we all
feel, problems of international development, this was rather
a good occasion for exchanging views on, not bilateral prob
lems, but international problems.
continue to be of interest.
Now bilateral concerns
These meetings are set up
partly to deal with bilateral problems, and we did discuss
trends in some of our bilateral relationships.
We have been
happy to see, and I believe the Japanese Government is happy
to see, our bilateral trade balance, for instance, coming
into better equilibrium.
And that is something we have
together been working toward and wishing for for some time,
and it is gratifying to see the trade come toward a some
what better balance.
4
QUESTION:
Thank you, sir.
From the Japanese point of
view your efforts at improvement of balance of payments is
quite remarkable.
We have been making efforts to buy more
from the United States, but quite recently, and as we look
at your decision-making processes about agriculture
[inaudible]
you are exercising export control, which
is kind of strange to us because sometimes you want us to
buy and now you want us not to buy.
You are not going to
sell us anything.
VOLCKER:
No, I don't agree with that, sir.
I can
understand why this action which we took with great reluc
tance and unhappiness, really, is disturbing.
stand why you raised the question.
And I under
But I am also glad that
you raised the question because, if I may say so, you did
not put the matter in the right perspective.
The fact is
that the United States has been supplying steadily increas
ing amounts of various raw materials and particularly grains,
feed grains and food grains, to the rest of the world.
And
Japan has certainly been one of our better customers in the
past.
The point I would make is that it has been an improv
ing customer, and your demands for our products have greatly
exceeded Japan's own estimates of what they wanted a year or
two ago.
Now, this has come at a time of world-wide short
ages in these materials.
We have had crop failures in various
5
countries.
We have had in Peru, for instance, the fishmeal
industry going practically out of business due to a change
in the fish population.
It's an important source of protein.
It adds to the demand for soybeans in the world.
We've had
failures in wheat crops or poor wheat crops in Australia,
in Russia, and in various other countries.
The United
States has been residual supplier of many of these com
modities and has held stocks, at considerable costs to
ourselves, through the years.
Now, we have continued to
supply these goods abroad, and that's the point I want to
make in bigger volume this year than last year, and bigger
volume last year than the year before.
And when we look
ahead, with reasonable weather in the United States, the
crops should be good and we will supply more to Japan and
other countries next year than we supplied this year.
Now
we ran into a situation in the market of scarcity around
the world in a time of some speculation where our crops,
before the harvest, were oversold.
And in that situation
we have temporarily had to put on some controls.
The point
I want to make is that Japan has bought more from us this
year than last year by a considerable amount and there is
every indication that we will have more available next year
than this year.
6
QUESTION:
Thank you, sir.
But Japan is a resource-
poor country and, as we look at you from this side of the
Pacific, the raw materials and the agricultural products
and you say you cannot afford so much volume this year, we
can't do anything about it to put it in more favorable
balance.
If we don't buy any beans from you, we can't have
tempuras any longer.
So, on the basis of decision-making,
perhaps you can pay a little more attention to the way
Japanese think and feel about these daily products.
VOLCKER:
It's certainly important that we take into
account the needs and concerns of other countries.
try to do that and will continue to do that.
And we
As I indicated,
for instance, this current crop year we have supplied more
than 50 percent
more wheat, more than 100 percent more corn, and 20 percent
more soybeans this year than last year.
United States has been rather steady.
Consumption in the
So I think we are
taking some account of your demands, which have exceeded
your own expectations.
QUESTION:
To turn now to questions of international
currency which is your specialty, almost every year or once
every several months we have a so-called crisis in the
international currency system.
One of the reasons, at least,
to put it bluntly, is the fact that trust or confidence in the
dollar has been deteriorating.
on this issue?
What is your general comment
7
VOLCKER:
Well, we have faced in the United States a
long period of deficits in our balance of payments.
And, in
the end, the reliability and stability of our currency is
related to our balance of payments position.
In recent
years we have been working very hard to correct that situation.
It is the other side, in part, of Japan's surplus.
We hope
that Japan has been working hard and has been working hard
to correct its surplus.
We must achieve a better balance
in our payments and, as the other side of that process, a
better balance in other countries' payments.
that that process is now well underway.
it.
Our payments are getting better.
I am convinced
We see evidence of
Our trade balance,
after sinking into deficit, a very sizeable deficit> has,
for the past year, been improving.
of time that trend will improve.
tant.
And we think over a period
In the end, that's impor
Now, factor number two is that the United States has
had more inflation than we would like to see at home.
we're not alone in having inflation in the world.
Now,
Inflation
is true of virtually every industrialized country.
We take
considerable pride, actually, in the United States
that if
you take any reasonable period of years, if you go back 20
years, if you go back 10 years, if you go back 5 years, our
price record has been better than that of virtually any
other country internally.
Now, in the end, in the long run,
8
our balance of payments position and the strength of the
dollar is going to depend on the stability of our prices
at home.
And, by and large, our record has been good.
Now,
we have a very serious problem at the moment, in part be
cause of this food situation that we have just been mention
ing, a major part because of the food situation, but we are
working hard on developing programs to restore price stability
in the United States.
We think that's our natural position,
our rightful position, and where we should be is having better
price stability than other countries.
aiming to do.
And that's what we're
In the end, there's no other answer to the
so-called dollar problem than stability at home.
QUESTION:
I see, I think you're quite right.
But this
dollar problem, the deteriorating confidence in the dollar,
may have been caused by the severance of the dollar from
gold convertibility.
Although people may have their purses
filled with dollars, there's no guarantee that the dollars
can be converted into gold.
This situation contributes to
the popular disbelief, distrust in the dollar, and the re
storation of convertibility to gold is of interest.
What
is the position of the American Government about the restoratioj
of convertibility?
VOLCKER:
If I may say so, I think the causation that
you suggest is really backwards.
We suspended covertibility
of the dollar because we had to make adjustments.
We had
this balance of payments deficit of which I spoke.
to make some adjustments in exchange rates.
We had
Now, that has
been a difficult and upsetting process in some ways.
But
the convertibility was suspended because the adjustments
had to be made.
I don't think it is right to say there is
a lack of confidence because of the lack of convertibility.
But rather we ended the convertibility because of the prob
lems that we faced.
And you have to go back to the funda
mental question of our balance of payments and our internal
stability when you talk about the strength of the dollar.
QUESTION:
For one thing, currencies have to be sort
of guaranteed by policies taken by the government of that
country.
In the case of the United States
VOLCKER:
That's the only guarantee that makes any
sense in the end— how good the policies of the country are.
QUESTION:
Now, the Japanese decision-making process
is not without problems, but as we look at United States
decision-making, I have the feeling that you give top
priority to internal problems and international implica
tions are always given a second-hand treatment.
Am I right
in this impression?
VOLCKER:
Well, I know we are criticized for that
appearance that seems to be given some times, unfortunately.
10
I think
this sometimes is more in the minds of foreign
observers than it is in fact.
I have a somewhat prejudiced
view on this because I practically spend all day every day
worrying about and concerned with the external side of our
problems.
From my perspective I don'.t think that the alle
gations that we hear that we are not concerned with these
external problems are correct.
Indeed, we are sometimes
criticized at once and the same time for taking vigorous
action to improve our balance of payments which has cer
tainly been needed and criticized for taking the action as
well as for not taking the action.
I'd rather be criticized
for taking the action because we have need to take action
to improve our external position.
These actions are diffi
cult and sometimes they impinge upon other countries.
it is necessary to make these adjustments.
But
Now, what we're
talking about in terms of the international monetary system
is , in a basic way, bringing together all countries in a way
that they can respect their domestic requirements, whether
it's the United States, Japan, a European country, or a
small developing country.
They respect their domestic re
quirements but do it in a way that takes account of the
international needs and the needs of other countries.
And/
in essence , that's what the international monetary reform is
all about.
9
of the dollar because we had to make adjustments.
We had
this balance of payments deficit of which I spoke.
to make some adjustments in exchange rates.
We had
Now, that has
been a difficult and upsetting process in some ways.
But
the convertibility was suspended because the adjustments
had to be made.
I don't think it is right to say there is
a lack of confidence because of the lack of convertibility.
But rather we ended the convertibility because of the prob
lems that we faced.
And you have to go back to the funda
mental question of our balance of payments and our internal
stability when you talk about the strength of the dollar.
QUESTION:
For one thing, currencies have to be sort
of guaranteed by policies taken by the government of that
country.
In the case of the United States
VOLCKER:
That's the only guarantee that makes any
sense in the end— how good the policies of the country are.
QUESTION:
Now, the Japanese decision-making process
is not without problems, but as we look at United States
decision-making, I have the feeling that you give top
priority to internal problems and international implica
tions are always given a second-hand treatment.
Am I right
in this impression?
VOLCKER:
Well, I know we are criticized for that
appearance that seems to be given some times, unfortunately.
10
I think
this sometimes is more in the minds of foreign
observers than it is in fact.
I have a somewhat prejudiced
view on this because I practically spend all day every day
worrying about and concerned with the external side of our
problems.
From my perspective I don'.t think that the alle
gations that we hear that we are not concerned with these
external problems are correct.
Indeed/ we are sometimes
cr^ticized at once and the same time for taking vigorous
action to improve our balance of payments which has cer
tainly been needed and criticized for taking the action as
well as for not taking the action.
I'd rather be criticized
for taking the action because we have need to take action
to improve our external position.
These actions are diffi
cult and sometimes they impinge upon other countries.
it is necessary to make these adjustments.
But
Now/ what we're
talking about in terms of the international monetary system
is, in a basic way, bringing together all countries in a way
that they can respect their domestic requirements, whether
it s the United States, Japan, a European country, or a
small developing country.
They respect their domestic re-
c2ui-remen'ts but do it in a way that takes account of the
international needs and the needs of other countries.
And/
in essence , that's what the international monetary reform is
all about.
11
QUESTION:
I agree.
5
*
To look at it from a Japanese
position, Japan's influence is still very limited, so we
have the feeling that things get done in the United States
or central European capitals and we are still left more or
less alone from the central stream of international decision
making.
VOLCKER:
Don't underestimate the position of Japan
because any country with the growth and the economy that
Japan has, can't and shouldn't be left out of decision
making.
QUESTION:
A further question on the dollar, or it may
have something to do with the world-wide inflationary tendency,
is the issue of excess dollars or the overhang of dollars swarming
all over the world.
There is a big amount of dollars abroad
and, if you start buying oil from overseas sources, there will
be more excess dollars away from the United States.
Of
course, the United States dollar is not the single currency
which is roaming around.
But this certainly is a cause of
the world-wide inflationary tendency.
How do you respond
to that allegation and what steps are you going to take
about this dollar overhang?
VOLCKER:
Part of the answer again has to be the funda
mental question that we were discussing earlier.
When our
balance of payments is strong, when people realize it's strong,
12
when our domestic performance is good, when we restore
price stability, these dollars will no longer be a problem
to people.
But they will be a stable asset which people
will be glad to hold.
Now, there is a problem of a large
amount of liquidity in the world which is
ber of countries.
common to a num
You referred to the oil country problem.
We think if the United States is competitive, we have extremely
attractive investment opportunities and a large part of the
money which the oil countries have to invest will flow into
the United States.
Now, on a more technical level, as part
of international monetary reform, there are proposals, there
is discussion of the possibility of taking those dollars
which are held by foreign countries officially, by their
central banks or treasuries, and converting part of those
into an international reserve asset which is not the cur
rency of a single country.
Now, this is approached partly
from the standpoint of dealing with those currency balances,
partly from the standpoint of creating a new asset of general
acceptability.
This is part of the question in negotiations
for the new monetary system.
Of course, one of the inter
esting things in talking about these excess dollars is that
you find that many countries, when you talk with them about
this kind of problem, essentially say to you, "We would
rather hold dollars.
We're perfectly happy to hold dollars."
So I think one can perhaps exaggerate the problem that you
described.
QUESTION:
To go on, the United States has devalued
your currency twice.
It has been a very effective and
appropriate measure to come to a sort of a settlement in
the international currency crisis, but at the same time the
two devaluations were very unhappy news to whomever held
dollars.
They will think again before they want to gather more
dollars because they may be afraid the United States will
go on to devalue the dollar again at some time in the future.
What is the prospect of another devaluation?
VOLCKER:
tions.
We have no intention of any further devalua
We think that the two devaluations that you.described
were necessary, but they were also enough.
They restored
an appropriate relationship between the dollar and the other
currencies, and provided an opportunity for American indus
try to be competitive in world markets.
From then on the
problem is taking care of our problems at home, essentially.
We have been in a boom in the United States.
part of a boom in many countries.
This has been
But booms have their
favorable aspects and they have their unfavorable aspects.
One less favorable aspect is that it has slowed down the improve
ment in our trade position in our balance of payments.
But
we are convinced that exchange rate relationships that were
established by the second devaluation are reasonably
14
appropriate.
As nearly as one can judge any of these things,
there is no need, as we see it, and no intention of any further
devaluation.
Indeed, if I can just add, with respect to
some European currencies, I would say the dollar is under
valued.
QUESTION:
Thank you.
The way the dollar is going down
against the West German mark I agree with your statement
that the dollar is undervalued.
But this again is cause
for one of the facts that the major countries in the world
are floating their currencies.
is very effective.
Some say this floating system
How do you asses the present floating
system?
VOLCKER:
Well, my assessment would agree with, I
think, the view of most officials in this area, a very wide
consensus that for this transitional period, given the un
certainties that have existed, given the extent of the ad
justments that have had to be made, it is the best system
that can be devised for this period.
system.
It is not a permanent
We want to work toward a more permanent reform of
the monetary system as rapidly and effectively as we can.
But for this transitional stage, this is the appropriate
system to apply.
And I find that view expressed in Japan
as I do in Europe, and it is our view in the United States
as well.
(hi
15
QUESTION:
Thank you, sir.
Now, what troubles us a
little is that simply because the present stop-gap is work
ing very well it may work to discourage people to approach a
drastic permanent reform.
The IMF meeting scheduled for the
fall is a little too near in the future.
What is the per
spective for this permanent reform of the monetary system
anyway?
VOLCKER:
We should work on this, and from our stand
point we are working on it as hard as we can.
I am glad to
have a system in place that is going to last until we can
get a satisfactory and more permanent system in place.
So
I don't take that as a criticism of the present system— that
it may be too good, as you're suggesting.
It's not
that good in the sense that it's not a substitute for agreed
rules for an agreed system of the type we are looking for.
But it will be satisfactory until we can get this new system
in place, which takes some time, inevitably.
QUESTION:
As we look toward the new system, the Americans
have come up with various proposals, one of which is that
the foreign reserves be taken as our objective criteria for
international balance of payments adjustment.
What is the
philosophy behind this proposal?
VOLCKER:
Well, the basic
philosophy is, as we were
speaking earlier, one has to take account of the external
16
needs.
And the basic rule of the system, as we see it,
must be to seek balance, to seek equilibrium, in your balance
of payments.
Now, this so-called objective indicators is
simply a device for enforcing that kind of discipline in a
fair, in a symmetrical, in a balanced way.
good method of approaching this.
to get this discipline.
We think it's a
The basic point is we have
We have to encourage countries to
work toward balance in their payments•
QUESTION:
Thank you.
The last question is in the
future currency situation, what role or contribution do you
expect Japan to make?
VOLCKER:
Well, we
expect Japan as a truly leading
power in the world, along side the United States, along
side Europe, to take a constructive, outward-looking role
in these negotiations.
As we were just speaking,
we ex
pect Japan, like other countries, and we have to accept
this responsibility ourselves, to work toward balance in
their payments.
If countries can accept that obligation
and responsibility, I think we will find, with Japan's
help, a constructive monetary reform in the coming months.
QUESTION:
VOLCKER:
Thank you very much, Mr. Secretary.
Thank you.
Department of
^T
OFFICE OF REVENUE SHARING
WASHINGTON, D .Q 30 226
-
Telephone 634-5163
FOR INFORMATION,CALL (202) 634-5248
GENERAL REVENUE SHARING
A FACT OF PUBLIC LIFE
X il Y
Remarks by
Graham W. Watt, Director
Office of Revenue Sharing
U.S. Department of the Treasury
at the
National Association of County Officials
38th Annual Conference
Dallas, Texas
July 24, 1973
How do you measure the age of a program like general
revenue sharing?
If by time, it is still very young:
only
nine months have elapsed since President Nixon signed the
State and Local Fiscal Assistance Act into law and made
revenue sharing a reality for states and local governments -more than 38,000 of them.
If we measure its age by dollars, general revenue shar
ing is approaching maturity:
more than eight billion dollars
have already been distributed for use by states, counties and
local governments.
If we were to judge the program in terms of its experi
ence, we would not know how much of its ultimate growth
revenue sharing has already achieved.
2
We can see that our approach to federal financial assistance
is a change from the pattern of the recent past.
New rela
tionships and new procedures have been established between
those of us who represent the federal government in this
effort and you who are recipients and users of the funds.
The attitude is, at last, one of keeping Washington's hands
off your planning and Washington's nose out of your decision
making.
It is too early to tell how far we can develop this
type of relationship.
Opinions are mixed:
there are those
who still feel that local needs should be assessed and
addressed directly from Washington.
But the overwhelming
majority of local officials are enthusiastic that a portion
of federally collected tax revenues is being returned to
cities, towns and counties to be used to solve their local
problems.
If the age of revenue sharing is to be measured in terms
of its achievement, then we know it is still growing.
Every
day, we in the Office of Revenue Sharing learn of a new
example of reawakened interest and meaningful participation
in government decision-making at the local level because of
the existence of this program.
But however the age of general revenue sharing is to be
measured, it is well-established reality that state and local
governments are relying upon the predictable product of our
efforts.
Revenue sharing has become a fact of our public life.
4
3
Our present form of general revenue sharing was first
discussed seriously in the late 1960fs, when it became clear
that concentration of power in Washington was diluting our
democracy.
Individuals and local and state governments alike
were "letting Uncle Sam do more and more” and liking it less
and less.
Too many decisions were being made in Washington
about local needs for and uses of federal aid money.
Uncle
Sam was deciding which problems required federal funds to
solve; and if a community could not prove it had those
problems, it did not qualify for federal assistance.
The Federal Government no longer seemed to be relevant
to many Americans.
We saw the beginning of a decrease in
interest in the processes of government generally.
Public
officials in many instances found it difficult to drum up
interest in public policy.
Such a trend, if carried to its
ultimate end, may destroy democracy.
It was in this political milieu that general revenue
sharing became a subject of serious discussion.
In August
1969, speaking to the nation on domestic problems, President
Nixon said:
4
We can no longer have effective government
at any level unless we have it at all levels.
There is too much to be done for the cities to
do it alone, for Washington to do it alone, or
for the States to do it alone.
For a third of a century, power and respon
sibility have flowed toward Washington and Washing
ton has taken for its own the best source of
revenue.
We intend to reverse this tide, and to turn
back to the states a
greater measure of responsi
bility -- not as a way of avoiding problems, but
as a better way of solving problems.
Like most highly innovative ideas, this one was not
immediately accepted.
President Nixon proposed it again in
his State of the Union Message in 1971, fought for it, and
finally signed general revenue sharing into law in the fall of
1972.
It is clear from our early assessment that the goal of
increasing public participation is, indeed, being realized.
°l
(r
0
5
Many, many communities are encouraging citizens, individually
and in groups, to assist in determining how their shared
revenues are to be used.
Take, for example, the city of Texarkana, Arkansas,
where a Citizen*s Committee for Revenue Sharing has been
established.
The committee is made up of representatives of
zones into which the city has been divided for this purpose.
Members review conditions in their city, try to assess impacts
of alternative uses of revenue sharing funds, hold public
meetings to discuss the possibilities and make recommendations
to the City Manager.
In addition, the committee has responsi
bility for evaluating the impact of the money once it has been
spent.
Not far away, in Jefferson County, Alabama, the county
Board of Commissioners convened public hearings to discuss how
its more than four million dollars should be allocated.
Most
of those who turned up at the meetings were representatives
of social service groups.
It should come as no surprise,
therefore, to learn that more than one-third of Jefferson
County’s first four million dollars was earmarked for social
service programs:
the home for the aged and poor was enlarged
hospital equipment was purchased; and new quarters will be
built at the local mental health center.
6
We understand that in Dover, Delaware, when a plan was
announced to put all of the initial entitlements into a fund
for the construction of a convention center, so much public
interest was aroused that public hearings were convened.
When finally adopted, the city’s plan called for one-third
of the money to be used for the convention center and the
remainder to be devoted to such programs as public transporta
tion for the elderly and services for the handicapped.
The point is, of course, that public participation does
have an effect on government decision-making in a democratic
environment; and when given something to make decisions about,
the people will participate.
We have learned in the last few months that many of your
early planned uses included capital investments of one sort
or another.
We have also been made aware by many of you that
the first checks you received from us were in effect a "wind
fall” . Accordingly, your first expenditures of revenue sharing
funds were for projects that represent very real needs but for
which funds had not been available previously.
Often, these
involved capital expenditures.
Now that you have estimates and can rely upon the timely
receipt of your checks, we have heard from many of you that you
plan to shift the money from capital projects and put more of
it into operating and maintenance expenses.
i
7
Although we in the Office of Revenue Sharing will make
no value judgments on your own revenue sharing expenditures
assuming, of course, that you are complying with the laws,
others have commented critically on this use of the money.
A television news reporter asked me recently, for example,
whether I did not feel that the money would be used better if
spent to benefit the poor, instead of for capital expenditures.
I explained to the reporter, and I shall repeat it here,
that expenditures for capital purposes and expenditures for
the benefit of the poor may not be mutually exclusive.
We
know that a great deal of the money is being spent to build,
repair and equip facilities that directly help the poor and
others who are disadvantaged.
We shall have more specific information to substantiate
my explanation to the newsman when the information on your
first Planned Use Reports has been compiled.
In the meantime,
however, we have a general idea about your current proposals
from flipping through piles of these reports and from a very
informal study that has been made by a university student
working this summer in our Public Affairs office.
The small community of Remer, Minnesota, wrote on its
first Planned Use Report that its money was being used to fix
roads because, ”It is a pitiful condition when the sick must
be carried out because the roads are so bad.”
8
Santa Clara County in California has decided to use
money for mobile health units, a new drug abuse program,
halfway houses for alcoholics, rat control, rent payments for
county health centers, a community action program for high
school dropouts, and hospital equipment that will put costly
treatment for kidney disease within the reach of many who
previously were not able to afford this vital care.
A new drainage system for the city of Sebastian, Texas,
might seem superfluous to one who did not realize how very
bad are the mosquitoes there because of the flooding that
occurs for want of proper facilities.
The mosquitoes are a
health hazard to all of the citizens of Sebastian -- rich
and poor, black and white, male and female.
All are itching
to alleviate the condition.
The small county of Del Norte on the north California
coast has allotted approximately half of its revenue sharing
entitlements for the first three periods to capital improve
ments.
The improvements, planned to be made at the county
hospital, include x-ray tables, two beds in the intensive care
unit, a fire escape, fire doors, and a sprinkler system.
These expenditures were recommended by a citizen’s committee
composed of the chairmen of various county agencies, citizens
groups and citizens at large.
9
The stories that we are hearing about citizen involve
ment in the setting of priorities for the uses of shared
revenues are encouraging as examples of the value of the
democratic process and as proof of the contribution that
general revenue sharing is making to that process.
It is
happening with your help, for in most communities we hear
that local officials are encouraging citizen participation
rather than waiting for it to come about.
Hopefully, you welcome the citizen input to your plan
ning and hopefully, it will be a source of strength to all.
It is not a requirement of the Act; but it may very well
turn out to be a requirement for success in our effort to
renew the democratic process in America.
With your permission, I shall address myself briefly
to a few administrative matters with which we are all con
cerned.
We are aware, of course, that it is sometimes difficult
for recipients of shared revenues to meet the few requirements
that do apply to local use of this money.
We have been told
of extenuating circumstances at the local level; and we are
not insensitive to these.
10
Take, for example, the situation of a town in Ohio
whose clerk-treasurer wrote us this month, saying:
... we have no Mayor.
He resigned and the
President of the Council refuses to act or accept
the Mayor’s position.
We have a part-time Marshal,
but our police cruiser is worn out.
I as the
Village Clerk Treasurer am holding on to keep the
Corporation intact ...
The Council holds regular
monthly meetings and does business as usual.
And we are entirely sympathetic to the Alaskan native
village that has had to ask for an extension of time in which
to file its Planned Use Report.
That jurisdiction recently
wrote to tell u s :
We regret to inform you our Native Village Chief -who is our Chief Executive Officer under your program
has passed away, May 8, 1973.
He is still lost in
the river...
With the exception of jurisdictions whose extraordinary
circumstances make it impossible for them to comply with our
regulations exactly as we suggest, however, we do think that
our few requirements for reporting and accounting pose no
insurmountable obstacles or untenable burdens to recipients
of revenue sharing funds.
11
You are by now familiar with the Planned Use Report.
Hopefully, all of the jurisdictions represented at this
meeting have submitted the first of those forms to us, and
did so well before the June 20th deadline.
Your second
Planned Use Report, covering the fourth entitlement period,
July 1, 1973 through June 30, 1974, is on its way to you at
this moment.
It may already have arrived, for it was mailed
from our printers in Green Bay, Wisconsin last Friday.
You will note that the amount of your government’s total
fourth entitlement period
is printed in the upper right-
hand corner of the Planned Use Report form, near your address.
This amount will be paid you in quarterly installments begin
ning in October of this year and then in January, April and
July of 1974.
Some elaborate calculations went into the preparation of
your fourth period payment amounts; and I think it important
to take a few minutes now to discuss the procedure used.
The total amount that Congress appropriated for distribu
tion during the fourth entitlement period is $6.05 billion
which is $413 million higher than the amount available for the
previous fiscal year.
Accordingly, the amount of money being
shared with all the jurisdictions during fiscal year 1974 is
roore than it was for fiscal 1973.
12
The fourth entitlement amounts that have just been cal
culated and are now being announced also include all adjust
ments to all payments that your governments have received so
far.
In almost all cases, these will be the final adjustments
for the first three entitlement periods.
You will be glad, I know, to learn that the amounts
withheld during the first and second entitlement periods, one
percent and five percent, respectively, are now being distrib
uted.
These funds are included in the adjustments that have
been made and will be added to fourth period payments.
Before your enthusiasm for that action becomes unlimited,
however, let me hasten to say that the Office of Revenue Shar
ing has established an Obligated Adjustment Reserve of one- hal f
of one percent of the appropriation for each entitlement period.
This reserve will be used to make adjustments that may be
required after the close of an entitlement period.
It is pruden
and necessary to establish this reserve fund which will enable
us to make these unusual adjustments in individual entitlements
without having to recover funds already paid to the great
majority of the almost 39,000 units of government that r e c e i v e
shared revenues on a regular basis.
/
13
When the amount of money that has accumulated in this
Obligated Adjustment Reserve is clearly more than would be
required to make individual adjustments, then the Office of
Revenue Sharing will distribute the unneeded reserve funds to
all eligible units of government.
The adjustments also reflect recalculation of the first
three entitlement period amounts using verified data.
New
tax data were introduced to calculate fourth entitlement period
amounts.
These new 1972 Census of Governments tax data will
be subject to verification as well.
These data will be
published and a verification announced by ORS in the fall.
To recapitulate:
the net adjustments that the Office of
Revenue Sharing has made to the first three entitlement period
amounts for each jurisdiction were added to the fourth period
allocation.
The resulting total, in almost all cases, is the
amount shown on the current Planned Use Report and is what a
jurisdiction will receive in quarterly payments during the
present fiscal year.
The books have been closed for the first three entitlement
periods.
A few extraordinary situations do exist where long
standing data challenges still require resolution.
Payments
that may be required in the future as a result of these data
changes or court action will be made from the Obligated Adjust
ment Reserve which I have described.
14
Adjustments required when fourth period data have been
verified will be made and reflected in the fifth period pay
ments, and the books then will be closed on fiscal year 1974.
The Planned Use Report that you have just received and
that gives you your fourth period payment amount must be
completed, published locally and returned to the Office of
Revenue Sharing by September 20th.
It would be an enormous help to us if you would return
these forms to us well in advance of that date, if your work
on them has been completed.
Our first experience with the
report -- the one that you returned by June 20th -- was that
we were required to employ three college students, full-time,
for two weeks to do nothing but "unstuff" Planned Use Reports
in the mail room.
Most jurisdictions chose the very last
moment to send them back to us.
In this first year of operation of general revenue sharing,
it must seem to you, our recipients, as though there has been
a great deal of paperwork for a "no strings attached" program.
Please remember that in this first year of the program’s
existence, entitlement periods were shorter and the reports
that we are required by law to request of you had to come more
frequently to establish a schedule and get caught up with the
retroactive features of the law.
15
We are now beginning a time, however, when the Planned Use
Report and the Actual Use Report will be sent to you only
once each year.
year.
This means you will receive one of each each
These will correspond with the entitlement periods
themselves which, as of July 1, 1973, now last for an entire
federal fiscal year.
I know that you are now working to complete the first
Actual Use Report that was sent to you at the end of June.
The due date for that report to be returned to us is September 1.
Again, we would be grateful to those of you who are able to
complete the report and return it to us well before the dead
line .
On the Actual Use Report, you are to give us the details
on how you actually used all the funds that you received from
the Office of Revenue Sharing through June 30, 1973.
As with
the Planned Use Report, the Actual Use form must be published
in a newspaper of general circulation in your area; and you
must inform the other news media, including minority and bi
lingual media, in your locality that the reports have been
published.
The purpose of this requirement is to assure the
citizens of your communities of minimal information about
your plans for and actual uses of these funds.
Its desirable,
of course, that more than that be done to provide your citizens
with knowledge on which to base their recommendations for uses
of shared revenues.
16
Press releases, press conferences, public hearings, brief
ings for citizens* groups and other similar methods are now
being used by communities to ’’get the word around” .
We have had a few instances brought to our attention of
communities where the requirement for publication of these
reports is difficult to meet.
If, for some reason, any of
you are having what you consider to be insurmountable problems
getting copies of our reports reproduced in your local papers,
please write to me in Washington.
If we find that this require
ment needs to be modified, we shall consider proposing to
Congress that appropriate amendments be considered to our
legislation.
In the meantime, however, the requirement of the
Act must be observed.
Some of your communities may have been visited by the
audit and compliance teams that travelled from the Office of
Revenue Sharing to 103 states, cities and counties throughout
the United States in May and in June.
We are now preparing a
summary report of the results of the meetings that our people
held with officials in these communities.
In general, it
is safe for me to say that we were very pleased with the
cooperative and helpful attitude shown by those who are admin
istering general revenue sharing funds on the local level.
17
As you are aware, there are a few restrictions on the
uses of shared revenues -- very few.
They involve nondiscrim
ination, minimum wage, matching funds prohibitions and the
requirement on local governments that shared revenues used for
operating and maintenance expenditures be spent in certain
’’priority" categories.
The overwhelming majority of jurisdictions that we have
>
j
visited clearly are determined to see that these requirements
of the revenue sharing law are met.
In a few instances, where
this seems not to be the case, we feel it is probably because
the requirements are not well understood.
Needless to say, we
shall help to clarify the law and our regulations where
clarification is necessary and make every effort to help to
achieve compliance before taking enforcement action.
When our report on the audit and compliance meetings has
been completed, we shall see to it that your able representatives
at the National Association of County Officials in Washington
are well briefed about its contents, and that they have copies
so that they may pass on to you the benefit of our findings.
We are continually grateful to the staff of NACO for the
help they have provided all of us in facilitating the flow of
accurate information about the general revenue sharing program
between our office and your offices, and for their always useful
suggestions on regulations, forms and procedures.
18
With their help and yours, we in the Treasury Department
are confident that general revenue sharing will fulfill the
high expectation of meeting local needs in a way which will
assure a better quality of life for all Americans.
Departmentofthe TREASURY
SHIWGTON, D.C. 20220
T E L E P H O N E W04-2041
ATTENTION: FINANCIAL EDITOR
July 24, 1973
FOR RELEASE 6:30 P. M.
RESULTS OF TREASURY’S MONTHLY BILL OFFERING
The Treasury Department announced that the tenders for $1,800,000,000,
or thereabouts, of 336-day Treasury hills to he dated
July 31, 1973
, and
to mature
July 2, 1974
, which were offered on
July 18, 1973
, were
opened at the Federal Reserve Banks today.
The details of this issue are as follows:
RANGE OF ACCEPTED CQCPETITIVE BIDS: (Excepting 3 tenders totaling $3,420,000)
High
Low
Average
-
92.210
92.135
92.167
Approx, equiv, annual rate 8.346$ per
Approx, equiv. annual rate 8,427$ per
Approx, equiv. annual rate 8.393$ per
annum
annum
annum l/
( 58 $ of the amount hid for at the low price was accepted)
TOTAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
Federal Reserve
District
Total
Applied for
Total
Accepted
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
$
$
2,810,000
1,514,485,000
3,645,000
12,815,000
6,280,000
5,645,000
104,555,000
10,550,000
715,000
10,360,000
2,725,000
125,515,000
TOTALS
if This
y
is on a hank d is c o u n t b a s is .
12,810,000
2,345,385,000
17,645,000
42,815,000
6,280,000
. 5,645,000
301,555,000
24,550,000
8,715,000
24,395,000
25,225,000
167,825,000
$2,982,845,000
•
$1,800,100,000 2/
The e q u iv a le n t coupon is s u e y i e l d i s 9.05$.
Includes $73,600,000 e n te re d on a n o n c o m p e titive b a s is and accepted in f u l l
at the average p r ic e shov/n a b o v e .'
Department
Treasury Officials
m om
__________ d n te 7 / 2 4 / 7 3
ofThe Treasury
Office of
Public Affairs_____
F or y o u r i nformation, a t t a c h e d is a
U S I A - p r e p a r e d s u m m a r y of f o r e i g n p r e s s
r e a c t i o n to the a n n o u n c e m e n t of P h a s e IV.
Special
Consultant to
the Secretary
(Public Affairs)
Joseph A. Loftus
room 2324
ext. 5252
W ORLDW IDE T R E A T M E N T
O F C U R R EN T ISSU ES
P h a s e IV A n n o u n c e m e n t
No.
87
J u l y 2 0 , 1973
W o r ld w id e
T r e a t m e n t of C u r r e n t I s s u e s
i s p u b l is h e d b y th e U .S . I n f o r m a t i o n A g e n c y
f o r o f f i c i a l u s e o n ly .
T e l.:
632-4936
. . . W e s t e r n E u r o p e , p. 2
A s i a , p. 9
C o m m u n i s t C o u n t r i e s , p. 11
P H A S E I V A ND E C O N O M IC A F F A I R S
Su m m ary
The a n n o u n c e m e n t of P r e s i d e n t N ix o n ’ s P h a s e I V e c o n o m i c p r o g r a m r e c e i v e d
m oderate to p r o m i n e n t n e w s p la y in m a n y c a p i t a l s , but d r e w s u b s t a n t i a l c o m m e n t
only in B r i t a i n an d J a p a n .
The U. S. e d i t o r o f t h e L o n d o n F i n a n c i a l T i m e s t e r m e d th e new c o n t r o l s " a s m u c h
a p o litic a l g e s t u r e a s a n e c o n o m i c o n e , " t h e " b e n e f i c i a l e f f e c t " o f w h ic h " w i l l b e
limited. " H e a d d e d t h a t t h e P r e s i d e n t " w i l l p r o b a b l y n o t g a in m u c h p o l i t i c a l l y
from doing w h a t h e c o u ld n o t a v o id . . . "
A c o m m e n t a t o r on J a p a n ’ s F u j i T V s a id M r . N ix o n w a s c o m b i n i n g " t h e P h a s e IV
program w ith a b a l a n c e d - b u d g e t p o l i c y " an d f o r e c a s t " d i f f i c u l t t i m e s a h e a d f o r th e
U. S. e c o n o m y . "
Mainichi of T o k y o d o u b te d th e e f f e c t i v e n e s s o f P h a s e IV and p r e d i c t e d t h a t i t w ou ld
be "a d e l i c a t e m a t t e r f o r U. S . l e a d e r s to g u id e th e A m e r i c a n e c o n o m y b e c a u s e th er<
are signs of a b u s i n e s s slow d ow n in t h e c o u n t r y . . . "
Current A m e r i c a n p o s i t i o n s on i n t e r n a t i o n a l t r a d e and m o n e t a r y a f f a i r s b r o u g h t
mixed c o m m e n t f r o m W e s t E u r o p e a n o b s e r v e r s .
Raymond A r o n w r o t e in F i g a r o o f P a r i s t h a t U. S. r e v e r s a l o f i t s f o r m e r p o l i c y
against d e v a lu a t io n o f th e d o l l a r m a d e A m e r i c a n a u t h o r i t i e s lo o k " i r r e s p o n s i b l e
o r .,. cy n ical. "
Milan's C o r r i e r e d e l l a S e r a d e c l a r e d t h a t w h il e " A m e r i c a m u s t s t a b i l i z e th e
dollar, " E u r o p e to o f a c e d a d e c i s i o n : " I t c a n n o t f e a r a n i n v a s i o n of A m e r i c a n
exports on t h e on e han d and s i m u l t a n e o u s l y buy a l l i t n e e d s f r o m th e U . S. I f
m atters c o n t in u e on t h i s c o u r s e , " i t c o n c l u d e d ,
" t h e r e w i l l b e o n ly a s e r i e s of
b lackm ail o p e r a t i o n s . "
Moscow d o m e s t i c r a d i o r e p o r t e d th e a n n o u n c e m e n t an d s a i d P r e s i d e n t N ix o n " v i r
tually a d m it s t h a t t h e G o v e r n m e n t ’ s p r e v i o u s m e a s u r e s to a b a t e i n f l a t i o n h a v e
proved u n s u c c e s s f u l . " P e k i n g N C N A c a l l e d P h a s e IV " a n o t h e r m e a s u r e . . . t o
check the w o r s e n i n g i n f l a t i o n . . . . "
No, 87
1I
7/20/73
London H ea d lin es
B r it is h p a p e r s h e a d l in e d y e s t e r d a y :
" F O O D P R I C E S L E F T O U T O F N E W U. S . S T A N D S T I L L "
(T i m e s o f L o n d o n )
"N IX O N I M P O S E S S T R I N G E N T S Y S T E M O F W A G E AND P R I C E
CO N TRO LS"
. . 1.
\
(fin a n c ia l lim e s )
" B E E F E X C E P T E D A S N IX O N L I F T S F R E E Z E "
(D a i l y T e l e g r a p h )
The s t o r y b r o k e l a t e y e s t e r d a y and s h a r e d i n t e r e s t to d a y w ith B r i t a i n ' s e f f o r t s
to defend th e pound s t e r l i n g an d f ig h t i n f l a t i o n .
" S o m e E v i d e n c e to S u p p o r t O p t i m i s m "
U. S. e c o n o m i c s c o r r e s p o n d e n t A n th o n y T h o m a s w r o t e in y e s t e r d a y 1s T i m e s
that " i n h e r e n t in M r . N i x o n ’ s s t a t e m e n t and in M r . S h u l t z ’ s p r e s s b r i e f i n g i s
the profou nd h o p e t h a t th e 1973 h a r v e s t w i l l p r o v e a b u m p e r one and s lo w th e
re c en t v e r y r a p i d r a t e o f i n c r e a s e in food p r i c e s .
T h e r e i s s o m e e v i d e n c e to
support o p t i m i s m h e r e . "
"N o t an In s ta n t C u r e "
U .S. e d ito r P a u l L e w i s d e c l a r e d to d a y in th e in d e p e n d e n t F i n a n c i a l T i m e s th a t
" P r e s i d e n t N ix o n ’ s P h a s e I V c o n t r o l s a r e a s m u c h a p o l i t i c a l g e s t u r e a s an
econom ic o n e.
" F o r b e t t e r o r w o r s e , th e p u b l ic h a s c o m e to id e n t i f y th e
A d m i n i s t r a t i o n ' s d e t e r m i n a t i o n to p r o t e c t t h e d o l l a r ' s
p u r c h a s i n g p o w e r w ith to u g h r e s t r i c t i o n s on p r i c e s and w a g e s . . . .
" T h i s i s not to s a y th e y w i l l n o t h a v e s o m e b e n e f i c i a l e f f e c t ,
but on ly t h a t i t w i l l b e l i m i t e d and t h a t , p a r a d o x i c a l l y , th e
P r e s i d e n t w i l l p r o b a b l y n o t g a in m u c h p o l i t i c a l l y f r o m doing
w hat h e c o u ld n o t a v o id . . . .
No. 87
2
7 /2 0 /7 3
2
" I n e v i t a b l e a s P h a s e I V i s , i t w i l l n o t p r o v i d e an i n s t a n t c u r e
f o r a n y th in g and m u s t i n e v i t a b l y b e c o m e th e s u b j e c t of p a r t i s a n
d e b a t e in th e i n c r e a s i n g l y b i t t e r p o l i t i c a l a t m o s p h e r e th a t h a s
b low n up in A m e r i c a s i n c e t h e l a s t e l e c t i o n . "
Lewis c o n c lu d e d t h a t " u n t i l W a t e r g a t e i s r e s o l v e d and a r e t u r n to b a l a n c e d e c o n o n
growth h a s c a l m e d th e r e b e l l i o u s a n g e r of t h e C o n g r e s s , e v e r y P r e s i d e n t i a l
initiative w i l l b e c o n t e s t e d an d th e s t r u g g l e b e t w e e n th e p r o p o n e n t s o f f o r e i g n
involvem ent a n d i s o l a t i o n i s m w i l l c o n t in u e . . . "
W est G erm any:
N e w s P l a y f o r P h a s e IV
Major W e s t G e r m a n n e w s p a p e r s y e s t e r d a y g a v e f r o n t - p a g e p la y to r e p o r t s of th e
Phase IV p r o g r a m , s t r e s s i n g t h e i n t e n t i o n to l i f t r e s t r i c t i o n s on a g r i c u l t u r a l e x
ports. . T h e y a l s o g a v e s p a c e to th e d e c l i n e in th e d o l l a r r a t e on i n t e r n a t i o n a l
m arkets and to th e a n n o u n c e m e n t t h a t t h e U . S. w ould i n t e r v e n e to s u p p o r t th e
dollar.
No c o m m e n t on P h a s e IV w a s a v a i l a b l e .
An a r t i c l e in r i g h t - c e n t e r F r a n k f u r t e r A l l g e m e i n e y e s t e r d a y c a l l e d t h e d e c i s i o n
of the B ru ssels, m e e t i n g o f E E C a g r i c u l t u r a l m i n i s t e r s t h a t th e C o m m u n it y m a y
impose e m b a r g o e s on g r a i n e x p o r t s i f n e c e s s a r y " a n i m i t a t i o n o f th e A m e r i c a n
in itiativ e. "
Reporting t h a t th e A d m i n i s t r a t i o n d e c i s i o n to r e s t r i c t t h e e x p o r t o f A m e r i c a n
farm p r o d u c t s c a m e a s " a b o l t f r o m t h e b l u e " to m a n y E u r o p e a n g o v e r n m e n t s ,
im p o r te r s and p r o d u c e r s , w ho th e n w r o t e " w a r n i n g and i m p l o r i n g l e t t e r s to
N ix o n ," th e a r t i c l e s t a t e d t h a t t h e U . S. r e s t r i c t i o n s " h a d f i n a l l y f u r n i s h e d E u r o
pean f a r m e r s t h e c o n v i n c in g a r g u m e n t f o r e c o n o m i c s e l f - s u f f i c i e n c y .
"N ow t h e E E C h a s m o r e r e a s o n to r e f u s e t o a b s o r b A m e r i c a n
f a r m s u r p l u s e s an d to s p a r k n a t i o n a l a g r i c u l t u r a l p r o d u c t i o n . . . .
" I n a d d itio n to g iv in g a b ad s t a r t to th e
p o l i c y is ' i n c o n s i s t e n t - - f i r s t he w a n ts to
of p a y m e n t s by i n c r e a s i n g a g r i c u l t u r a l
s t r i c t s th o s e e x p o r t s . . . .T h e n he s e l l s
M o s c o w an d P e k i n g , and l a t e r r e a l i z e s
No. 87
3
G A T T n e g o tia tio n s , N ix o n ’ s
i m p r o v e th e U. S. b a l a n c e
e x p o r t s , and th e n he r e
h u g e a m o u n t s o f g r a i n to
t h a t A m e r i c a i s s h o r t of g r a i n . . . "
7/20/73
' ' U* S. R e s t r i c t i o n s S h a k e C o n f i d e n c e 11
B u s i n e s s - o r i e n t e d H a n d e l s b l a t t o f D u e s s e l d o r f y e s t e r d a y a s s e r t e d t h a t th e U. S.
had m ad e " a 1 8 0 - d e g r e e s w i t c h .
" T h e U. S . r e f u s e s to su p p ly th e E u r o p e a n m a r k e t w ith a g r i c u l t u r a l
p r o d u c t s a t th e v e r y t i m e w h en t h e C o m m o n M a r k e t , y i e ld in g to
c o n s i d e r a t i o n s o f th e U . S . b a l a n c e of p a y m e n t s p r o b l e m s , a m o n g
o th e rs, has a b so rb e d A m e r ic a n fa r m p ro d u cts.
" I t i s o f no c o n s e q u e n c e t h a t th e W h ite H o u s e a s s u r e d F o r e i g n
M i n i s t e r S c h e e l t h a t i t w a s s tu n n e d by t h e D e p a r t m e n t of
A g r i c u l t u r e ^ p o l i c y , o r t h a t th e r e s t r i c t i o n s w i l l be l i f t e d
a s s o o n a s th e c r o p s a r e in . . . . C o n f i d e n c e t h a t th e U . S . i s
not o n ly a p o t e n t , b u t a l s o a r e s p e c t a b l e and r e l i a b l e c o n
t r a c t o r h a s b e e n b a d ly s h a k e n . "
" A l l I s in D i s a r r a y "
Independent S u e d d e u t s c h e Z e it u n g of M u n ic h d e c l a r e d to d a y th a t th e s i t u a t i o n
has ch an g e d b a s i c a l l y in t h e 18 m o n t h s s i n c e th e c o m in g G A T T c o n f e r e n c e w a s
first p r o p o s e d .
The p a p e r s a id " t h e e n t i r e t r a n s a t l a n t i c r e l a t i o n s h i p - - i n c l u d i n g s e c u r i t y , m o n e t
and t r a d e p o l i c y - - h a s b e e n t h r o w n op en to d i s c u s s i o n . In s e c u r i t y p o l i c y , th e
U .S .- U S S R a c c o r d h a s p r o m p t e d a p p r e h e n s i o n . . . In t h e m o n e t a r y s p h e r e , a l l i s
in d i s a r r a y , l a r g e l y b e c a u s e o f t h e A m e r i c a n s . . . I n t h e t r a d e s e c t o r , th e A m e r i
have gone b a c k on c o n t r a c t u a l c o m m i t m e n t s .
" W e c a n n o t i m a g i n e a w o r s e c l i m a t e . . . A p p a r e n t l y th e e f f o r t s to
l i b e r a l i z e w o r l d t r a d e w h ic h s t a r t e d w h e n G A T T w a s e s t a b l i s h e d
in 1947 h a v e c o m e to a n end, a t l e a s t f o r th e t i m e b e i n g . E v e n i f
th e N ix o n R o u n d d o e s t a k e p l a c e , th e p a r t i c i p a n t s w i l l w ith h o ld
c o n c e s s i o n s in t h e b e l i e f t h a t t h e s e c o u ld b e 'so ld * m o r e p r o f i t a b l y
in a w o r ld w id e ro u n d o f n e g o t i a t i o n s . . . "
W est B e rlin :
"E u ro p e a n s S h rin k fr o m C o n s e q u e n c e s '1
independent T a g e s s p i e g e l o f W e s t B e r l i n d e c l a r e d y e s t e r d a y t h a t n e i t h e r th e
E v a l u a t i o n of th e D - m a r k n o r t h e i n t e r v e n t i o n o f th e c e n t r a l b a n k s had s to p p e d
the d e c lin e o f t h e d o l l a r .
No. 87
4
7 /2 0 /7 3
s
The p a p e r c o n c lu d e d :
" T h e E u r o p e a n s c r i t i c i z e th e s i c k d o l l a r and ho ld t h e A m e r i c a n s
r e s p o n s i b l e f o r th e p e r m a n e n t m o n e t a r y c r i s i s , but t h e y s h r i n k
f r o m t h e c o n s e q u e n c e s of t h e m e a s u r e s to h e a l th e s i c k n e s s - ~ a
new l o w e r v a l u e o f th e d o l l a r s e t by t h e f r e e p la y o f th e m a r k e t
w ou ld n o t on ly e l i m i n a t e t h e i m b a l a n c e in e x c h a n g e r a t e s , but
w ould a l s o p r o v i d e t h e p r e r e q u i s i t e f o r t h e r e c o v e r y of th e
A m e r i c a n t r a d e an d p a y m e n t s b a l a n c e s .
" A s a r e s u l t , th e A m e r i c a n e c o n o m y w ou ld b e c o m e s t r o n g e r and
m o r e e f f i c i e n t , and th e c o m p e t i t i v e s t r u g g l e on i n t e r n a t i o n a l
m a r k e t s w ou ld b e c o m e m o r e d i f f i c u l t f o r t h e E u r o p e a n s . T h a t
i s t h e o t h e r s i d e o f t h e d o l l a r p r o b l e m , th e s i d e t h a t i s m o r e
p a in fu l f o r th e E u r o p e a n s . B u t o n ly th u s c a n th e p r o b l e m be
so lv e d . "
P a ris:
R e s e n t m e n t o f U. S . P o l i c i e s
F r e n c h m e d ia y e s t e r d a y and to d a y e x a m i n e d t r a d e and m o n e t a r y d e v e l o p m e n t s ,
g e n e ra lly fin d in g c a u s e f o r W e s t E u r o p e a n a l a r m and r e s e n t m e n t to w a r d U. S .
p o lic ie s .
No t r e a t m e n t o r d i s c u s s i o n of P h a s e IV w a s a v a i l a b l e .
A m a jo r s t o r y in a l l m e d i a to d a y w a s P r e s i d e n t P o m p i d o u ’ s r e m a r k in a t e l e v i s i
in te rv ie w t h a t h e w a s " n o t p e s s i m i s t i c " a b o u t th e e c o n o m i c s i t u a t i o n but " o n e
should not f a l l a s l e e p , b e c a u s e th e g e n e r a l s i t u a t i o n - - m o n e t a r y , p o l i t i c a l , E u r o
p e a n - - i s a m a t t e r of c o n c e r n . ”
Mr. P o m p id o u d e c l a r e d t h a t t h e f r a n c w ou ld not b e r e v a l u e d and a s s e r t e d :
" I t i s e s s e n t i a l t h a t E u r o p e an d F r a n c e l i v e on t h e i r own r e s o u r c e s
w ith r e g a r d to t h e s u p p ly o f fo o d . "
"A re We at W ar? "
la r n i d d l e - o f - t h e - r o a d F i g a r o t o d a y , c o m m e n t a t o r R a y m o n d A r o n s a i d he had
'planned to w r i t e K i s s i n g e r a n op en l e t t e r c a u t io n i n g h i m a g a i n s t t h e d a n g e r o u s
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orientation h e is g iv in g A m e r i c a n d i p l o m a c y . " H e saw th e A d m i n i s t r a t i o n ' s
"grand p o l i c y " t a k i n g on " a n i n c r e a s i n g l y e c o n o m i c c o n t e n t " an d a s k e d :
" D o c o m p e t i t o r s - - J a p a n an d W e s t e r n E u r o p e - - f i g u r e a s e n e m i e s ,
an d t h e f o r m e r r i v a l - - t h e S o v i e t U n i o n - - a s th e p r e f e r r e d p a r t n e r ? "
Aron m a i n t a i n e d t h a t " a l l o b s e r v e r s , f r o m t h e l e f t to th e r i g h t , " c o n s i d e r th a t
"we a r e a t w a r - - t h o u g h i t i s n o t c l e a r y e t w h e t h e r i t i s a t r a d e w a r o r a m o n e
tary w a r . " T h e r e f o r e , h e c o n t in u e d , " i t i s h i g h ly i m p o r t a n t to u n d e r s t a n d t h e
a d v e r s a r y .. . .
" I f w e a r e a t w a r , l e t ' s s to p s e r m o n i z i n g : l e t u s s t r i v e to c o n
v i n c e o r c o m p e l . W e c a n n o t c o m p e l th e A m e r i c a n l e a d e r s h i p to
r e s t o r e g o ld c o n v e r t i b i l i t y o r to s t a b i l i z e th e p a r i t y o f th e d o l l a r .
B u t w e can co n v in ce t h e m - - s o m e of th e m a r e a lr e a d y c o n v in c e d - t h a t i n o r d i n a t e m o v e m e n t o f th e A m e r i c a n c u r r e n c y i s c o n t r a r y to
t h e i n t e r e s t s of e v e r y o n e , th e U. S . i n p a r t i c u l a r . . . .
" T h e c o n d u c t o f A m e r i c a n a u t h o r i t i e s a p p e a r s to m e i r r e s p o n s i b l e
o r , i f y o u p r e f e r , c y n i c a l . A f t e r r e f u s i n g f o r s i x y e a r s to d e v a lu e
th e d o l l a r u n d e r th e p r e t e x t t h a t i t s e r v e d a s a r e s e r v e c u r r e n c y ,
t h e y now r e f u s e to f i x i t s v a l u e and u s e t h e s a m e a r g u m e n t to
j u s t i f y t h i s o p p o s it e p o s i t i o n . I d ou bt t h a t t h i s c o n d u c t d e m o n s t r a t e s
e ith er s u p e r io r in te llig e n c e or a M a c h ia v e llia n s tr a te g y . "
" O u r P a r t n e r s A r e P u s i l l a n i m o u s 11
C om m enting on th e E E C a g r i c u l t u r e m i n i s t e r ^ m e e t i n g in B r u s s e l s , a b y - l i n e
w riter in f i n a n c i a l L e s E c h o s r e m a r k e d y e s t e r d a y t h a t " e v e r y t i m e A m e r i c a n
policy is a t I s s u e in B r u s s e l s , F r a n c e s t a n d s a l o n e . " H e n o te d t h a t F r a n c e ' s
p erm an en t r e p r e s e n t a t i v e i n B r u s s e l s " h a s i m p a r t e d to h i s E u r o p e a n c o l l e a g u e s
F r a n c e ’ s c o n c e r n t h a t th e C o m m o n M a r k e t n a t i o n s s h o u ld n o t b e g in N ix o n R o u n d
nego tiatio ns b e f o r e t h e A m e r i c a n c u r r e n c y i s b a c k to th e p a r i t y l e v e l of l a s t
M arch, but h e s e e m s to h a v e had a v e r y c o o l r e c e p t i o n . " T h e w r i t e r c o n c lu d e d :
" I f F r a n c e p e r s i s t s in i t s f i r m n e s s and o u r p a r t n e r s in t h e i r r a t h e r
p u s i l l a n i m o u s a t t i t u d e t o w a r d t h e U . S . , th e d a n g e r of a C o m m o n
M a r k e t c r i s i s w i l l b e c o m e a b o u t a s i m m i n e n t a s a t an y t i m e s i n c e
G e n e r a l de G a u l l e u s e d to pound th e t a b l e . "
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' ' E u r o p e M i s s e d C h a n c e to A v o id M a n i p u l a t i o n 11
In d e p e n d e n t-le f t C o m b a t of P a r i s d e c l a r e d y e s t e r d a y , " T h e E u r o p e o f th e N in e
is d e f in it e ly not r e a d y to a b s t a i n f r o m e x p e d i e n c y and s u b t e r f u g e , n o r th e d e
te s ta b le h a b it o f p la y in g f o r t i m e .
It said th e C o m m o n M a r k e t a g r i c u l t u r e m i n i s t e r s had r e a c t e d to th e p r o p o s a l s
advanced by F r a n c e w ith "an. a t t i t u d e i l l - s u i t e d to p r e s e n t n e c e s s i t i e s " and c o n
tended t h a t " t h e y o v e r l o o k e d t h e r e a l i t y - - t h e i m m i n e n t , s e r i o u s p e r i o d - - a n d
showed t h e i r w e a k n e s s , p la y in g f o r t i m e in o r d e r n o t to j e o p a r d i z e th e a l r e a d y
p r e c a r io u s r e l a t i o n s b e t w e e n t h e E E C and th e U. S. b e f o r e th e N ix o n R o u n d . "
The p a p e r c o n c lu d e d :
" E u r o p e had a n e x c e p t i o n a l o p p o r tu n ity to show t h a t i t w i l l not
l e t i t s e l f b e m a n i p u l a t e d by t h e U. S . I t h a s m i s s e d t h a t c h a n c e - d e lib e r a te ly , sh a m e fu lly . "
' 'S o y b e a n S h o r t a g e a L e s s o n f o r t h e W o r l d 1'
In in d e p e n d e n t - l e f t E e M o n d e o f P a r i s , a b y - l i n e w r i t e r m u s e d t h a t " w h i l e
th ere i s l i t t l e in c o m m o n b e t w e e n w h a t i s ta k in g p l a c e in th e S a h a r a n b o r d e r
a re a s w h e r e l i v e s t o c k a r e dying o f t h i r s t and h u n g e r , and w h a t i s l i k e l y to hap p ei
to l i v e s t o c k in F r a n c e b e c a u s e t h e A m e r i c a n s h a v e d e c id e d to r e s t r i c t s o y b e a n
e x p o rts, n e v e r t h e l e s s r i c h and p o o r s u d d e n ly r e a l i z e a l i t t l e b e t t e r t h a t t h e y l i v e
on the s a m e p l a n e t and s h a r e th e f r u i t s of th e s a m e e a r t h , w h ic h a r e n o t i n e x
h a u stib le . "
After ta k in g th e w e a l t h y n a t i o n s t o t a s k f o r s p e n d in g p r o d i g i o u s l y w h en p o w e r
p olitics o r n a t i o n a l p r e s t i g e a r e a t s t a k e , th e w r i t e r d e c l a r e d :
" F o l l o w i n g t h e p r i n c i p l e o f t h e d i v i s i o n o f l a b o r , E u r o p e had
a llo w e d th e U. S . to s p e c i a l i z e in s o y b e a n c u l t i v a t i o n . . . . Now ,
a f t e r b e in g b u r i e d u n d e r s u r p l u s e s , w e w a k e up in a s i t u a t i o n
of s h o r t a g e . . . .
" W h e n th e U. S. saw t h a t f a r m p r i c e s had g o n e up t h r e e t i m e s
f a s t e r th a n o t h e r p r i c e s , i t did n o t h e s i t a t e to l i m i t e x p o r t s o f
c e r t a i n p r o d u c t s , in c l u d i n g s o y b e a n s , r e g a r d l e s s o f i t s p o s i t i o n
on th e N ix o n R o u n d . . . .
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" S o o n t h e a r t o f b e l t - t i g h t e n i n g w i l l no l o n g e r b e r e s e r v e d to t w o t h i r d s o f t h e e a r t h . T h e r e s u l t a n t s o l i d a r i t y m a y p e r h a p s l e a d to
o th er f o r m s of s o lid a r ity . "
" A g a in st a V a s s a l E u r o p e "
A w r i t e r in G a u l l i s t L a N a tio n m a i n t a i n e d y e s t e r d a y t h a t th e F r e n c h G o v e r n m e n t ' s
demand f o r s o m e k in d o f m o n e t a r y s t a b i l i z a t i o n a g r e e m e n t b e f o r e t r a d e t a l k s
open in T o k y o t h i s a u tu m n " i s p r o m p t e d by c o m m o n s e n s e and u r g e n c y . . .
" C o m m o n s e n s e : How c o u ld E u r o p e a g r e e to n e g o t i a t e t r a d e c o n
c e s s i o n s i f t h e U. S. c a n c o n t in u e a t w i l l to b e s t o w upon i t s e l f c o n
s id e r a b le a d v a n ta g e s by s im p le u n ila t e r a l m o n e ta r y m a n ip u la tio n ?
"U rgen cy:
T h e d o l l a r c o n t i n u e s to w e a k e n . . . .
" S i n c e on t h e m o n e t a r y l e v e l t h e U. S . c h o o s e s to a d o p t a n a t t i t u d e .
of g u ilty i n d i f f e r e n c e , i t i s up t o E u r o p e a n s to a v o id th e t r a p b e in g
l a i d f o r t h e m by a c o m m e r c i a l d i s c u s s i o n w ith o u t p r i o r m o n e t a r y
s e t t l e m e n t . O n c e a g a i n , th e v o i c e of F r a n c e i s r a i s e d a g a i n s t th e
id e a of a v a s s a l E u r o p e . "
' }T h e D o l l a r I s W a t e r g a t e - s i c k "
A lead in g p r o v i n c i a l p a p e r , P e p e c h e du M id i o f T o u l o u s e , c a r r i e d a b y - l i n e
w r i t e r ’ s v ie w t h a t in i n t e r n a t i o n a l m o n e t a r y a f f a i r s " o n e e l e m e n t of w h ic h M r .
Nixon i s no l o n g e r m a s t e r i n c r e a s e s th e u n c e r t a i n t y . T r u e , th e d o l l a r i s going
down fo r m a n y r e a s o n s - - b a l a n c e o f p a y m e n t s d e f i c i t , d e b t - - b u t i t s d e c l i n e i s a l s o
re late d to th e c u r r e n t U . S . p o l i t i c a l an d m o r a l c r i s i s .
T he d o lla r is W a te r g a te s i c k . " T h u s , t h e w r i t e r d e c l a r e d , " t h e U . S . P r e s i d e n t a p p e a r s to b e b lu f f in g
Europe and J a p a n a t a t i m e w h e n he i s n o l o n g e r in a p o s i t i o n to w in . "
M ila n :
" F r e n c h V i ew M u s t B e C o n s i d e r e d "
No c o m m e n t on P h a s e IV w a s a v a i l a b l e f r o m I t a l y .
Independent c o n s e r v a t i v e C o r r i e r e d e l l a S e r a o f M i l a n y e s t e r d a y t i t l e d a n e d i o ria l, " E u r o p e M u s t M a k e D e c i s i o n . " I t a r g u e d :
" W e do n o t s a y t h a t t h e F r e n c h p o s i t i o n in B r u s s e l s . . . m u s t
be a c c e p t e d , but i t m u s t b e c o n s i d e r e d . T h e b a s i s o f i t i s
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th e o ld c h a l l e n g e to d o l l a r s u p r e m a c y . T h e r e no l o n g e r is a
d o l l a r s t a n d a r d but w e s t i l l h a v e i t s c o n s e q u e n c e s , w h ic h a r e
t h e f lo o d o f u n c o n v e r t i b l e d o l l a r s in E u r o p e an d t h e u t m o s t
A m e r i c a n i n d i f f e r e n c e t o th e i d e a o f s u p p o r t in g t h e m . . . "
The p a p e r d o u b te d t h a t a n e w m o n e t a r y s y s t e m c o u ld b e e v o lv e d in t h e 6 7 d a y s
before th e N a i r o b i c o n f e r e n c e . I t c o m m e n t e d , " F r a n c e i s n o t t o t a l l y w r o n g
when i t m a i n t a i n s t h a t t h e r e i s n o s e n s e to h a v in g d i s c u s s i o n s on t r a d e and t a r i f f
reduction i f th e d o l l a r i s n o t s t a b i l i z e d . . .
" W i t h o r w ith o u t th e s w a p , A m e r i c a m u s t s t a b i l i z e t h e d o l l a r ; but
E u r o p e m u s t a l s o m a k e a d e c i s i o n . I t c a n n o t b e a f r a i d o f an i n
v a s i o n o f A m e r i c a n e x p o r t s on t h e o n e han d and s i m u l t a n e o u s l y
buy a l l i t n e e d s f r o m t h e U , S . I f m a t t e r s c o n t in u e on t h i s c o u r s e ,
t h e r e w i l l b e no m o n e t a r y , c o m m e r c i a l o r c u s t o m s n e g o t i a t i o n s .
T h e r e w i l l o n ly b e a s e r i e s o f b l a c k m a i l o p e r a t i o n s . "
H e lsin k i:
" P h a s e I V 1s L i m i t e d C o n t r o l M a c h i n e r y 11
Independent H e l s i n g e n S a n o m a t d e c l a r e d in a n e d i t o r i a l t o d a y , " L i t t l e m o r e th a n
a month a f t e r t h e b e g in n in g of th e f r e e z e , N ix o n h a s b e e n c o m p e l l e d t o c a n c e l
the f r e e z e on food an d h e a l t h s e r v i c e s .
"H e h a s s a i d r e s i g n e d l y t h a t t h e r i s e in food c o s t s c a n n o t be p r e
v e n t e d , w ith o r w ith o u t c o n t r o l s . T h e f l e x i b i l i t y o f th e c o n t r o l
m a c h i n e r y w i l l b e i n c r e a s e d , a lth o u g h it w i l l s t i l l b e a w k w a r d
and c o m p l i c a t e d . B e c a u s e o f t h e l i m i t e d s i é e of th e U. S . c o n t r o l
m a c h in e r y , it is n o t at a l l c e r t a i n th at P h a s e I V w ill be m o r e
e f f e c t i v e th a n P h a s e I I I . "
Tokyo:
P r o m i n e n t P l a y f o r P h a s e IV
Jap an e se t e l e v i s i o n n e t w o r k s and n e w s p a p e r s g a v e p r o m i n e n t c o v e r a g e to d a y
and y e s t e r d a y to P h a s e IV .
6- c o m m e n t a t o r on F u j i T V s a i d t h e P r e s i d e n t w a s c o m b i n i n g " t h e P h a s e IV
P ro g ram w ith a b a l a n c e d - b u d g e t p o l i c y , " t h a t " M r . N ix o n did n o t c a r r y out
a t a x - i n c r e a s e m e a s u r e b e c a u s e i t w o u ld r e q u i r e C o n g r e s s i o n a l a p p r o v a l , "
an" it " a p p e a r s d iffic u lt, f o r t h e P r e s i d e n t to w in C o n g r e s s i o n a l a p p r o v a l a t
p resen t b e c a u s e o f t h e W a t e r g a t e a f f a i r . " H e p r e d i c t e d " d i f f i c u l t t i m e s a h e a d
for the U. S . e c o n o m y .."
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9
7 /2 0 /7 3
Z
" R e v e a l s U. S. P e r p l e x i t y ' '
Leading l i b e r a l A s a h i o f T o k y o s a i d to d a y :
" S p e a k i n g f r a n k l y , th e P h a s e IV m e a s u r e s r e v e a l U. S . p e r p l e x i t y
in t r y i n g to c o n t r o l i n f l a t i o n . I t i s n a t u r a l t h a t t h e r e a r e v o i c e s
of doubt e v e n in th e U. S . o v e r t h e e f f e c t i v e n e s s o f t h e s e r e g u l a t i o n s . . .
" T h e f a i l u r e o f t h e U, S . G o v e r n m e n t to h a l t t h e p r o g r e s s of i n f l a
tio n w i l l l e a d to a d o l l a r c r i s i s . . . . "
The p a p e r w e l c o m e d th e k n o w le d g e t h a t U . S. e x p o r t c o n t r o l s w ou ld " n o t b e
expanded to i n c l u d e s u c h p r o d u c t s a s c o r n , w h ic h i s i m p o r t a n t . . . f o r J a p a n . . . "
However, it n o te d t h a t t h e r e h ad b e e n " n o c l a r i f i c a t i o n on s o y b e a n s and o t h e r
products r e s t r i c t e d a t p r e s e n t e x c e p t f o r th e a n n o u n c e m e n t t h a t c o n t r o l s w ou ld
continue u n til t h e m a r k e t i n g o f n e w c r o p s . "
It d e c la r e d , " T h e U. S. s h o u ld a t l e a s t h a v e c l a r i f i e d th e t i m e s c h e d u l e on l i f t i n g
the e m b a r g o ou t o f c o n s i d e r a t i o n f o r r e l i e v i n g t h e c o n c e r n o f J a p a n and o t h e r
consumer c o u n t r i e s . "
' ' J a p a n Sh o u ld W a t c h C l o s e l y "
Moderate M a i n i c h i o f T o k y o u r g e d to d a y , " J a p a n s h o u ld w a t c h d e v e l o p m e n t s
closely r a t h e r th a n v ie w P h a s e IV o f t h e A m e r i c a n l i g h t a g a i n s t i n f l a t i o n a s an
outsider. " T h e p a p e r s a i d :
" T h e r e a r e d o u b ts a b o u t t h e e f f e c t i v e n e s s o f t h e new i n f l a t i o n
c o n t r o l p o l i c y . I t w i l l b e a d e l i c a t e m a t t e r f o r U. S . l e a d e r s
to gu id e t h e A m e r i c a n e c o n o m y b e c a u s e t h e r e a r e s i g n s o f a
b u s i n e s s slo w d o w n in t h e c o u n t r y . . .
" I t i s c o m m o n l y u n d e r s t o o d t h a t U . S. i n f l a t i o n i s n o t s o l e l y a
d o m e s t i c p r o b l e m b e c a u s e i t c a s t s i t s sh ad o w on th e i n t e r
n a t io n a l m o n e t a r y an d t r a d e s i t u a t i o n . "
S eo u l:
" P h a s e IV C ou ld H u r t R O K E x p o r t s "
^d ep en d en t H an k u k I l b o of S e o u l to d a y e x p r e s s e d c o n c e r n t h a t P h a s e IV c o n t r o l s
ccmld c a u s e "
ia " a n d th u s
deal a n o th e r blow to th e R e p u b l i c o f K o r e a ' s e x p o r t i n d u s t r y w h ic h r e l i e s l a r g e l y
0n raw m a t e r i a l s s u p p lie d f r o m a b r o a d . "
No. 87
10
7/20/73
P r o - G o v e r n m e n t S h in a I l b o s a id th e m e e t i n g s o f C o m m e r c e S e c r e t a r y D e n t and
the South K o r e a n M i n i s t e r o f C o m m e r c e " b r i g h t e n p r o s p e c t s f o r U. S . - R O K t r a d e
M oscow :
"N ixon A d m itte d In fla tio n M e a s u r e s F a i l e d "
Moscow d o m e s t i c r a d i o l a s t n ig h t c a r r i e d a b r i e f r e p o r t o f th e P h a s e I V a n n o u n c e
ment. It s a i d t h e A d m i n i s t r a t i o n p r o g r a m " i n s u b s t a n c e b o i l s down to a t t e m p t s
to curb i n f l a t i o n an d th e c o n s t a n t r i s e in p r i c e s . In h i s s t a t e m e n t on t h i s s u b j e c t ,
P re s id e n t N ix o n v i r t u a l l y a d m i t s t h a t t h e G o v e r n m e n t ' s p r e v i o u s m e a s u r e s to
abate in f la t io n h a v e p r o v e d u n s u c c e s s f u l . T h e P r e s i d e n t s t a t e d t h a t th e p r i c e
index for c o n s u m e r g o o d s had i n c r e a s e d by 8 p e r c e n t f r o m D e c e m b e r 1972 to
May of t h is y e a r , s o t h a t i n f l a t i o n a r y t e n d e n c i e s a r e s t i l l s t r o n g to d a y d e s p i t e
the p r i c e f r e e z e .
" P r e s id e n t N ix o n found i t n e c e s s a r y to w a r n h i s c o u n t r y m e n th a t in th e s e c o n d
half of th is y e a r , to o , p r i c e s in th e U. S . w ould c o n t in u e to r i s e a t a h i g h e r
rate than d e s i r a b l e . "
P r o x m i r e C it e d on " C l o s e E c o n o m i c R e l a t i o n s ’1
Another d o m e s t i c b r o a d c a s t r e p o r t e d t h a t t h e J o i n t E c o n o m i c C o m m i t t e e w a s
taking t e s t i m o n y on i n c r e a s i n g U. S . t r a d e w ith th e U S S R .
It said S e n a t o r P r o x m i r e a s c h a i r m a n had s t a t e d t h a t a s a r e s u l t o f th e N i x o n Brezhnev s u m m i t t a l k s , " t h e p o s s i b i l i t y o f e s t a b l i s h i n g c l o s e e c o n o m i c r e l a t i o n s
between th e U S S R and t h e U . S . h a s c o n s i d e r a b l y i n c r e a s e d . "
G overnm ent and b u s i n e s s w i t n e s s e s , i t c o n t in u e d , " u n a n i m o u s l y s t r e s s th e m u tu a l
advantage of e x p a n d in g t r a d e b e t w e e n t h e tw o c o u n t r i e s , i t s f a v o r a b l e i n f l u e n c e
on the s t a t e of S o v i e t - U . S. r e l a t i o n s and t h e s t r e n g t h e n i n g o f p e a c e t h r o u g h o u t
the w orld. "
P e k in g C ite s P h a s e IV C r i t i c i s m
Peking NCNA y e s t e r d a y d e s c r i b e d P h a s e IV in i t s i n t e r n a t i o n a l E n g l i s h s e r v i c e a s
another m e a s u r e t a k e n by t h e P r e s i d e n t to c h e c k th e w o r s e n i n g i n f l a t i o n a f t e r th e
0-day. f r e e z e on p r i c e s h e a n n o u n c e d l a s t J u n e 13. "
t cited M r . N i x o n ' s j u s t i f i c a t i o n s f o r P h a s e IV and q u o te d A P a s r e p o r t i n g t h a t
^ead in g A m e r i c a n e c o n o m i s t a g e n e r a l l y v o i c e d l i t t l e e n t h u s i a s m W e d n e s d a y f o r
R esid en t N i x o n 's e c o n o m i c p r o g r a m . T h e y a l s o s a i d t h a t th e p r o g r a m e v e n t u a l l y
would le a d to h i g h e r p r i c e s by n o t c h e c k i n g d e m a n d f o r i t e m s in s c a r c e s u p p ly . "
11
7/20/73
DepartmentoftheTREASURY
blNGTON, D C 20220
T E L E P H O N E W ft*-2041
FOR IMMEDIATE RELEASE
TREASURY REFINANCING PLANS
The Treasury today announced plans for refinancing
securities maturing on August 15, $4.7 billion of which
are held by the general public. The new securities will
consist of $2.0 billion of 7-3/4% 4-year Treasury notes,
$0.5 billion of 7-1/2% 20-year bonds callable in 15 years,
and $2.0 billion of 35-day September tax anticipation bills.
The new securities will be sold by competitiv^i^ing. Non
competitive tenders will also be accepted in specified
amounts.
Tenders for the notes will be received until 1:30 p.m.,
EDST, on Tuesday, July 31. They will be an additional issue
of the 7-3/4% notes of Series B-1977, dated August 15, 1970,
due August 15, 1977. Non-competitive tenders from indi
viduals and others will be accepted in amounts of $500,000
or less.
Tenders for the bonds will be received until 1:30 p.m.,
EDST, on Wednesday, August 1. The bonds will be dated
August 15, 1973, and will mature August 15, 1993, callable
by the Treasury on and after August 15, 1988. Non-competitive tenders
from individuals and others will be accepted in amounts of
$250,000 or less.
The bills will be auctioned on Wednesday, August 8.
They will mature September 19, 1973, but may be used at
face value in payment of Federal income taxes due on Septem
ber 15. Non-competitive tenders from individuals and others
will be accepted in amounts of $500,000 or less.
As in the last two bond auctions, awards for the bonds
will be made by the "uniform-price" method in which all
accepted tenders are awarded bonds at the lowest accepted
price. Awards in the note and bill auctions will be made
st the price specified in accepted tenders.
O VER )
-2Qualified depositaries ma y m a k e payment for 50%
of the amount of t a x anticipation bills allotted by
credit to Treasury t ax and loan accounts*
Payment for
the notes and bonds m a y not be ma d e b y credit to Treasury
t ax and loan a c c o u n t s . Payment for all three issues must
b e m a d e on Wednesday, August 15*
In addition to the holdings by the general public*
Federal Reserve and Government accounts h o l d $1 billion
of t he securities maturing on August 15*
Additional
amounts of the n e w notes and bonds will be issued to
those accounts in exchange for their existing holdings*
OF
Department of die J R E /l $ l if f K T H
...«•rnki-: dp».cn . 20220
im in
Ishington
i m i > tn ii
TmE LME PUH A
O NuEn W
04 2041
U I—
YÀ
J 7 89
;
IFOR IMMEDIATE RELEASE
July 25, 1973
DETAILS OF TREASURY NOTE AND BOND AUCTIONS
The notes and bonds to be auctioned to the public by the Treasury to provide funds
[for refunding part of the $4.7 billion of publicly held notes and bonds maturing on
¡August 15 will be:
Up to $2.0 billion of an additional amount of 7-3/4$ Treasury Notes
of Series B-1977, dated August 15, 1970, due August 15, 1977, with
interest payable on February 15 and August 15, and
Up to $500 million of 7-l/2$ Treasury Bonds of 1988-93, dated
August 15, 1973, due August 15, 1993, callable at the option of the
United States on any interest payment date on and after August 15,
1988 (CUSIP No. 912810 BQQ) with interest payable on February 15
and August 15.
Additional amounts of the notes and bonds will be allotted to Government accounts
land the Federal Reserve Banks in exchange for their holdings of the maturing securities,
[which total $1.0 billion.
The notes and bonds will be issued in registered and bearer form in denominations
p $1,000, $5,000, $10,000, $100,000 and $1,000,000.
Tenders for the notes will be received up to 1:30 p.m., Eastern Daylight Saving
Rime, Tuesday, July 31, 1973, and tenders for the bonds will be received up to 1:30 p.m.
pastern Daylight Saving time, Wednesday, August 1, 1973, at any Federal Reserve Bank or
jfranch and at the Office of the Treasurer of the United States, Washington, D.C. 20222;
[provided, however, that noncompetitive tenders will be considered timely received if
Rhey are mailed to any such agency under a postmark no later than July 30 for the notes
July 31 for the bonds. Each tender must be in the amount of $1,000 or a multiple
■thereof, and must state the price offered, if it is a competitive tender, or the term
noncompetitive", if it is a noncompetitive tender.
The price on competitive tenders for the notes must be expressed on the basis of
R00, with two decimals, e.g., 100.00. Tenders at a price less than 99.01 for the notes
Rill^not be accepted. Tenders at the highest prices will be accepted to the extent
pequired to attain the amount offered. Successful competitive bidders for the notes
nil he required to pay for the notes at the price they bid. Noncompetitive bidders
[¡^
required to pay the average price of all accepted competitive tenders.
The price on competitive tenders for the bonds must be expressed on the basis of
■Oj with two decimals in a multiple of .05, e.g., 100.10, 100.05, 100.00, 99.95, etc.
Pend'ers at the highest prices will be accepted to the extent required to attain the
ount offered. All accepted tenders for the bonds will be awarded at the price of
accepted bid. No tenders will be accepted which result in original issue
uscount for tax purposes.
,lt-^rac^i°ns may not be used in tenders. The notation "TENDER FOR TREASURY NOTES"
L RENDER FOR TREASURY BONDS" should b<
>e printed at the bottom of the envelopes in
f lch the tenders are submitted.
(OVER)
-
2-
Those submitting tenders 'will be advised of the acceptance or rejection thereof,
The Secretary of the Treasury expressly reserves the right to accept or reject any or
all tenders, in whole or in part, and his action in any such respect shall be final,
Subject to these reservations noncompetitive tenders for $500,000 or less for the
notes will be accepted in full at the average price of accepted competitive tenders
and noncompetitive tenders for $250,000 or less for the bonds will be accepted in full
at the same price as accepted competitive tenders. The prices may be 100.00, or more
or less than 100.00.
Commercial banks, which for this purpose are defined as banks accepting demand
deposits, may submit tenders for account of customers provided the names of the
customers are set forth in such, tenders. Others than commercial banks will not be
permitted to submit tenders except for their own account.
Payment for accepted tenders must be completed on or before Wednesday, August 15,
1973 , at the Federal Reserve Bank or Branch or at the Office of the Treasurer of the
United States in cash, 8-1/8$ Treasury Notes of Series B-1973 or 4$ Treasury Bonds of
1973, which will be accepted at par, or other funds immediately available to the
Treasury by that date. Where full payment is not completed in funds available by the
payment date, the allotment will be canceled and the deposit with the tender up to
5 percent of the amount of securities allotted will be subject to forfeiture to the
United States.
The Treasury will construe as timely payment any check drawn to the order of the
Federal Reserve Bank or the Treasurer of the United States that is received at such
bank or office by Friday, August 10, 1973, provided the check is drawn on a bank in
the Federal Reserve District of the bank or office to which the tender is submitted.
Other checks will constitute payment only if they are fully and finally collected by
the payment date, Wednesday, August 15, 1973. Checks not so collected will subject
the investor's deposit to forfeiture as set forth in the preceding paragraph. A check
payable other than at a Federal Reserve Bank received on the payment date will not
constitute immediately available funds on that date.
Commercial banks are prohibited from making unsecured loans, or loans collater
alized in whole or in part by the securities bid for, to cover the deposits required
to be paid when tenders are entered, and they will be required to make the usual
certification to that effect. Other lenders are requested to refrain from making
such loans.
ATTENTION:
FINANCIAL EDITOR
July 25, 1973
FOR IM M ED IA TE R E L E A S E
TREASURY OFFERS $2 BILLION IN SEPTEMBER
TAX ANTICIPATION BILLS
The Treasury Department, by this public notice, invites tenders for $2,000,000,000
or thereabouts, of 35-day Treasury bills, to be issued on a discount basis under
competitive and noncompetitive bidding as hereinafter provided. The bills of this
series will be dated August 15, 1973,
and will mature September 19, 1973.
They will be accepted at face value in payment of income
taxes due on September 15, 1973, and to the extent they are not presented for this
purpose the face amount of these bills will be payable without interest at maturity.
Taxpayers desiring to apply these bills in payment of September 15, 1973income taxes
may submit the bills to a Federal Reserve Bank or Branch or to the Office of the
Treasurer of the United States, Washington, not more than fifteen days before that
date. In the case of bills submitted in payment of income taxes of a corporation
they shall be accompanied by a duly completed Form 503 and the office receiving
these items will effect the deposit on September 15, 1973 . In the case of bills
submitted in payment of income taxes of all other taxpayers, the office receiving
the bills will Issue receipts therefor, the original of which the taxpayer shall
submit on or before September 15, 1973, to the District Director of Internal Revenue
for the District in which such taxes are payable. The bills will be issued in
bearer form only, and in 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, Wednesday, August 8, 1973.
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
°f 100, with not more than three decimals, e.g., 99.925. Fractions may not be used.
If 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 i n s t i t u t i o n s g e n e r a l l y may subm it t e n d e r s f o r a c co u n t o f custom ers
Provided th e names o f th e custom ers a r e s e t f o r t h i n such t e n d e r s .
O thers th a n
unking i n s t i t u t i o n s w i l l n o t be p e r m it t e d t o submit te n d e r s e x c e p t f o r t h e i r own
account. Tenders w i l l be r e c e i v e d w ith o u t d e p o s i t from in c o r p o r a t e d banks and
tnust companies and from r e s p o n s i b l e and r e c o g n iz e d d e a l e r s i n in v estm e n t s e c u r i t i e s ,
cnaers from o t h e r s must be accompanied by payment o f 2 p e r c e n t o f t h e f a c e amount
0 Treasury b i l l s a p p l ie d f o r , u n l e s s t h e t e n d e r s a r e accompanied by an e x p re s s
SUaranty o f payment by an in c o r p o r a t e d bank o r t r u s t company.
(OVER)
2
All bidders are required to agree not to purchase or to sell, or to make
any agreements with respect to the purchase or sale or other disposition of any
bills of this issue at a specific rate or price, until after one-thirty p.m.,
Eastern Daylight Saving time, Wednesday, August 8, 1973.
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
$500,000 or less without stated price from any one bidder will be accepted in full
at the average price (in three decimals) of accepted competitive bids. Settlement
for accepted tenders in accordance with the bids must be made or completed at the
Federal Reserve Bank in cash or other immediately available funds on August 15, 1973|
Any qualified depositary will be permitted to make settlement by credit in
its Treasury tax and loan account for not more than 50 percent of the amount of
Treasury bills allotted to it for itself and its customers.
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 I
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 Wo. 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.
O W N E R S H I P O F T HE A U G U S T 15,
1973 M A T U R I T I E S
(In m i l l i o n s of dollars)
8-1/8%
Note
;
[
4%
Bond
TOTAL
Commercial b a n k s .................
939
1,222
2,161
Mutual savings b a n k s ............
33
32
65
Insurance c o m p a n i e s :
L i f e .............. ..............
Fire, c a s u a l t y a n d m a r i n e . . . .
1
24
18
117
19
141
companies.
25
135
160
Savings and loan a s s o c i a t i o n s . .
24
124
148
Corporations......................
49
659
708
State and local g o v e r n m e n t s ....
33
386
419
409
608
1,017
1,512
3,166
4,678
Federal R e s e r v e B a n k s and
Government A c c o u n t s ...........
327
728
1,055
Total o u t s t a n d i n g ................
1,839
3,894
5,733
Total,
insurance
All other p r i v a t e
i n v e s t o r s ....
Total, p r i v a t e l y h e l d ........
Office of the S e c r e t a r y of the T r e a s u r y
O f f i c e of D e b t A n a l y s i s
July
25,
1973
Department ofthe TREASURY
kSHINGTON. O.C 20220
T E L E P H O N E W 04-2041
FOR RELEASE ON DELIVERY
STATEMENT OF MARTIN J. BAILEY, DEPUTY ASSISTANT
SECRETARY OF THE TREASURY FOR TAX POLICY, ON
S. 1122, S. 1593, and S. 1879 BEFORE THE SUBCOMMITTEE
ON ENVIRONMENT, SENATE COMMITTEE ON COMMERCE,
July 26, 1973 at 9:30 a*m#
Mr. Chairman and members of the Subcommittee, I appreciate the
opportunity of presenting the Treasury Department's comments on
S. 1122, S. 1593, and S. 1879.
Not all of the provisions of the bills
are of direct concern to this Department, and as to those that are, after
One initial exception I will devote all my comments to those dealing with
taxation.
S. 1593 would authorize the Administrator of the Environmental
Protection Agency to make low interest rate loans to States and
localities for up to 100 percent of the purchase price of solid waste
collection and separation systems that encourage the flow of recycled
and recyclable materials in interstate commerce.
If certain ob
jectives are met, the Administrator may reduce the payment of principal
and interest by up to one-half in any given year.
The loan provisions do not meet the criteria the Administration
believes should be met by Federal credit programs.
There is no requirement
that the borrower first make a reasonable effort to borrow from other sources.
The borrower's credit worthiness is not a criterion.
Without
reasonable credit requirements, a loan program tends to become a dis
guised grant program.
Fixed interest ceilings on Federal loans, such as the 3 percent
maximum contained in the bill, have had perverse and unintended results
as market rates of interest move up and down.
For one thing, they
>256
lead to extraordinary demands for Federal loan funds when inflationary
-
2
-
pressures and interest rates are high.
There would inevitably be
inequities among borrowers using the program at different
times.
Our reservations as to the proposed loan program are so great
that we must strongly oppose it.
The tax program incorporated in S. 1593 and S. 1879 are designed
to encourage recycling of used products, reduce the use of energy and
virgin raw materials, and internalize disposal costs of products,
except consumables.
S. 1593 contains three basic tax provisions designed to encourage
recycling of used materials and reduction of the use of virgin materials.
The first would grant the purchaser an additional deduction from gross income e
to a specified percentage of the amounts paid to purchase recyclable or
recycled solid waste materials for manufacture into useful raw materials
or salable products.
The percentage would vary with the particular type
of solid waste material.
Since the objective is to expand recycling, the
deduction would be limited to purchase costs that exceed five-year average
yearly costs.
Associated with the deduction just mentioned is a further
deduction of one-half of the specified percentage of the amount of purchase
costs not in excess of the five-year average.
The latter deduction
w o u ld
be conditioned on any tax savings resulting therefrom being, used for the
expansion of recycling facilities, expanded use of recyclable or recycled
materials, or pollution control devices.
The second tax feature of the bill is the granting of five-year
amortization to solid waste recycling facilities, a privilege now available
-
3 -
for new investment in pollution control facilities used in connection
with a property in operation before January 1, 1969.
Finally, the bill would provide that to the extent that energy costs
involved in producing products from virgin resources exceed the costs
for producing comparable materials
from recycled materials, that excess
would be subtracted from the deduction allowed for the purchase of such
non-recycled material.
If the energy costs for recycled materials purchased
were greater, the excess would be subtracted from the deductible cost of the
recycled material.
The disallowed expense could not exceed one-half of
the cost of the material purchased.
The tax provisions of S. 1879 are related initially to the disposal
cost of products, except consumables, with the objective of "internalizing"
such costs.
Recycling of used materials is to be fostered by payments
for such use from the funds collected from the disposal charge.
The Administrator of the Environmental Protection Agency would be
required to establish a schedule of national disposal cost
charges.
Although not so called in the bill, the charges would be excise taxes on
the sale of manufactured products.
These charges would apply to all
products in their final configuration, except consumables, which have a
service life of less than thirty years.
The basic charge would be at the
rate of one cent per pound or, at the Administrator’s discretion, at a
rate equal to the average per pound disposal cost of mixed municipal,
household, institutional and commercial waste.
An additional charge equal
to all disposal costs in excess of the basic charge would be imposed
whenever the Administrator finds such additional costs can be reasonably
-4attributed to specific products.
Receipts from the charges would be
deposited in an Environmental Trust Fund.
The Fund, in turn, would be
used for two purposes, after payment of moderate administrative costs.
When a manufacturer acquired any recovered material for use in the manu
facture of a product, following disposal by the consumer, and upon which
a disposal charge is imposed, a payment would be made to him from the Fund
equal to the disposal cost of such material.
Any amount then remaining in
the Fund would be distributed to the States and political subdivisions
using the formula for payments under the general revenue sharing program
pursuant to the State and Local Fiscal Assistance Act of 1972.
S. 1122 has no tax previsions, so I have nothing to add to the written
comment you received from the Department earlier this week.
I turn now to
our reactions to the tax provisions of S. 1593 and S. 1879.
For nearly a decade, the Treasury Department has been involved in the
evaluation of plans to advance the control of pollution and recycling of
used materials which, in turn involved some tax feature.
Originally, there
were many proposals to give credits or fast depreciation for capital ex
penditures for air or water pollution control equipment.
In the last
several years, the emphasis has been on tax provisions related to the
amount of pollution sent into the environment or incentives to recycle used
materials.
In the main, we have opposed such proposals.
Some proposals
were just too complicated to be workable, some would not have been effective,
or would have had the wrong effect, and some we thought would constitute
poor tax policy.
Many were deficient in two or three respects.
The tax provisions of S. 1593 and S. 1879 also cause considerable
concern as to their complexity, effectiveness, and tax policy implications.
-
5 -
There are a number of aspects of the tax provisions that seem
to
us to be so complex or indefinite as to pose extensive problems for both
the Government and business firms.
For example, the disposal cost charges
under S. 1879 begin with a stated definite amount, one cent a pound,
but there are three possible adjustments to the one cent rate by the
Administrator of the Environmental Protection Agency.
These discretionary
provisions, in part, are inserted to permit the charges to be tailored to
differing conditions for individual products.
But, if the Administrator
were to decide to exercise his authority, he would be faced with a formi
dable task of drawing definitions for "products" and justifying differences
in treatment as between products to the producers or manufacturers who
have a vital interest in the competitive effects of the charges.
While it is true that the work of deciding any variation from the
basic one cent per pound charge would not fall on the Treasury Department,
we have a prime interest in trying to keep our tax system as reasonable
and effective as possible. Taxes which are complex or which have unreason
able
effects
do not aid in achieving voluntary compliance which is so
vital to the method under which our tax system
As
it
affects
operates.
the businessman taxpayer who would operate under
the tax provisions of these bills, there also are potential complexities.
Again, let us consider the disposal charge proposal of S. 1879.
From
our experience with excise taxes, we are quite certain that if differing
disposal charges were set forth for specified products, there would be
great difficulty on the part of the taxpayers in identifying some of
their specific products as being in one category or another.
This would
be more than a "nuisance" problem to the businessmen concerned.
The
charges would be levied on an array of products used by business and
-6
-
consumers that would take many pages to list in detail.
An error of
classification on the part of a producer could lead to the build-up
of a large unpaid liability as products were shipped out day by day.
"Making good" on such an error could be much more burdensome than
any income tax adjustment.
Consider also the energy consumption provision of S. 1593.
be applicable for "each major material" used by a manufacturer.
This would
Assuming
that regulations have been issued to clarify what constitutes a "major
material", the producer still has
to classify his records of purchases
according to the energy cost schedule published by the Administrator of the
Environmental Protection Agency.
In addition, purchases would have to
be checked to see if changes in relative prices or technology resulted in
movement in or out of the "major category".
A detailed evaluation of the possible effectiveness of the tax pro
posals in achieving their desired ends of stimulating recycling, reducing
the use of virgin materials, and internalizing
disposal costs is not
possible without an extensive series of studies.
to give some evaluation of the proposals.
But it still is possible
It is obvious, of course, that
the tax proposals would have some effect in changing the relative
of recycling used materials.
attra ctiv e n ess
The real question is, how much effect and
would the result be a desirable one.
In this connection, a most important factor would be the percentages
of the cost of purchases of recyclable materials to be allowed as an
income tax deduction as set forth in S. 1593.
The three percentage rates
0- 3?
-7-
specified are 15, 18, and 22. This provision
presumes that there are
measurable, precisely known differences in the three categories of
products listed aptd that slight differences are needed to achieve the
level of recycling desired.
We have doubts that such precise knowledge exists.
For one thing, supply and demand conditions for recyclable materials
vary from one geographic district to another.
In one the percentages
might stimulate recycling, in another, have no result.
everywhere might be slight.
Or the effect
Then, too, recycling of some materials is
so small as to make difficult determination of what a change in cost
factors might do.
Here again, I would like to repeat my previous remark about our
concern in keeping the tax system reasonable and effective.
A tax pro
vision designed to spur recycling which was ineffective, or aided pro
ducers in some areas but not in others, would not be an improvement to
the tax system.
I realize that, while I am being critical of the tax provisions of
these two bills, some of you may remember that the Administration has made two
tax proposals with a related objective.
In 1970, we proposed a tax on the
lead in additives for gasoline as a means of facilitating the program to
reduce automotive air pollution.
In 1972, we proposed a tax on sulphur
emitted into the atmosphere to strengthen the incentive to fuel users to
reduce air pollution from stationary sources.
It is our experience with
these recommendations that serve as a background for many of my comments
here today.
Incidentally, neither recommendation was voted on by the
Congress, and only the lead tax proposal received any committee consideration.
Our two recommendations differed from the tax proposals in these bills
-
8-
in that they were very, very limited in scope.
As a result, we were
able to study the situation in depth before making any recommendations
and tried to tailor the recommendation strictly to the two specific
situations involved.
Even so, we were criticized severely in the lead
tax case for neglecting the needs of persons owning old cars requiring
premium gasoline.
Whether a recycling or other tax proposal falls within the ambit
of reasonable tax policy depends on two or three main considerations.
First, does it deal directly and effectively with a specific problem,
without creating serious new problems of its own?
Third, can it be administered?
Second, is it equitable?
Thus, in proposals to encourage recycling,
one first has to ask, what specific problem or problems are these proposals
going to solve?
Then, one has to consider the probable effect on producers
of virgin materials versus users of recycled materials, the effect on
consumers of the taxed products as consumers, and the effect on consumers
as the payers of the aggregate of our taxes.
To evaluate the reasonableness of the proposed deduction in S. 1593
for producers' costs of purchased recyclable materials, plus the special
treatment for recycling facilities, we should really know what effect
these provisions would have on the use of virgin materials.
Then we
must decide whether the shift toward recycling would solve any real problems
or would contribute to economic growth and well-being.
I don't know the
answers for the numerous products covered by the bill, but it certainly
seems to me that present elevated prices for many minerals, such as for
example gold and silver, should stimulate recycling without further need
for a subsidy as proposed by S. 1593.
In this case, the subsidy might
well be considered a windfall.
Then, too, why should we subsidize
recycling of textiles made from natural fibers?
Cotton, flax, silk, and
wool are not depletable resources, and disposal of their waste products
presents no national problem.
One may question the need or desirability
of reducing the receipts of those producing these fibers.
The notion of "internalization" of the costs of disposal of items,
other than consumables, in the manner proposed by S. 1879, gives us
difficulty, as does the failure to S. 1593 to apply this notion at all.
Internalization of the full costs of production and use of a product
making polluters pay the costs of their pollution or its control--is a
desirable objective to which this Administration subscribes. One of the
criticisms that may be made of S. 1593 is that the deduction for recycling
would shift the costs of removing used materials from the environment
from the "polluter" to the taxpayers in general.
Much already is being done in the right direction in this respect.
Water and air pollution controls being required of manufacturing plants
have the effect of placing the costs of pollution previously falling on
the public in general on the purchasers of the output of the plants.
Automobile operators are paying for reduction of air pollution in the form
of higher new car prices to reflect emission control devises.
However,
S. 1879 goes beyond that and would doubly "internalize" many disposal
costs that are already borne by the producer of wastes.
Most disposal costs are paid for by those discarding their used paper
glass, etc.
Sometimes they pay directly for removal.
In other cases,
they pay an average per household cost in their property taxes.
As a
consequence, the initial effect of the proposed disposal charge system
would be to double the disposal cost to the consumer and businesses for
most of his purchases affected by the charge.
In the subsequent stage,
some of this double charge would be removed.
Part of the disposal cost
credit given to producers might be reflected in the prices paid for the
recovered products or partly in the prices of the newly made products.
Disposal charge collections not paid to producers using recovered materials
would be returned to States and localities.
However, the revenue sharing
allocation formula for any governmental unit is likely to be foughly
related, at the best, to what individuals and business pay for disposal
costs in private charges and taxes.
Even if the procedure set forth in
S. 1879 could be considered to result in removal of the initial effect of
double disposal costs, the removal would always be one step behind collection
of the tax so that there would be permanent one time additional disposal
charge.
To sum up,our general position as to the use of the tax system to
encourage recycling and related environmental objectives is one of extreme
caution and scepticism.
Last year, for instance, we did considerable work
on a recycling proposal similar to the cost deduction feature of S. 1593.
After much consideration, we decided that the economic uncertainties
associated with the approach suggested, plus the administrative and
compliance problems, were such that it would be better not to go ahead
with such a program.
Indeed, we concluded that such a law could not be
effectively administered.
In those cases where wastes present real
unsolved problems, we prefer to deal with these problems directly, as is
done for example in the provisions of the Hazardous Waste Management Act
of 1973,proposed by the President and introduced into the Senate as S. 1086.
-
11-
The risk that environmentally related tax proposals will fail to
attain good objectives and will burden activities not meant to be affected
are so great that broad programs are almost certain to be unacceptable.
And, as our experience has shown, even programs with very narrow coverage
and objectives are difficult to formulate to achieve the desired objective
An acceptable environmental tax also must be quite clear as to its appli
cability to all situations affected, and place
burden on business and the public in general.
a reasonable economic
These criteria also are not
easy to satisfy in environmental tax plans.
Another general comment that might be made about the use of taxes for
environmental objectives involves our concern over the proliferation of
tax proposals to achieve all kinds of objectives.
It seems so often that
when someone wishes to attain an improvement in an economic situation,
their first impulse is to try to use the tax system to do it.
that this impulse should be generally held back.
We believe
The main objective of
the tax system is to raise revenue for general Governmental expenditures.
Any additional uses should be few in number and should be selected only
after the most stringent evaluation.
Otherwise, the tax system could
become so extensive and so complex that taxpayers would be unduly burdened
with complex rules and the administrative machinery would be extended to
many times that at present.
If we use tax credits too lavishly, we could
be building a bigger and bigger tax administration to collect less and
less revenue.
One final thought.
As virgin materials and energy become scarcer and
more expensive, an incentive is created to dispose of more used materials
through the recycling process, to use fewer virgin materials, and to
-
conserve on the use of energy.
12 -
Our long continued profligate use of
materials and energy has been a reflection of their low cost in the past.
But if there is to be a change in the adequacy of supplies, price increases
will help change our habits.
Where market prices fail to correct specific
problems, it is best to tailor our responses carefully to those problems.
For example, national energy policy is being formulated on a comprehensive
basis to deal with energy problems.
Furthermore, the tightening of
direct controls over pollution will help internalize costs not now reflected
in market prices.
The Environmental Protection Agency has been making a number of
studies and analyses of waste disposal and recycling under the authority
of the Solid Waste Disposal Act.
These studies were discussed before
your Subcommittee on the Environment on June 22 by Mr. Samuel Hale, Jr.,
Deputy Assistant Administrator for Solid Waste Management Programs of the
Environmental Protection Agency.
At the end of his remarks he stated,
MIn summary, we find that the problems of resource recovery are both
technical and economic, and vary from waste material to waste material.
Any single measure such as a subsidy, tax credit or construction grant would
not be effective for all wastes, and in some cases would involve large
"windfalls" and not result in significant new recycling."
We believe that Mr. Hale's summation succinctly states the uncertainty
as to the effect of the proposed credit or subsidy in encouraging recycling.
We will, of course, be ready to review recommendations for waste recovery
programs that Mr. Hale indicated in his testimony will be forthcoming,
if such recommendation involve tax provisions.
HP»
Department o f th e fR EA S U R Y
ASHIMSTOM,
DC. 20220
TELEPHÔHI W 0 4 -2 0 4 K
1
v
FOR IMMEDIATE RELEASE
JULY 26,1973
JOINT STATEMENT OF GEORGE P. SHULTZ, SECRETARY OF THE TREASURY
AND
ROY L. ASH, DIRECTOR OF THE OFFICE OF MANAGEMENT AND BUDGET
ON BUDGET RESULTS FOR FISCAL YEAR 1973
SUMMARY
The June Monthly Statement of Receipts and Outlays of the United
States Government is being released today.
It shows the following
preliminary budget totals for fiscal year 1973, which ended on
June 30:
Receipts of $232,2. Receipts were $0.2 billion above the June 1
Mid-Session Review, and $7.2 billion above the January budget estimate.
Outlays of $246.6. Outlays were $3.2 billion below the MidSession and January estimates.
A budget deficit of $14.4 billion. This is $3.4 billion below the
Mid-Session Review estimate and $10.4 billion below the January budget
estimate.
On a full-employment basis, the 1973 budget showed a surplus of
$1 billion.
The decline in 1973 outlays is largely responsible for the
shift to a full-employment surplus.
On a full-employment basis,
receipts and outlays are now estimated to be $246 billion and $245
billion, respectively.
S-258
BUDGET TOTALS, FISCAL YEARS 1972 AND 1973
(In billions of dollars)
Fiscal
Year
1972
Actual
208.6
Actual
225.0
232.0
232.2
BUDGET OUTLAYS..... 1... ..
231.9
249.8
249.8
246.6
DEFICIT (-)........ .....
-23.2
-24.8
1
'vj
00
BUDGET RECEIPTS.... .......
Fiscal. Year 1973
MidJanuary
Session
Budget
Review
-14.4
FULL-EMPLOYMENT RECEIPTS....
225.0
245.0
246.0
246.0
FULL-EMPLOYMENT OUTLAYS.....
228.9
247.3
247.8
245.0
-3.9
-2.3
-1.8
1.0
FULL-EMPLOYMENT SURPLUS OR
DEFICIT (-)..,
3
RECEIPTS
Budget receipts in fiscal year 1973 increased $23.5 billion from
1972 and were $7.2 billion above the January estimate.
Income tax
receipts accounted for most of the increase over the January estimate,
with individual income taxes $3.9 billion higher and corporate in
come taxes up $2.6 billion.
These increases result in part from the
large increases in personal income and corporate profits that
accompanied the rapid economic expansion and the high rates of inflation
experienced in the last half of the fiscal year.
In addition, tax
collection experience suggests that receipts at a given level of Gross
National Product are higher than estimated in January.
Receipts from sources other than income taxes were about $0.8
billion above the budget estimate.
Unemployment insurance taxes,
excise taxes, estate and gift taxes, and customs duties were all higher
while employment taxes and contributions were lower than estimated in
January.
OUTLAYS
Total outlays in fiscal year 1973 were $14.7 billion over the
prior year, but $3.2 billion short of the January budget estimates.
The change in the total was the net result of a few large decreases,
which were partially offset by various relatively small increases.
principal decreases below the January estimates were:
The
Outlays by the Department of Health, Education, and Welfare
were $1,571 million less than the estimate in the January
budget.
Most of this shortfall occurred in two programs.
Public assistance grants to match State expenditures for
social and individual services were $831 million less than
the January estimate because the previously anticipated
level of State activity did not materialize.
Special benefits
for disabled coal miners were $540 million less than the
budget estimate because fewer claims were filed and processing
took longer than expected.
Payments from the Social Security
trust funds were slightly lower than estimated.
Department of Defense Military Functions and Military Assistance
outlays were $944 million below the budget estimate.
This
largely reflects reductions in personnel and operations, which
were partially offset by increases for research, development,
test and evaluation.
Outlays by the Department of Labor were $926 million below
the budget estimate.
Outlays for the unemployment trust fund
were $747 million lower than estimated in January because the
insured unemployment rate has been lower than expected.
Preliminary net outlays of the United States Postal Service were
$281 million below the January estimate.
This decrease is
mainly due to a lower capital expenditure program which was
partially offset by higher costs of operations.
The major increases above the January estimates were:
0
Outlays by the General Services Administration were $409
million above the budget estimate.
Proprietary receipts,
which are offset against outlays, were lower than estimated,
largely because the Congress did not enact legislation
authorizing sales of excess stockpile materials.
°
NASA outlays were $255 million above the budget estimate,
largely as a result of a reduction in accounts payable and
a schedule of payments consistent with completion and
contract phaseout of Apollo and other programs.
°
HUD outlays were $235 million above the budget as a result
of an increase in defaults under the Federal Housing
Administration mortgage insurance programs, and a shortfall
in sales under the Government National Mortgage Association
tandem plan.
The Veterans Administration exceeded the budget estimate by
$210 million in large part because of increased utilization
of education benefits under the G.I. Bill.
Outlays by the Atomic Energy Commission exceeded the budget
estimates by $199 million, primarily as a result of lower
revenues than had been projected in January and higher than
estimated expenditures for plant and capital equipment.
6
Within the Department of Agriculture, outlays for the
Commodity Credit Corporation and the Farmers Home
Administration were higher than estimated in January;
these increases were partly offset by legislation
removing the loan activities of the Rural Electrification
Administration from the budget and shortfalls in other
programs.
BUDGET RECEIPTS AND OUTLAYS
(Fiscal Years.
$ in millions)
1973
Description
1972
Actual
Budget
Estimate
Actual
Change from
Budget
Estimate
Receipts by source
Individual income taxes.....
Corporation income taxes....
Social insurance taxes
and contributions:
Employment taxes and
contributions...........
Unemployment insurance....
Contributions for other
insurance and retirement..
Excise taxes........ |.....
Estate and gift taxes.......
Customs.......... «... «....
Miscellaneous.....,.,......
Total receipts...,........
94,737
32,166
99,400
33,500
103,261
36,096
+3,861
+2,596
46,120
4,357
55,610
5,262
54,870
6,063
-740
+801
3,437
15,477
5,436
3,287
3,633
3,667
15,970
4,600
3,000
3,975
3,612
16,272
4,898
3,175
3,944
-55
+302
+298
+175
-31
208,649
224,984
232,192
+7,207
660
719
724
+5
54
96
60
-35
241
268
264
-4
806
600
529
-71
717
472
848
563
567
663
642
510
515
+79
-58
-147
1,052
140
754
457
800
464
+46
+7
5,066
5,869
4,315
5,809
4,517
5,671
+202
-139
Outlays by major agency
Legislative Branch and the
Judiciary.................
Executive Office of the
President.........
Funds Appropriated to
the President:
Appalachian regional
development programs,.....
International security
assistance:
Military assistance
programs............. .
Economic supporting
assistance programs.....
Multilateral assistance-«••
Bilateral assistance......
Office of Economic
Opportunity..............
Other....................
Agriculture :
Commodity Credit Corpora
tion, foreign assistance
and special export
programs................
Other.......... ...... .
8
1973
Description
1972
Actual
Budget
Estimate
Actual
Change from
Budget
Estimate
Outlays by major agency—
Continued:
Commerce...................
Defense :
Military.................
Civil....................
Health, Education, and
Welfare...................
Housing and Urban Develop
ment.......... ...........
Interior...................
Justice....................
Labor......................
State......................
Transportation.............
Treasury:
Interest on the
public debt.... .........
General revenue sharing....
Other....................
Atomic Energy Commission....
Environmental Protection
Agency....................
General Services Admin
istration.................
National Aeronautics and
Space Administration.......
Veterans Administration.....
Civil Service Commission....
United States Postal Service.
Railroad Retirement Board....
Small Business Administra
tion......................
U.S. Information Agency.....
Other Independent Agencies...
Allowances for:
Pay increases (excluding
Department of Defense)....
Contingencies............
Undistributed intrabudgetary
transactions :
Federal employer contri
butions to retirement
funds...................
1,250
1,318
1,363
+44
75,151
1,53d
74,200
1,753
73,327
1,704
-873
-49
71,780
83,580
82,009
-1,571
3,642
1,256
1,180
10,033
536
7,531
3,364
-2,247
1,496
9,563
621
8,042
3,600
-2,219
1,531
8,637
592
8,184
+235
+28
+35
-926
-29
+142
21,849
—
275
2,392
24,200
6,786
264
2,194
24,167
6,636
178
2,393
-33
-149
-87
+199
763
1,148
1,113
-35
589
40
448
+409
3,422
10,710
3,773
1,772
2,123
3,061
11,758
4,420
1,710
2,445
3,316
11,968
4,601
1,429
2,437
+255
+210
+181
-281
-8
452
198
1,600
1,313
207
1,631
1,346
206
1,316
+33
-1
-315
—
-2,768
25
475
-2,980
—
-2,926
-25
-475
+53
1973
Description________________
1972
Actual
Budget
Estimate
Actual
Change from
Budget
Estimate
Outlays by major agency—
Continued:
Undistributed intrabudgetary
transactions— Continued :
Interest credited to
certain Government
accounts..................
-5,089
-5,401
-5,446
-45
Total o u t l a y s ...........
231,876
249,796
246,603
-3,193
Budget surplus (+) or
deficit (-)............
-23,227
-24,812
-14,412
+10,400
NOTE:
Detail will not necessarily add to totals because of rounding.
FOR IMMEDIATE RELEASE:
July 26,1973
JOINT STATEMENT
OF GEORGE P. SHULTZ, SECRETARY OF THE TREASURY
AND
ROY L. ASH, DIRECTOR OF THE OFFICE OF MANAGEMENT AND BUDGET
ON
THE BUDGET RESULTS FOR FISCAL YEAR 1973
The budget results for fiscal year 1973 are as follows:
— Outlays;
$246.6 billion
— Receipts:
$232.2 billion
— Deficit:
$14.4 billion
A
As shown by the attached table, total outlays were $3.2
billion below the level estimated in the January budget and the
June 1 Mid-SeSsion Review, and the deficit was cut from an
estimated $17.8 billion to $14.4 billion.
Defense spending was almost $1 billion less than estimated.
Outlays for a number of civilian agencies also fell below pre
vious estimates.
Last October, the President committed his Administration
to hold Federal expenditures in 1973 under $250 billion. That
commitment has been met.
As a result, the budget is beginning
to provide needed fiscal restraint.
Receipts slightly exceeded the estimate in the June Review.
As noted at that time, vigorous economic expansion and higher
than anticipated inflation were the primary factors responsible
for the substantial increase above the January estimate of
receipts.
On a full**'employment basis, the budget showed a surplus
of $1 billion in 1973.
The improvement in the full-employment
balance is further welcome evidence that we are achieving the
increased fiscal restraint called for by current economic con
ditions.
With continued cooperation of the Congress, we can
look forward to an actual balance in the budget in 1974.
Details of the 1973 results will appear in the Treasury's
Monthly Statement of Receipts and Outlays, scheduled for
release on July 25.
BUDGET TOTALS, FISCAL YEARS 1972 AND 1973
(In billions <
of dollars)
Fiscal
Year
1972
Actual
Fiscal Year 1973
-’
-!
----HidJanuary
Session
Review
Budget
Actual
BUDGET RECEIPTS* «,..........
208.6
225.0
232.0
232.2
BUDGET OUTLAYS..,..........
231.9
249.8
249.8
246.6
DEFICIT (-)..... l..........
-23.2
-24.8
-17.8
-14.4
FULL-EMPLOYMENT RECEIPTS....
225.0
245.0
246.0
246.0
FULL-EMPLOYMENT OUTLAYS....
228.9
247.3
247.8
245.0
-3.9
-2.3
-1.8
1.0
FULL-EMPLOYMENT SURPLUS OR
DEFICIT
July 1973
P re lim in a ry 1 S tatem ent o f
'J t/iy'
R e ce ip ts a n d O u tla y s o f th e U n ite d S tates G o v e rn m e n t
for period from July 1, 1972, through June 30,1973
(In th o u sa n d s, hu ndreds o f d ollars n o t p rinted, th e re fo re d e ta ils m ay not add to to ta ls )
T A B L E 1 -S U M M A R Y (IN MILLIONS)
Means of Financing
Budget Receipts and Outlays
Fiscal Year
Estimated 19742......... .
Estimated 19732.................... ................
Actual 1973..............................................
(twelve months)
Actual 1972 .............................................
Receipts
Outlays
Budget
Surplus (+)
or
Deficit (-)
By
Borrowing
from the
Public
By Reduction
of Cash
and Monetary
Assets
Increase (-)
$6,517
17,988
$3,000
-$3,817
-3,188
$2,700
17,800
19,275
-1,172
-3,691
14,412
19,442
-2,470
6,255
23,227
$266,000
232,000
232,192
*268,700
-$2,700
249,800
246,603
-17,800
-14,412
208,649
231,876
-23,227
By
Other
Means
Total
Budget
Financing
10
T A B L E III— B U D G E T R E C E IP T S AND O U T L A Y S (In thousands)
Classification of
RECEIPTS
Individual income taxes:
Withheld........................ , .......................................................
Other......................... .......... ......................... ........................
Gross
Receipts
Current Fiscal Year to Date
This Month
Refunds
(Deduct)
Net
Receipts
Gross
Receipts
Refunds
(Deduct)
Net
Receipts
Gross
Receipts
Refunds
(Deduct)
Net
Receipts
183,200,366
25,678,820
198,096,576
27,031,095
4$9,171,397
43,747,049
Comparable Period Prior Fiscal Year
12,918,446
$597,323
2,321,123
125,127,670
1,867,143
$103,260,527
108,879,186
$14,142,570
$94,736,616
Corporation income taxes.................................................... .
8,926,977
187,536
2,739,442
38,988,895
2,892,751
36,096,144
34,925,546
2,759,629
32,165,916
Social insurance taxes and contributions:
Employment taxes and contributions:
Federal old-age and survivors ins. trust fund:
Federal Insurance Contributions Act taxes.. . .
Self-Employment Contributions Act taxes . . . .
Deposits by States..................................... ................
Total—FOASI trust fund .....................................
43,245,264
4110,887
5-407,023
3,245,264
110,887
-407,023
35,039,643
1,905,829
4,140,259
373,186
34,666,457
1,905,829
4,140,259
30,240,268
1,643,656
3,596,457
348,656
29,891,612
1,643,656
3,596,457
2,949,128
2,949,128
41,085,731
373,186
40,712,545
35,480,381
348,656
35,131,725
Federal disability insurance trust fund:
Federal Insurance Contributions Act taxes.. . . ,
Self-Employment Contributions Act taxes.........
Deposits by States..................................... ...............
1415,810
410,774
153,306
415,810
10,774
153,306
4,628,666
252,481
547,121
50,626
4,578,040
252,481
547,121
4,106,992
225,787
489,577
47,361
4,059,631
225,787
489,577
Total—FDI trust fund.................................
579,890
579,890
5,428,269
50,626
5,377,643
4,822,357
47,361
4,774,996
Federal hospital insurance trust fund:
Federal Insurance Contributions Act taxes.. . . .
Self-Employment Contributions Act taxes......... .
Receipts from railroad retirement account . . . ,
Deposits by States............................................
4739,155
423,298
739,155
23,298
55,044
’ *278^738
1,041,191
278,738
1,041,191
55,044
6,604,841
212,347
61,222
718,883
7,597,294
4,495,731
162,722
63,782
533,753
5,255,988
51,315
Total—FHI trust fund...........................................
6,659,885
212,347
61,222
718,883
7,652,338
4,444,416
162,722
63,782
533,753
5,204,673
Railroad retirement accounts:
Railroad Retirement Tax Act taxes.................... .
116,537
116,512
1,183,234
655
1,182,579
1,008,994
611
1,008,383
Total—Individual income taxes.................... ..
25
51,315
Total—Employment taxes and contributions.,
4,686,746
25
4,686,721
55,349,572
479,511
54,870,061
46,567,719
447,943
46,119,776
Unemployment insurance:
Unemployment trust fund:
State taxes depositèd in Treasury...................... .
Federal Unemployment Tax Act taxes.................
Railroad Unemployment Ins. Act contributions.
80,358
7,839
20,863
2,545
80,358
5,294
20,863
4,627,851
1,334,296
120,065
18,772
4,627,851
1,315,525
120,065
3,226,286
1,024,069
119,516
13,200
3,226,286
1,010,869
119,516
Total—Unemployment trust fund.......................
109,060
2,545
106,515
6,082,213
18,772
6,063,441
4,369,871
13,200
4,356,671
Contributions for other insurance and retirement:
Federal supplementary medical ins. trust fund:
Premiums deducted from benefit payments . . . ,
Premiums collected by Social Security Admin.,
Premiums deposited by States................................
99,589
1,985
9,634
99,589
1,985
9,634
1,192,958
84,168
149,350
1,192,958
84,168
149,350
1,114,521
87,588
137,943
1,114,521
87,588
137,943
Total—FSMI trust fund....................................... .
111,208
111,208
1,426,476
1,426,476
1,340,052
1,340,052
176,115
764
176,115
764
2,134,871
9,008
873
2,134,871
9,008
873
2,046,962
8,372
3,103
2,046,962
8,372
3,103
176,944
176,944
2,144,752
2,144,752
2,058,437
2,058,437
Federal employees retirement contributions:
Civil service retirement and disability fund . .
Foreign service retirement and disability fund
Other.............................................................. .......... ..
Total—Federal employees retirement
contributions.........................................
See iootnotes on page 3.
66
66
See footnotes on pa.ge 3.
^^g^^ÍÍ^^UDG^^RECETP^^ANDOUTCAY^^0ñtlñüeT(TnTTl0üsáñ3sT
Classification of
RE CEIP TS—Continued
Gross
Receipts
Social insurance taxes and contributions--Continued
Contributions for other insurance and retirement-Continued
Other retirement contributions:
Civil service retirement and disability fund.. . .........
Total--Contributions for other insurance and
retirement.... ........................................................... ...
Total--Social insurance taxes and contributions..
5,087,233
Excise taxes:
Miscellaneous excise taxes .......................... ...........................
Airport and airway trust fund.................................................
Highway trust fund...................... .................................................
Refunds
(Deduct)
Comparable Period P rior F isca l Year
Current F iscal Year to Date
This Month
Net
Receipts
Gross
Receipts
Refunds
(Deduct)
Net
Receipts
Gross
Receipts
Refunds
(Deduct)
Net
Receipts
$3,275
$3,275
$41,033
$41,033
$38,833
$38,833
291,428
291,428
3,612,261
3,612,261
3,437,322
3,437,322
$2,570
5,084,663
65,044,045
$498,283
64,545,762
54,374,912
$461,143
53,913,769
870,434
66,040
487,300
11,356
75
15,000
859,078
65,965
472,300
10,006,173
759,790
5,817,956
158,249
1,632
152,502
9,847,924
758,159
5,665,454
10,561,752
650,151
5,635,133
1,055,925
1,499
312,710
9,505,827
648,652
5,322,423
Total-^Excise taxes...............................................................
1,423,774
1,397,343
16,583,919
312,383
16,271,536
15,476,901
321,783
274,241
316,532
4,957,282
58,793
4,898,489
16,847,036
5,489,969
1,370,134
Estate and gift taxes....................................... .......... .....................
26,431
5,251
54,107
5,435,862
13,482
260,759
3,294,992
119,724
3,175,268
3,394,299
107,393
3,286,906
361,452
22,196
361,452
22,192
3,495,069
449,551
505
3,495,069
449,046
3,252,197
380,538
147
3,252,197
380,391
383,648
29,336,102
383,644
28,503,506
3,944,620
257,941,424
505
25,749,582
3,944,115
232,191,842
3,632,735
227,543,683
147
18,895,124
3,632,589
208,648,559
Customs duties..............................................................................
Miscellaneous receipts:
Deposits of earnings by Federal Reserve Banks...........
All other.........................................................................................
Total—Miscellaneous receipts...........................................
Total--Budget receipts........... .......... ....................................
832,596
FO O TN O TES
1 T h is s ta te m e n t is p r e lim in a r y and is b a s e d on r e p o r ts fr o m d is b u r s in g ,
c o lle c t in g and a d m in is t r a t iv e a g e n c ie s o f th e G o v e r n m e n t. F in a l r e p o r ts of
G o v e r n m e n t d is b u r s in g , c o lle c t in g and a d m in is tr a tiv e a g e n c ie s , in c lu d in g
c e r t a in o v e r s e a s t r a n s a c t io n s , w ill be in c o r p o r a te d in th e fin a l s ta te m e n t fo r
f i s c a l y e a r 1973 to b e p u b lis h e d at a la t e r d a te . It w as not p o s s ib le to in c lu d e
t h e s e tr a n s a c t io n s in th e p r e lim in a r y s ta te m e n t b e c a u s e o f t im in g .
2 B a s e d on r e v is e d e s t im a t e s o f th e 1974 B u d g e t, r e le a s e d Ju n e 1, 1973,
in th e M id - S e s s io n R e v ie w and th e s ta te m e n t o f S e c r e t a r y S h u ltz r e le a s e d
J u n e 4 , 1973. T h e fig u r e s a r e ro u n d e d in ten th s o f b illio n s o f d o lla r s and w ill
n o t n e c e s s a r ily add to th e t o t a ls .
3 E ffe c t iv e w ith th e J u ly 1972 is s u e , th e lo a n a c c o u n t/ e x p e n d itu re a c co u n t
d is t in c t io n is e lim in a te d and th e tr a n s a c t io n s f o r m e r ly p r e s e n te d in s e p a r a te
S e c t io n s A an d B o f T a b le III h a v e b e e n c o n s o lid a te d . L o a n t r a n s a c tio n s
p r e v io u s ly d is c lo s e d s e p a r a t e ly in th is s ta te m e n t w ill b e p u b lis h e d in th e
T r e a s u r y B u lle t in . T h is c h a n g e is in a c c o r d w ith th e an n ou n cem en t b y th e
O f f ic e o f M a n a g e m e n t and B u d g et o f th e e lim in a tio n o f th e lo a n a c co u n t/
e x p e n d itu re a c co u n t d is t in c t io n in th e an n u a l b u d ge t p r e s e n ta tio n .
^ In a c c o r d a n c e w ith th e p r o v is io n s o f th e S o c ia l S e c u r ity A c t , as am en d e d ,
" In d iv id u a l in c o m e t a x e s w it h h e ld " h a v e b e e n in c r e a s e d a n d " F e d e r a l In s u r a n c e
C o n tr ib u tio n s A c t t a x e s " h a v e b e e n d e c r e a s e d in th e am ou n t o f $ 396,771,705
to c o r r e c t e s t im a t e s fo r q u a r te r en ded S e p te m b e r 30, 1972 and p r io r . "In d iv d u a l in c o m e t a x e s o t h e r " h a v e b e e n in c r e a s e d and " S e lf-E m p lo y m e n t C o n
tr ib u tio n s A c t T a x e s " h av e b e e n d e c r e a s e d in th e am oun t of $42 ,0 4 0 ,5 6 7 to
c o r r e c t e s tim a te s fo r th e c a le n d a r y e a r 1971 and p r io r .
5 In c lu d e s $43 2 ,6 1 8 ,0 5 5 d is tr ib u tio n to F .e d e r a l D is a b ilit y and H o s p ita l
In s u r a n c e T r u s t F u n d s .
6 P u r s u a n t to P u b lic L a w 9 3 -32 d a ted M a y 11, 1973, m o s t o u tla y s o f th e
R u r a l E le c t r ific a t io n A d m in is tr a tio n in c lu d in g th e R u r a l T e le p h o n e B a n k w e re
c l a s s i f i e d o u ts id e th e u n ifie d b u d get t o t a l s . T r a n s a c tio n s a r e in c lu d e d in
b u d g e t o u tla y s th ro u g h th e c lo s e o f b u s in e s s M a y 11, 1973. F o r tr a n s a c tio n s
a f t e r M a y 11, 1973, c l a s s if ie d o u ts id e th e u n ifie d bu dget t o t a ls , s e e T a b le IV ,
S c h e d u le A . A d m in is tr a tiv e e x p e n se s fin a n c e d b y g e n e r a l fu n d a p p r o p r ia tio n s
w ill co n tin u e to b e r e fle c t e d in bu d get t o t a ls .
7 P u r s u a n t to P u b lic L a w 9 2 -1 2 6 d a ted A u g u s t 17, 1971, r e c e ip ts and
o u tla y s fo r th e E x p o r t-Im p o r t B an k o f th e U n ited S ta te s w e r e r e c l a s s if i e d
o u ts id e th e u n ifie d b u d get t o t a ls . A m o u n ts r e p r e s e n t E x p o r t-Im p o r t B a n k o f
th e U n ite d S ta te s t r a n s a c tio n s th ro u g h th e c lo s e o f b u s in e s s A u g u s t 16, 1971.
F o r tr a n s a c tio n s a ft e r A u g u s t 16, 1971, c l a s s i f i e d o u ts id e th e u n ifie d bu dget
t o t a l s , s e e T a b le IV , S c h e d u le A .
® T ra n sa ctio n s c o v e r th e p e r io d J u ly 1, 1972, th ro u g h Ju n e 22, 1973, and
a r e p a r t ia lly e s tim a te d .
9 S e e T a b le I V , S c h e d u le A .
* L e s s th a n $ 5 0 0 .0 0 .
* * L e s s th an $ 5 0 0 ,0 0 0 .0 0 .
S o u r c e : P r e p a r e d b y th e D e p a r tm e n t o f th e T r e a s u r y , B u r e a u o f A c c o u n t s , on th e b a s is o f r e p o r ts r e c e iv e d fr o m d is b u r s in g , c o lle c t in g an d a d m in is tr a tiv e
a g e n c ie s o f th e G o v e r n m e n t.
0)
*
T A B L E III— B U D G E T R E C E IP T S A N D O U T L A Y S —Continued (In thousands)
Classification of
OUTLAYS
Legislative Branch:
Senate ................................................ ..
House of Representatives....................
Joint items for Senate and House.. . .
Architect of the Capitol........................
Botanic Garden........................................
Library of Congress .............................
Government Printing Office:
General fund appropriations. . . . . .
Revolving fund (net)...........................
General Accounting Office...................
Cost Accounting Standards Board . . .
United States Tax Court....................
Proprietary receipts from the public
Intrabudgetary transactions................
Total—Legislative Branch . . . . .
The Judiciary:
Supreme Court of the United States..,
Court of Customs and Patent Appeals,
Customs Court................................. ..
Court of Claims.........................................
Courts of appeals, district courts, and other
judicial services........................................................................
Federal Judicial Center.............................................................
Commission on Bankruptcy Laws of the United States . .
Judiciary Trust Funds..................................... .........................
Proprietary receipts from the public...................................
Total—The Judiciary.............................................. ..
Executive Office of the President:
Compensation of the President................................................
The White House Office.............................................. ...............
Special Projects...................................................................... ..
Executive Residence....................................................................
Special Assistance to the President.....................................
Council of Economic Advisers.............................. ..
Council on International Economic Policy...........................
Council on Environmental Quality and Office of
Environmental Quality........... .................................................
Domestic Council........................................................................
National Aeronautics and Space Council.................... ..
National Security Council.........................................................
Office of Emergency Preparedness................................. ..
Office of Management and Budget..........................................
Office of Science and Technology............................................
Office of Telecommunications Policy.............................
Special Action Office for Drug Abuse Prevention.. . . . . .
Special Representative for Trade Negotiations..................
Miscellaneous............................................ ..................................
Total—Executive Office of the President..................
See footnotes on page 3,
Current Fiscal Year to Date
This Month
Applicable
Receipts
Outlays
Net
Outlays
Applicable
Receipts
Outlays
Comparable Period Prior Fiscal Year
Net
Outlays
Applicable
Receipts
Outlays
Net
Outlays
17,460
12,413
5,456
3,605
58
6,434
17,460
12,413
5,456
3,605
58
6,434
$79,301
141,646
29,266
32,540
804
77,713
$79,301
141,646
29,266
32,540
804
77,713
$74,140
128,830
33,559
29,798
740
69,969
$74,140
128,830
33,559
29,798
740
69,969
4,453
1,587
8,898
105
913
4,453
1,587
8,898
105
913
-2,309
-208
86,570
3,146
95,254
1,480
8,107
86,570
3,146
95,254
1,480
8,107
-14,938
-457
58,494
13,382
85,447
882
6,501
58,494
13,382
85,447
882
6,501
-14,131
-304
48,865
555,372
540,433
501,438
604
63
214
192
15,721
123
52
285
5.209
663
2.209
5.209
663
2.209
175,365
1,424
441
2,820
6,907
175,365
1,424
441
2,820
-6,907
4,570
651
2,252
2,003
161,409
6,907
183,325
174,816
250
9,735
1,650
1,057
628
1,498
658
250
9,604
1,117
1,218
643
1,766
250
9,604
1,117
1,218
643
1,766
2,330
1,650
414
2,437
9,623
18,491
1,805
2,574
4,775
852
1,891
1,871
428
1,891
1,871
428
-208
51,174
$2,309
2,309
604
63
214
192
15,721
123
52
285
17,254
(*)
21
17,253
190,232
21
250
9,735
1,650
1,057
628
1,498
658
622
42
24
39
82
157
30
118
30
250
1,382
1,663
30
118
30
250
1,356
1,663
316
648
76
-3
316
648
76
-3
110
110
27
5,580
$14,938
14,938
2,102
2,102
H
622
42
24
39
82
157
5,606
-457
2,330
1.650
414
2,437
9.651
18,491
1,805
2,574
4,775
852
8
60,464
28
-304
$14,131
14,131
4,570
651
2,252
2,003
161,409
1,121
1,121
193
2,618
1,875
193
2,618
-1,875
1,875
172,941
-8
-8
2,221
487,307
2,221
55
8
8,717
18,312
1,829
2,337
1,079
818
53
8,662
18,312
1,829
2,337
1,079
818
53
60,437
54,147
55
54,092
T A B L E III— B U D G E T R E C E I P T S A N D O U T L A Y S —C o n tin u e d (In th o u sa n d s)
Classification of
OUTLAYS—Continued
Funds appropriated to the President:
Appalachian regional development programs:
Public enterprise funds . . . . . . . . . . . . ....................
Other .................................................................................
Disaster relief....................................................................
Economic stabilization activities.................................
Emergency fund for the President...............................
Expansion of defense production......................
Expenses of management improvement......................
Foreign assistance:
International security assistance:
Military Assistance:
Defense Department............................................
All other agencies...................... .........................
Foreign military credit sales................
Military credit sales to Israel.............................
Security supporting assistance.............................
Liquidation of foreign military sales fund . . . .
Military assistance advances...............................
Proprietary receipts from the public:
Military assistance advances..........................
Other................................... ....................................
Total—International security assistance ..
Applicable
Receipts
Outlays
Net
Outlays
Outlays
165
22,327
110,869
2,787
18
156
22,327
110,869
2,787
92
84
5,193
-5,102
84
1648
263,402
358,447
26,405
14
103,875
548
98,552
-487
9,704
15,156
71,701
144,840
278,384
492,239
-7,841
232,953
123,354
641,792
239,936
1,396,012
98,552
-487
9,704
15,156
71,701
159,604
278,384
14,764
133,033
563,121
-608
147,097
68,924
717,054
10,204
1,183,794
1,096,694
69,651
-1,096,694
-69,651
1,299,378
1,523,241
275,694
195,932
406,203
223,508
475,850
2,391
10,502
1,614
4,768
39,979
139,195
2,444
31,844
35
320,349
454,689
187,811
193,145
490
-9,258
3,983
4,832
-320,349
63,828
406,203
183,529
336,655
-53
-21,342
1,579
4,768
-63,828
1,047,660
532,317
515,343
1,124,837
277,326
847,511
119,773
1,557,418
532,317
1,025,102
1,596,462
277,326
1,319,137
-573
10,532
10,532
43,270
4,686,395
800,377
40
2,479,498
153
2,206,897
800,224
40
6,240,151
2,515,644
3,724,507
4,462,351
1,052,699
1,571
5,866,482
323,532
186,227
19,422
62,112
11,064
23,838
166
-8,505
325
3,399
-19,422
454,689
226,497
326,879
3,077
27,736
3,949
4,832
123,556
50,579
72,977
Total—International development assistance,
170,352
50,579
President’s foreign assistance contingency fund.,
-573
Total--Foreign assistance................................... ..
802,393
232,040
Office of Economic Opportunity...................................
Mis cellaneous........... ..........................................................
83,177
17
570,353
83,159
1,021,792
237,259
784,533
Total—Funds appropriated to the President,
563,121
-608
147,097
68,924
717,054
143,237
1,183,794
13,065
$454
241,.007
92,169
13,402
455
-11,524
655
323,532
186,227
14,570
32,226
Total—Bilateral assistance................
492,239
-7,841
232,953
123,354
641,792
113,262
1,396,012
$176
2,822,619
3,118,445
4,073
20,527
190
6,365
126,674
1631
241,007
92,169
13,402
455
1,542
655
Net
Outlays
1,171,263
451,153
62,112
15,137
44,366
356
-2,139
325
3,399
35,849
1505
263,402
358,447
26,405
14
68,026
548
Applicable
Receipts
1,947,181
181,461
14,570
32,226
1144
Ohtlays
-1,730,668
-89,839
-162,214
-4,483
632,614
Applicable
Receipts
Net
Outlays
1,730,668
89,839
162,214
4,483
International development assistance:
Multilateral assistance:
International financial institutions..................
International organizations and programs .. .
Bilateral assistance:
Grants and other programs...............................
Alliance for progress, development loans.. .
Development loans.............................................. .
Housing guaranty fund...........................................
Overseas Private Investment Corporation. . ,
Inter-American Foundation...............................
Intragovernmental funds...............................
Proprietary receipts from the public........... .
Comparable Period Prior Fiscal Year
Current Fiscal Year to Date
This Month
38,686
133,734
2,586
36,994
-33
275,694
195,932
43,270
1,576,703
2,885,648
250
1,052,449
1,571
1,590,195
4,276,287
01
0)
T A B L E III— B U D G E T R E C E IP T S AND O U T L A Y S —Continued (In thousands)
Current Fiscal Year to Date
This Month
Classification of
OUTLAYS—Continued
Applicable
Receipts
Outlays
Net
Outlays
Applicable
Receipts
Outlays
Comparable Period Prior Fiscal Year
Net
Outlays
Outlays
Applicable
Receipts
Net
Outlays
Agriculture Department:
Departmental management:
Office of the Secretary...........................................................
Office of the Inspector General..........................................
Office of the General Counsel............................................
Office of Management Services ..........................................
12,757
1,528
491
198
$2,757
1,528
491
198
$9,753
17,492
6,272
3,803
$9,753
17,492
6,272
3,803
$10,058
18,352
6,741
4,055
$10,058
18,352
6,741
-4,055
Total—Departmental management................................
4,974
4,974
37,320
37,320
39,206
39,206
Science and education programs:
Agricultural Research Service............................................
Animal and Plant Health Inspection Service . . . . . . . . .
Cooperative State Research Service.................................
Extension Service....................................................................
National Agricultural Library............................................
15,385
24,915
8,278
24,997
437
15,385
24,915
8,278
24,997
437
199,296
309,245
82,341
185,838
4,175
199,296
309,245
82,341
185,838
4,175
255,656
102,169
74,706
169,720
4,242
255,656
102,169
74,706
169,720
4,242
Total—Science and education programs.. . . . . . . . . .
74,012
74,012
780,896
780,896
606,493
606,493
2,574
185
2,574
185
21,303
15,357
21,303
15,357
21,055
17,198
21,055
17,198
275
323
206
275
323
206
2,587
3,746
1,950
2,587
3,746
1,950
2,943
3,933
2,012
2,943
3,933
2,012
4,835
288,148
4,835
288,148
26,907
895,000
26,907
895,000
28,560
1,320,400
28,560
1,320,400
23,323
7,144
17
2,764
1,188
23,323
7,144
17
2,764
1,188
155,487
86,381
51,473
160,233
16,334
155,487
86,381
51,473
160,233
16,334
166,373
86,133
66,783
185,371
10,743
166,373
86,133
66,783
185,371
10,743
34,437
34,437
469,909
469,909
515,403
515,403
Agricultural economics:
Statistical Reporting Service ..............................................
Economic Research Service................................................
Marketing services:
Commodity Exchange Authority..........................................
Packers and Stockyards Administration...................... ....
Farmer Cooperative Service..............................................
International programs:
Foreign Agricultural Service..............................................
Foreign assistance and special export programs.........
Agricultural Stabilization and Conservation Service:
Administrative expenses............................... ................ ..
Sugar act program............................................ .....................
Cropland adjustment program ............................................
Rural environmental assistance program ......................
Indemnity, conservation and land-use programs. . . . .
Total—Agricultural Stab, and Conservation Service
Corporations:
Federal Crop Insurance Corporation:
Administrative and operating expenses......................
Federal Crop Insurance Corporation fund..................
Commodity Credit Corporation:
Public enterprise funds....................................................
Special activities:
National Wool Act program..........................................
Intragovernmental funds..............................................
Total—Commodity Credit Corporation................
Total—Corporations................................. .........................
Rural development:
Rural Development Service.................................................
Rural Electrification Administration:
Rural Telephone Bank .......................................................
Other............. .........................................................................
Se<
fo o tn o te
page
1,386
1,133
$447
1,386
686
12,865
24,095
$37,818
12,865
-13,723
12,066
31,516
$41,911
12,066
-10,395
332,141
550,620
-218,479
9,708,868
5,951,922
3,756,947
9,039,742
5,056,372
3,983,371
4,149
-208,157
73,510
-173,161
35,026
73,510
-208,187
116,545
-292,213
62,233
116,545
-354,446
-422,488
-420,415
9,609,217
5,986,948
3,622,269
8,864,074
5,118,605
3,745,470
9,646,176
6,024,766
3,621,411
8,907,656
5,160,516
3,747,140
191
158
5,085
629,306
6499,212
614
567,367
4,149
-208,157
128,132
550,620
130,652
551,067
19
\
i, 278
1..................
19
191
1,278
34,390
499,212
158
597
16
567,367
i
l
Se<
fo o tn o te
page
Classification of
OUTLAYS—Continued
Agriculture Department—Continued
Rural development--Continued
Farmers Home Administration:
Public enterprise funds:
Direct loan account......... .............................................
Rural development insurance fund.......... ..............
Rural housing insurance fund......... .........................
Emergency credit revolving fund (disaster loans).
Agricultural credit insurance fund ........................
O t h e r ........................................... .......... ...............
Rural housing, water and waste disposal grants . .
Salaries and expenses .....................................................
Outlays
$33,459
167,378
9
211,201
2,860
3,918
10,030
Applicable
Receipts
Comparable Period P rio r F is c a l Year
Current F isc a l Year to Date
This Month
Net
Outlays
Outlays
Applicable
Receipts
Net
Outlays
117,775
1,942
3,918
10,030
$65,459
232,835
2,284,709
920
1,777,471
3,072
47,615
109,514
$83,073
454,828
2,512,544
14,982
1,580,852
9,723
-$17,615
-221,993
-227,835
-14,063
196,619
-6,650
47,615
109,514
$9,559
142,079
$23,901
25,300
” 93] 426
918
9
Outlays
$393,107
Applicable
Receipts
$381,992
’2)251*377 2)082)285
Net
Outlays
$11,116
42,600
1,172,272
5,054
37,141
100,682
115,895
979,655
11,669
’ 169)093
-73,295
192,617
-6,615
37,141
100,682
Total—Farmers Home Administration.. . . . . . . .
428,846
245,982
182,865
4,521,594
4,656,002
-134,408
4,002,233
3,571,496
430,737
Total—Rural development..............................................
430,143
245,982
184,161
5,055,387
4,661,087
394,300
4 ,570,372
3,572,093
998,279
13,164
13,164
168,678
168,678
171,435
171,435
11,615
1,858
11,615
1,858
124,038
15,173
124,038
15,173
126,454
16,169
126,454
16,169
1,969
1,969
29,037
1,600
735,730
-393
32,340
148,322
1,601
593,215
18,728
44,666
148,322
1,601
593,215
-1,583
44,666
798,314
806,531
600,992
90,101
2,210,498
622,194
93,552
1,909,166
622,194
93,552
1,909,166
2,624,912
Environmental programs:
Soil Conservation Service:
Conservation operations............................................
Watersheds, flood prevention and water develop
ment .................................................................................
Great Plains conservation program ..........................
Consumer programs:
Agricultural Marketing Service:
Marketing Services........................................... ............ ..
Payments to States and Possessions..........................
Removal of surplus agricultural commodities . . . .
Milk market orders assessment fund........................
O t h e r ..............................................................................
Total—Agricultural Marketing Service........... ..
Food and Nutrition Service:
Child nutrition programs................................................
Special milk program.......................................................
Food stamp program.........................................................
Total—Food and Nutrition Service...........................
Total—Consumer Programs........... «........................
*103 j 541
1,574
3,172
1,489
iÔ3*541
85
3,172
29,037
1,600
735,730
18,840
32,340
110,256
1,489
108,767
817,548
7,052
6,943
182,502
600,992
90,101
2,210,498
7,052
6,943
182,502
196,496
306,752
1,489
196,496
2,901,592
305,263
3,719,140
19,233
19,233
19,233
2,901,592
2,624,912
3,699,906
3,431,443
Forest Service:
Intragovernmental funds......................................................
Forest protection and utilization .....................................
Construction and land acquisition......................................
Forest roads and trails .......................... ............................
Forest Service permanent appropriations....................
Cooperative work . , . . ............................ ............................
Other .......................... ...............................................................
-816
30,389
2,433
13,421
1,664
5,199
244
-816
30,389
2,433
13,421
1,664
5,199
244
-4,966
339,194
27,949
140,183
137,032
79,189
4,921
-4,9 6 6
339,194
27,949
140,183
137,032
79,189
4,921
1,070
374,450
19,565
143,221
96,756
41,114
4,686
Total—Forest Service.................................................... ..
52,533
52,533
723,502
723,502
680,863
Proprietary receipts from the public......... ...................*.
Total—Agriculture Department.....................................
See footnotes on page 3.
1,356,686
124,911
-124,911
923,448
433,238
21,707,069
813,856
-813,856
11,518,941
10,188,128
20.461.595
20,311
20,311
20,311
786,220
3,411,132
1,070
374,450
19,565
143,221
96,756
41,114
4,686
680,863
773,980
-773,980
9.526.900
10.934.696
<
X
>
T A B L E III— B U D G E T R E C E IP T S AND O U T L A Y S —Continued (In thousands)
Commerce Department:
General Administration:
Public works grants and loans revolving fund.. . . . . .
Salaries and expenses.........................................................
Other..........................................................................................
Social and Economic Statistics Administration:
Salaries and expenses.........................................................
Censuses .................................................................................
Other................................................ .......................................
Economic development assistance:
Economic Development Administration........................
Regional Action Planning Commissions........................
Promotion of industry and commerce:
Domestic and International Business Administration
Foreign direct investment regulation.............................
Minority business enterprise............................................
National Industrial Pollution Control Council.............
U. S. Travel Service.............................................................
Total—Promotion of industry and commerce.........
Science and technology:
National Oceanic and Atmospheric Administration:
Public enterprise funds...........................».....................
Other.....................................................................................
Patent Office...........................................................................
National Bureau of Standards:
Intragovemmental funds . . . . .......................................
Other.....................................................................................
Office of Telecommunications ..........................................
National Technical Information Service ........................
Office of State Technical Service......................................
Applicable
Receipts
Outlays
Net
Outlays
Outlays
3,420
Net
Outlays
417,825
7,376
1,559
29,260
27,994
1,558
29,260
27,994
1,558
32,949
4,970
5,502
205
5,036
23
1,359
296,340
57,334
55,585
2,457
39,143
332
7,587
296,340
57,334
55,585
2,457
39,143
332
7,587
265,834
44,224
48,648
2,528
8,393
327
5,046
265,834
44,224
48,648
2,528
8,393
327
5,046
12,125
105,104
105,104
64,942
64,942
2,223
39,211
6,738
4,516
332,553
64,178
1,585
332,553
64,178
3,305
343,493
60,480
695
4,383
805
529
-923
51,876
5,942
5,006
7
-923
51,876
5,942
5,006
7
-2,365
47,395
3,685
3,880
191
32,949
4,970
5,502
205
5,036
23
1,359
12,125
695
4,383
805
529
Applicable
Receipts
32,656
28,343
-2,280
3,132
3,075
-4,386
113
Outlays
32,656
28,343
-2,280
3,132
3,075
-4,386
2,336
39,211
6,738
Net
Outlays
$12,595
7,376
1,559
$17,371
8,303
610
$3,431
Applicable
Receipts
-$18,596
8,303
610
-$3,454
899
646
423
899
646
Comparable Period Prior Fiscal Year
Current Fiscal Year to Date
This Month
Classification of
OUTLAYS—Continued
$35,967
2,931
3,678
-373
343,493
60,480
-2,365
47,395
3,685
3,880
191
Total—Science and technology.......................... ..........
54,697
113
54,584
463,155
2,931
460,224
460,064
3,678
456,386
Maritime Administration:
Public enterprise funds......................................................
Ship construction.............................................. .....................
Ship operation subsidies.....................................................
Other.........................................................................................
18,797
37,288
4,388
102
1,030
-928
18,797
37,288
4,388
1,948
185,878
226,711
55,399
12,787
-10,839
185,878
226,711
55,399
2,648
143,252
235,667
53,339
13,254
-10,606
143,252
235,667
53,339
Total—Maritime Administration.................................
60,575
1,030
59,545
469,935
12,787
457,149
434,905
13,254
421,651
3,311
-3,311
-2,482
158,292
-21,394
1,455,477
41,135
-41,135
-21,394
1,362,658
-16,649
1,333,661
36,409
-36,409
-16,649
1,249,900
739,814
628,205
633,624
2,001,643
739,814
6287205
633,624
2,001,643
8,568,053
7,199,329
7,516,144
23,283,526
8,568,053
7,199,329
7,516,144
23,283,526
9,004,560
6,748,098
7,283,134
23,035,793
9,004,560
6,748,098
7,283,134
23,035,793
376,281
376,281
4 ,390,384
4 ,390,384
3,884,688
3,884,688
Proprietary receipts from the public.................................
Intrabudgetary transactions...................................................
Total—Commerce Department.........................................
Defense Department:
Military:
Military personnel:
Department of the Army................................................
Department of the Navy...................... ...........................
Department of the Air Force .......................................
Total—Military personnel.....................................
Retired Military personnel.............................................
-2,482
166,177
7,885
92,819
83,761
T A B L E III— B U D G E T R E C E I P T S A N D O U T L A Y S —C o n tin u e d (In th o u s a n d s )
Classification of
OUTLAYS—Continued
Outlays
Applicable
Receipts
Comparable Period Prior Fiscal Year
Current Fiscal Year to Date
This Month
Net
Outlays
Applicable
Receipts
Outlays
Net
Outlays
Outlays
Applicable
Receipts
Net
Outlays
Defense Department—Continued
Military—Continued
Operation and maintenance:
Department of the Army.......................................
Department of the Navy........................................
Department of the Air Force......... I ............
Defense agencies........... .............. .........................
$780,361
640,138
643,029
137,875
$780,361
640,138
643,029
137,875
$6,916,993
5,722,383
6,991,006
1,442,708
$6,916,993
5,722,383
6,991,006
1,442,708
$7,553,886
5,689,180
7,160,686
1,271,158
$7,553,886
5,689,180
7,160,686
1,271,158
Total—Operation and maintenance.. . . . . . .
2,201,403
2,201,403
21,073,090
21,073,090
21,674,910
21,674,910
Procurement:
Department of the Army......... ...................... .....
Department of the Navy .......................................
Department of the Air Force...............................
Defense agencies.....................................................
291,225
788,851
569,234
5,733
291,225
788,851
569,234
5,733
2,781,398
7,030,089
5,800,323
48,142
2,781,398
7,030,089
5,800,323
48,142
3,894,432
7,135,407
6,047,758
53,797
3,894,432
7,135,407
6,047,758
53,797
Total—Procurement.........................................
1,655,043
1,655,043
15,659,952
15,659,952
17,131,395
17,131,395
Research, development, test and evaluation:
Department of the Army.......................................
Department of the Navy ..................................... ..
Department of the Air Force...............................
Defense agencies.....................................................
242,570
258,302
287,482
48,918
242,570
258,302
287,482
48,918
1,910,607
2,404,658
3,361,864
478,580
1,910,607
2,404,658
3,361,864
478,580
1,778,730
2,426,633
3,205,071
470,775
1,778,730
2,426,633
3,205,071
470,775
Total—Research, development, test and
evaluation ...........................................................
837,272
837,272
8,155,708
8,155,708
7,881,208
7,881,208
Military construction:
Department of the Army........................................
Department of the Navy............................... ..
Department of the Air Force..............................
Defense agencies........... .........................................
104,830
40,558
31,535
919
104,830
40,558
31,535
919
421,745
392,608
284,412
18,150
421,745
392,608
284,412
18,150
423,048
342,762
330,736
11,459
423,048
342,762
330,736
11,459
177,841
177,841
1,116,916
1,116,916
1,108,005
1,108,005
Total—Military construction................. . . . .
Family housing:
Homeowner’ s assistance fund.............................
Other...........................................................................
292
86,632
$253
39
86,632
4,151
726,978
1,121
31
726,978
8,775
683,703
1,530
4,245
683,703
Total—Family housing......................................
86,924
253
86,671
731,130
4,121
727,009
4,530
687,948
Civil Defense ................................. ............ .................
Special foreign currency program........................
Revolving and management funds:
Public enterprise funds:
Department of the Army...................................
Department of the Navy ...................................
Department of the Air Force.........................
Intragovernmental funds:
Department of the Army...............................
Department of the Navy ...................................
Department of the Air Force..................
Defense agencies........... .................................. ..
7,530
1,177
7,530
1,177
73,954
3,799
692,478
74,524
2,645
979
-3
18,630
22,507
95,356
27,963
-5,291
-315,593
-253,060
-321,415
-160,020
141,511
-1,031,459
Total—Revolving and management fluids
See footnotes on page 3.
2,824
1,845
3
22,507
95,356
27,963
-5,291
143,359
1,848
-1
73,954
3,799
-1
19,947
25
19,971
Hi
(*)
1
-1,317
-25
21,731
-315,593
-253,060
-321,415
-160,020
-16,543
26,476
21,782
-255,097
-1,051,429
-201,¿49
74,524
2,645
(*)
21,662
59
m
69
-58
-16,543
26,476
21,782
-255,097
21,721
-223,370
o
T A B L E III— B U D G E T R E C E IP T S AN D O U T L A Y S —Continued (In thousands)
Applicable
Receipts
Outlays
Defense Department—Continued
Military—Continued
Miscellaneous trust revolving funds..................................
MiSf’<aUnnprnis trust funds._____ . . . T. _________ ________
Prnpriptnry rpp.plpts from thfi public.................................
Tntrahudgetary transactions..................................................
$6,784
989
Total—Military......................................................................
7,495,788
Civil;
Department of the Army:
Cfimetfirial expenses...........................................................
Corps of Engineers:
Water resources development................................. ..
Mragovemmentai funds ........... ................................
Proprietary receipts from the public........... T..........
Ryukyu Islands................................. ....................................
Miscellaneous accounts:
Army—wildlife conservationj e tc ...............................
Navy--wildlife conservation, etc.....................................
Air Force--wildlife conservation, etc..........................
Soldiers* and Airmen's Home:
Soldiers* and Airmen's Home revolving fund.............
Other.........................................................................................
The Panama Canal:
Canal 7,(me Government......................................................
Panama Canal Company.....................................................
Proprietary receipts from the public.................................
Tntrahudg'et.ary transactions ..................................... ..
-459
$7,490
-16,646
-7,056
Comparable Period Prior Fiscal Year
Current Fiscal Year to Date
This Month
Classification of
OUTLAYS—Continued
Net
Outlays
Applicable
Receipts
Outlays
-$706
989
16,646
-459
7,502,843
$64,156
7,715
-3,163
73,525,709
$73,207
Net
Outlays
198,875
-$9,051
7,715
-101,577
-3' 163
73,326,834
33,282
' 46
101,577
Applicable
Receipts
Outlays
$65,206
7,181
-6,137
75,350,247
$66,745
Net
Outlays
199,592
-$1,539
7,181
-106,596
-6,137
75,150,654
26,790
272
106,596
2,465
2,465
20,168
20,168
21,307
21,307
248,316
-22,140
248,316
-22,140
-518
14
1,697,043
8,222
1,697,043
8,222
-33,282
184
1,519,387
-7,117
1,519,387
-7,117
-26,790
6,166
57
5
7
355
49
104
355
49
104
318
35
72
-7
1,101
10,660
'257
-1,362
-5,907
225
12,163
222
4
12,163
208
12,015
198,643
24,227
60,020
-4,230
-24,227
-32,670
53,036
183,190
14
518
57
5
7
10
1,101
10,660
21,561
17
21,304
1,362
230
60,020
194,413
-32,670
6,438
318
35
72
223
-15
12,015
182,649
23,361
53,036
540
-23,361
-26,036
Total—Civil.............................................................................
-5,907
256,149
23,201
232,948
1,960,322
256,419
1,703,903
1,762,853
233,295
1,529,557
Total—Defense Department.......................................................
7,751,937
16,145
7,735,792
75,486,031
455,294
75,030,736
77,113,099
432,888
76,680,212
-26,036
Health, Education, and Welfare Department:
Food and Drug Administration:
Revolving fund for certification and other services.. . .
Other.......................................................... ..................................
Health Services and Mental Health Administration:
Public enterprise funds...........................................................
Intragovernmental funds.........................................................
Mental health............................................................................
Health services planning and development........................
Health services delivery...................................................... .
Preventive health services.....................................................
Indian health services and facilities...................................
Other..............................................................................................
355
13,749
431
-76
13,749
4,237
143,358
4,750
-513
143,358
4,781
105,109
4,410
371
105,109
1,142
27,658
55,076
24,953
43,294
6,666
15,606
9,576
115
1,027
27,658
55^076
24,953
43^294
6,666
15,606
9,576
5,657
22,986
513,691
361443
661^077
129,243
197,442
103,435
582
5,075
22,986
513,691
361,143
661^077
129,243
197,442
103,435
134
-1,276
481,235
405,819
681,767
78,229
169,599
81,089
129
5
-1,276
481,235
405,819
681,767
78,229
169,599
81,089
Total--Health Service and Mental Health
Administration...................................................................
183,969
115
183,854
1,994,674
582
1,994,091
1,896,597
129
1 ftQfi A(Kft
m m
Classification of
OUTLAYS—Continued
Health, Education, and Welfare Department— Continued
NationalInstitutes ofHealth:
Public enterprise funds.................
Intragovernmentalfunds........... ......
Cancer research......................
Heart and lung research... .............
Arthritis, metabolic and digestivediseases.....
Neurologicaldiseases and stroke...........
Allergy and infectiousdiseases.............
General medical science................
Child healthand human development.........
Other researchinstitutes................
Health manpower............1.. ....
Other.................... ........
Total— NationalInstitutesofHealth..... .
EducationDivision:
OfficeofAssistantSecretary ofEducation......
OfficeofEducation:
Studentloaninsurance fund....... ......
Higher educationfacilitiesloan and insurancefund.
Elementary and secondary education.... .
School assistance infederallyaffected areas...
Emergency school assistance ............
Educationforthehandicapped............
Occupational, vocational,and adulteducation...
Higher education....................
Educational development...... ........
Other..........................
Total— Office ofEducation...........
NationalInstituteofEducation.............
Total— Education Division..............
Social and RehabilitationService:
Grants toStates for PublicAssistance:
Outlays
Applicable
Receipts
Comparable Period P rio r F is c a l Year
Current F isca l Year to Date
This Month
Net
Outlays
Outlays
Applicable
Receipts
Net
Outlays
Outlays
Applicable
Receipts
Net
Outlays
$1,220
119
-152,708
45,088
21,450
13,177
10,858
9,603
17,988
10,973
17,367
108,208
3,215
1130
-till
-152,708
45,088
21,450
13,177
10,858
9,603
17,988
10,973
17,367
108,208
3,215
1756
36,465
382,760
232,473
149,229
110,403
106,526
170,730
114,567
172,749
627,420
51,452
$1,462
-4706
36,465
382,760
232,473
149,229
110,403
106,526
170,730
114,567
172,749
627,420
51,452
$2,305
997
258,898
193,527
146,399
104,981
105,865
161,668
97,528
165,204
455,705
59,928
$1,085
105,236
130
105,107
2,155,531
1,462
2,154,069
1,753,006
1,085
1,751,920
-654
-483
31,679
46,180
1,887,812
649,302
71,952
93,674
508,541
1,287,140
204,059
150,175
5,090
21,711
4,930,515
26,802
26,589
24,469
1,887,812
649,302
71,952
93,674
508,541
1,287,140
204,059
150,175
4,903,714
26,802
4,903,714
-654
-483
12,378
17,520
277,181
90,009
3,010
14,064
93,343
252,291
21,165
25,905
1,031
955
11,347
16,566
277,181
90,009
3,010
14,064
93,343
252,291
21,165
25,905
50,760
32,224
1,826,402
580,494
40,992
111,204
610,841
1,382,165
226,288
170,763
7,153
23,000
806,866
1,986
804,880
5,032,135
30,153
43,607
9,224
1,826,402
580,494
40,992
111,204
610,841
1,382,165
226,288
170,763
5,001,982
12,406
26,672
1,986
816,632
5,058,324
30,153
5,028,171
4,930,515
12,406
818,618
997
258,898
193,527
146,399
104,981
105,865
161,668
97,528
165,204
455,705
59,928
26,672
Providing or financing medical services.. . .
Public assistance..................................................
Social and individual services...........................
Social and rehabilitation services........................
Work incentives.........................................................
Assistance to refugees in the United States . . .
Other............................................ .....................
394,825
643,277
118,876
75,147
33,866
15,850
3,571
394,825
643,277
118,876
75,147
33,866
15,850
3,571
4,578,600
5,942,869
1,613,692
800,163
280,540
135,362
56,837
4,578,600
5,942,869
1,613,692
800,163
280,540
135,362
56,837
4,470,064
6,668,432
1,953,407
726,404
171,103
129,173
38,833
4,470,064
6,668,432
1,953,407
726,404
171,103
129,173
38,833
Total—Social and Rehabilitation Services.. .
1,285,411
1,285,411
13,408,063
13,408,063
14,157,416
14,157,416
43
113,526
98,412
43
113,526
98,412
82
2,385,511
946,335
82
2,385,511
946,335
-324
2,454,192
417,951
-324
2,454,192
417,951
67,396
3,814,229
345
67,396
3,814,229
345
719,911
42,169,560
2,469
782,954
581,959
34,540,313
1,555
724,341
581,959
34,540,313
1,555
724,341
3,881,970
3,881,970
719,911
42,169,560
2,469
782,954
43,674,894
43,674,894
35,848,168
35,848,168
Social Security Administration:
Intragovernmental funds........... ..............................
Payment to social security trust funds..............
Special benefits for disabled coal miners.........
Federal old-age and survivors ins. trust fund:
Administrative expenses and construction . .
Benefit payments ...................................................
Vocational rehabilitation services..................
Payment to railroad retirement account. . . .
Total-FOASI trust fund...................................
T A B L E M I-B U D G E T R E C E IP T S AN D O U T L A Y S -C o n tin u e d (In thousands)
This Month
Classification of
OUTLAYS—Continued
Outlays
Health, Education, and Welfare Department—Continued
Social Security Administration—Continued
Federal disability insurance trust fund:
Administrative expenses and cnnstrnetinn
Renefit payments................................................, , , , T
Vocational rehabilitation services.............................
Payment to railroad retirement account..................
Applicable
Receipts
Current Fiscal Year to Date
Net
Outlays
Outlays
Applicable
Receipts
IO
Comparable Period Prior Fiscal Year
Net
Outlays
Outlays
Applicable
Receipts
Net
Outlays
$29,565
473,977
5,408
$29,565
473,977
5,408
$246,653
5,161,928
39,357
19,503
$246,653
5,161,928
39,357
19,503
$211,677
4,045,902
27,523
24,190
$211,677
4,045,902
27,523
24,190
Total—FDI trust fund........................................T- -.
508,949
508,949
5,467,441
5,467,441
4,309,292
4,309,292
Federal hospital insurance trust fund:
Administrative expenses and construction
Benefit payments.............................................................
17,340
617,610
17,340
617,610
192,842
6,648,221
192,842
6,648,221
166,375
6,109,139
166,375
6,109,139
Total--FHΠtrust fund................................................
634,950
634,950
6,841,063
6,841,063
6,275,514
6,275,514
Federal supplementary medical ins. trust fund:
Administrative expenses and construction
Benefit payments.............................................................
21,516
207,574
21,516
207,574
245,867
2,391,056
245,867
2,391,056
288,627
2,255,069
288,627
2,255,069
Total—FSMI trust fund..............................................
229,091
229,091
2,636,922
2,636,922
2,543,696
2,543,696
5,466,941
5,466,941
61,952,249
61,952,249
51,848,491
51,848,491
Special institutions:
American Printing House for the Blind......................
National Technical Institute for the D eaf....................
Model Secondary School for the Deaf.............................
Gallaudet College........... ............................. ........ ...............
Howard University..............................................................
178
2,414
352
1,569
7,167
178
2,414
352
1,569
7,167
1,697
17,060
3,034
10,395
68,253
1,697
17,060
3,034
10,395
68,253
1,580
12,332
2,873
9,469
49,449
1,580
12,332
2,873
9,469
49,449
Total—Special institutions............................................
11,681
11,681
100,438
100,438
75,704
75,704
Office of Child Development ................................................
Office of the Secretary:
Intragovernmental funds...................................................
Office for Civil Rights.......................................................
Office .of Consumer Affairs..............................................
Departmental management..................................... ..
Proprietary receipts from the public...............................
Intrabudgetary transactions:
Payments for health insurance for the aged:
Federal hospital insurance trust fund . . . . . .
Federal supplementary medical insurance trust
fund...................................................................... .............
Payments for military service credits and special
benefits for the aged:
Federal old-age and survivors insurance trust
fund. . ......................................................
Federal disability insurance trust fund....................
Federal hospital insurance trust fund......................
Receipts transferred to railroad retirement account
Interest on reimbursement of administrative and
vocational rehabilitation expenses:
Federal old-age and survivors ins. trust fund . . .
Federal disability insurance trust fund..................
Federal hospital insurance trust fund....................
Federal supplementary medical ins. trust fund . .
27,418
27,418
384,467
384,467
215,623
215,623
-5,320
1,064
80
5,367
-5,320
1,064
80
5,363
-16,489
-13,182
12,975
1,174
56,139
-13,182
12,975
1,174
56,135
-24,869
-3,836
10,247
1,315
50,346
-3,836
10,247
1,315
50,346
-30,033
-381,415
-381,415
-503,351
-503,351
-1,430,451
-1,430,451
-1,365,295
-1,365,295
-474,645
-51,000
-48,000
-802,457
-474,645
-51,000
-48,000
-802,457
-487,546
-50,000
-48,000
-748,531
-487,546
-50,000
-48,000
-748,531
1,875
260
1,875
260
100
299
-348
100
299
-348
Total—Social Security Administration...............
Total—Health, Education, and Welfare
Department . . . . . . . . . . . . . .
-113,526
-113,526
7,8 0 1 ,0 4 2
III_
_
B U D G ET
$4
24,869
-155
-1,979
....................
1
TA B Le
$4
16,489
19,155
R E C E IP T S
7 ,781 ,887
AND
82,07 0,480
-155
-1,979
61,822
82,008,658
O U TLA YS —
Continued (In thousands)
$30,033
-51
71,842,591
-51
62,459
71,780,132
1
7,8 0 1 ,0 4 2
III —B U D G E T
Classification of
OUTLAYS—Continued
Outlays
19,155
7 ,781 ,887
R E C E IP T S
AND
This Month
Applicable
Receipts
Net
Outlays
82,07 0,480
1
61,822
O U T L A Y S —C o n t in u e d
82,00 8,658
71,842,591
62,459
J
7 1 ,7 80,132
(In t h o u s a n d s )
Current Fiscal Year to Date
Applicable
Net
Outlays
Receipts
Outlays
Comparable Period Prior Fiscal Year
Outlays
Applicable
Receipts
Net
Outlays
Housing and Urban Development Department:
Housing production and mortgage credit:
Federal Housing Administration:
Public enterprise funds:
FHA revolving fund............. ..................................
Housing for the elderly or handicapped fund . . . .
College housing loans and other expenses...........
Nonprofit sponsor assistance...................................
Low-rent public housing loans and other
expenses ........................................................................
Other ...................... ......................... ................................
$200,588
660
5,720
115
$91,488
1,924
6,068
99
$109,100
-1,264
-348
17
$1,993,953
11,432
163,978
1,841
$1,153,572
22,112
159,949
1,565
$840,381
-10,680
4,030
276
$1,335,526
20,468
196,042
2,508
$1,045,432
21,943
158,986
1,423
$290,093
-1,475
37,056
1,085
20,536
83,857
-63,321
650,555
15,748
664,598
-14,043
15,748
735,413
17,000
766,339
-30,925
17,000
Total—Federal Housing Administration...........
227,620
183,435
44,184
2,837,506
2,001,795
835,711
2,306,957
1,994,122
312,835
Government National Mortgage Association:
Management and Liquidating functions ......................
Guarantees of mortgage-backed securities..............
Special assistance functions..........................................
Participation sales fund..................................................
8,394
44
149,548
7,430
21,169
481
163,305
-12,775
-437
-13,757
7,430
141,153
1,665,247
7,953
894,211
5,195
1,866,238
29,075
-753,059
-4,666
-200,991
-21,122
158,826
520
935,451
-244
494,565
3,157
486,834
29,845
-335,739
-2,637
448,617
-30,089
Total—Government National Mortgage
Association....................................................................
165,416
184,955
-19,539
1,814,882
2,794,719
-979,838
1,094,553
1,014,401
80,152
393,036
368,390
24,645
4,652,388
4,796,514
-144,126
3,401,510
3,008,523
392,987
3
208
523
440
-521
-232
-289
3,021
5,804
7,967
-6,094
-4,946
-28
3,346
2,464
5,905
-2,493
-2,559
877
73,060
20,324
20,092
10,072
136
6,056
1,044,051
282,309
170,319
106,545
22,341
6,056
1,044,051
282,309
170,319
106,545
22,341
2,446
746,627
221,307
77,283
74,513
16,878
Total--Housing production and mortgage credit.
Housing management:
Public enterprise funds:
Rental housing assistance fund.....................................
Other .....................................................................................
Housing assistance payments:
College housing grants .....................................................
Low-rent public housing.................................................
Home ownership assistance ..........................................
Rental housing assistance..............................................
Rent supplement......................................................... ..
Other .........................................................................................
Total--Housing management.............................». . .
Community planning and management:
New communities fund..........................................................
Comprehensive planning grants.........................................
Other.................... .....................................................................
Community development:
Urban renewal programs.....................................................
Rehabilitation loan fund.......................................................
Public facility loans.............................................................
Salaries and expenses.........................................................
Model cities programs.........................................................
Grants for neighborhood facilities...................................
Open space land programs.................................. ..............
Grants for basic water and sewer facilities..................
Total—Community development...............................
877
73,060
20,324
20,092
10,072
136
fioq
2,446
746,627
221,307
77,283
74,513
16,878
124,771
964
123,807
1,634,353
13,771
1,620,582
1,142,371
8,370
1,134,002
-814
8,510
268
84
-898
8,510
'268
-73
75,765
13,268
3,482
-3,556
75,765
13,268
89
50,170
10,680
2,666
-2,577
50,170
10,680
151,424
4,700
3,085
121,010
1,418
2,512
30,414
3,281
573
808,953
16,014
26,376
992,211
25,720
12,464
25,159
589,929
26,578
61,485
156,533
1,836,803
50,885
47,361
23,274
499,515
23,177
52,319
134,005
647,424
11,420
24,940
49,498
1,804
6,084
12,873
1,801,164
41,734
38,840
25,159
589,929
26,578
61,485
156,533
1,189,379
39,465
22,422
23,274
499,515
23,177
52,319
134,005
104,527
2,741,422
851,342
1,890,080
2,667,340
683,783
1,983,557
49,498
1,804
6^084
12,873
229,468
124,941
CO
T A B L E III— B U D G E T R E C E IP T S A N D O U T L A Y S -C o n tln u e d (In thousands)
Classification of
OUTLAYS—Continued
Housing and Urban Development Department--Continued
Federal Insurance Administration:
Public enterprise funds................................. .....................
Other........................................................................................
Interstate land sales registration.......................................
Research and technology..................................................
Fair housing and equal opportunity ...................................
Departmental management:
Intragovernmental funds..................................... ...............
Other.......................................................................................
Proprietary receipts from the public..............................
Total—Housing and Urban Development
Department........... ............................................. ..
This Month
Outlays
1579
893
Current Fiscal Year to Date
Applicable
Receipts
$881
Net
Outlays
-$302
893
Outlays
5,673,982
3,599,614
7,353,346
226,115
210,834
2,136
-731
193,071
286,831
74,209
155,818
1,103
144,149
267,435
78,905
96,982
1,517
-414
144,149
267,435
78,905
96,982
2,136
709,197
588,574
1,517
587,057
209,045
105,115
193,512
87,956
1,249,472
1,080,877
139,661
127,175
-1,181
138,261
32,755
1,53.9
311,035
50,439
125j264
17,880
1,452
322,210
148,848
209,260
144,186
186,709
495,266
295,850
9,273,596
12,867
267
4,387
20,705
5,437
9,575
216
50
4,387
20,705
5,437
9,575
226,115
1,404
193,071
286,831
74,209
155,818
Total—Bureau of Indian Affairs.............................
40,371
216
40,154
711,333
Bureau of Outdoor Recreation..........................................
Territorial Affairs ................................................ .............
17,864
8,453
17,864
8,453
209,045
105,115
Total—Public land management.................................
79,554
79,338
1,251,608
8,784
139,661
-557
10,692
4,501
80
23,500
7,141
138-, 261
32,755
1,539
319,357
13,507
19,596
148,848
209,260
Total--Mineral resources.......................................
Fish and wildlife and parks:
Bureau of Sport Fisheries and Wildlife........................
National Park Service.........................................................
Water and power resources:
Bureau of Reclamation:
Colorado River and Fort Peck projects..............
Construction and rehabilitation...................................
Other........... .............. ..........................................................
Alaska Power Administration ........................................
Bonneville Power Administration...................... ............
Southeastern Power Administration........................
Southwestern Power Administration............................
Office of water resources research...............................
Total-Water and power resources........... ..
8,784
530
10,692
4,501
80
24,587
1,087
1,087
13,507
19,596
Net
Outlays
235
6
5,883
24,797
-6
Interior Department:
Public land management:
Bureau of Land Management............................................
Bureau of Indian Affairs:
Public enterprise funds..........................................
Indian tribal funds . . i .....................................................
Education and welfare services...................................
Resources management..................................................
Other................................................................. ...................
Mineral resources:
Geological Survey...............................................................
Bureau of Mines:
Helium fund.......................................................................
Other .................... ..............................................................
Office of Coal Research....................................................
Office of Oil and Gas...........................................................
Applicable
Receipts
$1,988
6,174
627
47,965
9,489
-16,550
98,144
-235
5,883
24,797
216
Outlays
$8,637
3,724
12,867
Net
Outlays
Comparable Period Prior Fiscal Year
$10,624
6,174
627
47,965
9,489
-16} 550
98,144
3,724
791,116
Applicable
Receipts
A
2,136
8,322
8,322
$7,635
4,980
42,630
8,411
-27,742
45,271
$7,574
$62
4,980
30
42,630
8,411
-27,742
45,271
-30
3,710,945
3,642,400
210,834
193,512
87,956
1,517
1,079,360
127,175
8,143
8,143
42,296
125>264
17,880
1,452
214,067
144,186
186,709
23,279
27,687
13,682
114
13,649
52
299
3,000
4,738
18,541
27,687
13,682
114
13,649
52
299
3,000
126,916
233,558
137,510
992
135,241
922
5,639
14,686
51,416
75,500
233,558
137,510
992
135,241
922
5,639
14,686
98,328
187,235
125,363
1,058
123,182
744
6,792
13,644
50,455
47,873
187,235
125,363
1,058
123,182
744
6,792
13,644
81,761
4,738
77,023
655,463
51,416
604,048
556,346
50,455
505,890
t ABL
Classification of
OUTLAYS - -Continued
Interior Department—Continued
Secretarial Offices:
Office of the Solicitor.. . . . . . ...............................................
Office of the Secretary.........................................................
Proprietary receipts from the public:
Royalties and Rent on Outer Continental Shelf Lands..
.O th er.,.... . .................................................................................
Intrabudgetary transactions......................................... ..
Total—Interior Department ...............................................
Justice Department:
Legal activities and general administration......................
Federal Bureau of Investigation ............................................
Immigration and Naturalization.........................................
Federal Prison System:
Federal Prison Industries, Inc. ( n e t) .....................
Federal prison commissary funds...............................
Other .............................................. ...........................................
Law Enforcement Assistance Administration......... ..........
Bureau of Narcotics and Dangerous Drugs . . . . . . . . . . . .
Proprietary receipts from the public........... .......................
Total--Justice Department......... .......... ..............................
Labor Department:
Manpower Administration:
Intragovernmental funds.................................................... •
Manpower training services.................................................
Emergency employment assistance..................................
Federal unemployment benefits and allowances............
Salaries, expenses, and o th e r.........................................
Unemployment trust fund:
Unemployment insurance and employment services:
Federal—State unemployment insurance:
State unemployment benefits............. .....................
State administrative expenses ...............................
Federal administrative expenses:
Direct expenses, reimbursements and
recoveries....................«..................... .................
Interest on advances...................... ..................... ..
Interest on refunds................................................
Railroad unemployment insurances:
Railroad unemployment benefits......................
Administration expenses.....................................
Payments of interest on borrowings from
railroad retirement account.............................
Total--Unemployment trust fund......................
S^tl^tnousañasT
7T T b O dgi
Applicable
Receipts
Outlays
Net
Outlays
Outlays
1600
1600
7,206
7,206
1194,211
230,515
-55,676
-927,990
-46,099
179,616
356,737
137,047
158,055
328,957
128,828
1,796
-204
156,417
623,982
77,517
2,829
5,530
124,731
379,748
58,382
1,530,786
1,187,060
-1,327
1,477,722
1,014,535
390,542
271,266
-1,327
1,477,722
1,014,535
390,542
271,266
-2,072
1,665,420
567,030
541,464
647,380
-2,072
1,665,420
567,030
541,464
647,380
4,404,723
813,357
4,404,723
813,357
5,978,349
776,473
5,978,349
776,473
52,254
52,254
” ” 386
” '*386
38,252
537
365
38,252
537
365
1,796
5,748
156,417
623,982
77,517
213
193
-29
13,872
61,313
7,694
-213
731
137,036
1,538,859
2,905
101,531
114,433
31,713
9,309
2,905
101,531
114,433
31,713
9,309
275,112
84,501
275,112
84,501
137,767
$55,676
927,990
2,299,481
179,616
356,737
137,047
518
$6,580
48,672
$6,580
48,672
-3,805,577
-892,241
Net
Outlays
-2,219,073
15,078
28,196
10,932
193
489
13,872
61,313
7,694
Applicable
Receipts
-46,099
2,540,619
15,078
28,196
10,932
Outlays
-100,390
-204,134
430,768
Net
Outlays
$7,051
49,421
$3,805,577
892,241
-194,211
-230,515
-100,390
226,634
Applicable
Receipts
17,051
49,421
-177
-177
Comparable Period P rio r F isc a l Year
Current F isca l Year to Date
This Month
4,759,692
5,951
2,121
8,073
-2,121
1,043,781
1,255,700
158,055
328,957
128,828
1,358
2,829
172
124,731
379,748
58,382
-1,358
6,717
1,180,343
5,359
4,130
653
4,130
653
72,827
7,403
72,827
7,403
120,091
8,132
120,091
8,132
779
779
2,245
2,245
3,717
3,717
367,696
367,696
5,353,196
5,353,196
6,925,913
6,925,913
Total—Manpower Administration ........................
627,587
627,587
8,505,934
8,505,934
10,345,136
10,345,136
Labor-Management Services Administration....................
Employment Standards Administration:
Salaries and expenses.............................................. ............
Federal workmen's compensation benefits....................
Other ............................................................................................
2,466
2,466
24,088
24,088
21,464
21,464
4,177
20,634
65
4,177
20,634
65
52,438
102,094
621
52,438
102,094
621
83,135
103,586
536
83,135
103,586
536
Ol
T A B L E III— B U D G E T R E C E IP T S AN D O U T L A Y S -C o n tin u e d (In thousands)
Applicable
Receipts
Outlays
Labor Department—Continued
Occupational Safety and Health Administration.................
Bureau of Labor Statistics.......................................................
Departmental management ................................. .....................
Proprietary receipts from the public...................................
Intrabudgetary transactions.....................................................
14,733
558
5,838
Total—Labor Department.....................................................
665,101
Comparable Period Prior Fiscal Date
Current Fiscal Year to Date
This Month
Classification of
OUTLAYS—Continued
Net
Outlays
Outlays
$37,401
44,260
18,595
$4,733
558
5,838
-116
-957
-147,498
664,985
8,637,934
-6,015
-133
-6,015
-133
1,286
Applicable
Receipts
0>
Net
Outlays
Outlays
Applicable
Receipts
Net
Outlays
$37,401
44,260
18,595
-1,262
-147,498
-573,458
8,636,672
10,034,409
253,817
148
253,817
148
242,528
242,528
1,286
19,250
19,250
20,500
20,500
11,236
2,797
446
11,236
2,797
446
14,208
30,754
3,289
14,208
30,754
3,289
8,572
26,524
3,310
8,572
26,524
3,310
Total—Administration of foreign affairs ....................
9,617
9,617
321,467
321,467
301,234
301,234
International organizations and conferences......................
International commissions.......................................................
Educational exchange.......................... ......................................
Other...............................................................................................
Proprietary receipts from the public...................................
Intrabudgetary transactions:
Foreign service retirement and disability fund:
Receipts transferred to civil service retirement
and disability fund.............................. .............................
General fund contributions..................................................
Other............. ....................... .....................................................
2,146
1,096
5,657
12,393
2,146
1,096
5,657
12,393
-611
182,362
11,217
50,039
46,953
182,362
11,217
50,039
46,953
-5,137
168,938
168,938
43,048
26,150
43,048
26,150
-5,023
-13
-11,236
-78
-13
-11,236
-78
-129
-14,208
-467
-129
-14,208
-467
-44
-8,572
-430
Total—State Department ................................................
19,583
18,972
597,234
592,097
541,335
4,133
48,380
48,380
28,690
-295
1,474
73,342
3,883
4,626
777,905
3,960
-77
4,626
777,905
3,176
-6,482
694,329
3,457
2,188
5,308
State Department:
Administration of foreign affairs:
Salaries and expenses ...........................................................
Intragovernmental funds......................................................
Acquisition, operation and maintenance of buildings
abroad.......................................................................................
Payment to foreign service retirement and disability
fund...........................................................................................
Foreign service retirement and disability fund ...........
Other............................................................. ..................... ....
Transportation Department:
Office of the Secretary.............................................................
Coast Guard:
Trust revolving funds.............................................................
Intragovernmental funds ........................ ..............................
Other ........................................................................ ..
Federal Aviation Administration:
Aviation war risk insurance revolving fund....................
Airport and airway:
Operations .............................................................................
Facilities and equipment..................................................
Grants-in-aid for airports .............................................
Research, engineering and development ....................
Interest on refunds of taxes.............................................
Civil supersonic aircraft development—termination..
Federal payment to the airport and airway trust
fund .............................................................................. ............
O th e r............. . ........................................ .............................
Total--Federal Aviation Administration....................
-957
$116
116
611
611
4,133
122
1,474
73,342
417
$1,262
1,262
5,137
5,137
$33,122
20,887
$1,293
$33;122
20,887
-1,293
-573,458
1,293
10,033,117
-200
-200
11,011
11,011
5,023
-44
-8,572
-430
5,023
536,312
28,690
-281
-6,482
694,329
-3,414
368
366
529
-1,659
1,894
120,965
42,935
55,059
9,230
120,965
42,935
55,059
9,230
1,178,402
321,742
232,332
66,659
26
6,814
1,078,253
377,800
105,483
58,460
1,078,253
377,800
105,483
58,460
Óij229
’"91^229
73,397
43,789
1,921,500
646,882
168,755
2,528,756
646,882
168,755
2,523,448
1,293
1,293
1,178,402
321,742
232,332
66,659
26
6,814
24,669
4,102
258,621
24,669
4,102
258,619
73,397
43,789
1,923,688
2,188
T A B L E III—
B U D G ET R E C E IP T S A N D O U T L A Y S —
Continued (In thousands)
5,308
T A B L E III_
_
B U D G E T R E C E IP T S A N D O U T L A Y S —
Continued (In thousands)
Classification of
OUTLAYS - - Continued
Outlays
This Month
Applicable
Receipts
Current Fiscal Year to Date
Net
Applicable
Outlays
Outlays
Receipts
Net
Outlays
Comparable Period Prior Fiscal Year
Outlays
Transportation Department—Continued
Federal Highway Administration:
’Fnrppt and pnKHr. lands highways • •
Highway trust fund:
yppdprfll-aiH highways. •
Right of way revolving fund ............................................
Other ..................
Other............................................................................................
13,191
2,665
$3,191
2,665
$21,282
34,683
$21,282
34,683
494,881
558
Í76
11,038
494,881
558
176
11,038
4,695,558
24^904
1,836
34,120
4,695,558
24,904
1,836
34,120
$11,311
35,267
4,657,134
17,610
3,031
19,152
Total—Federal Highway Administration ....................
512,509
512,509
4,812,384
4,812,384
4,743,505
7,215
3,033
7,215
3,033
46,442
43,097
50j 809
46,442
43,097
50,809
46,986
70,997
12,936
-24
27,225
1,549
29,621
3,802
3,802
1,601
1,601
32,830
105,800
17,616
32,830
105,800
17,616
20,097
77,875
9,630
231,972
382
3,528
6,901
National Highway Traffic Safety Administration:
Traffic and highway safety.........| .......... ,,,,,,,
find mmmunity highway safpty programs ,
Highway trust fund share of safety programs , t,
Federal Railroad Administration:
Alaska Railroad ......................................................................
High-speed ground transportation research and
development..............................................................................
Grants to National Railroad Passenger Corporation r.
Other............................................................................................
Urban Mass Transportation Administration:
Urban mass transportation fund ........................................
Salaries and expenses...........................................................
Saint Lawrence Seaway Development Corporation............
National Transportation Safety Hoard...................................
Proprietary receipts from the public - .................................
Intrabudgetary transactions .....................................................
Total—Transportation Department...................................
Treasury Department:
Office of the Secretary:
Public enterprise funds....................................................
and PvppntS^tS
Federal Law Enforcement Training Center,
construction .
Other............................................................... ............................
Bureau of Accounts:
Salaries and expenses », , ,
judgprnpntfi $ind rplipf act»S , .
Interest on uninvested hinds
Eifipnhow^T* Clnllpgp grants
Other.......................................................................... ........
Total—Bureau of Accounts..............................................
Bureau of Customs:
Salaries and expenses........................
Tntragovernmental funds
Other...................................................................... tttti
Bureau of Engraving and Printing:
IntragovprnmpntaJ funds - - __ , t , , , , , ,
Other..................
See footnotes on page 3,
2,330
$2,354
$25,677
Applicable
Receipts
$494
494
Net
Outlays
$11,311
35,267
4,657,134
17,116
3,031
19,152
4,743,011
46,986
70,997
12,936
30,157
-536
20,097
77,875
9,630
298
231,674
382
-4,128
6,901
-21,897
-902,337
7,531,295
36,735
162
36,573
415,575
516
415,059
394
640
911
-517
640
-2,371
-24,669
875,066
4,274
7,189
8,496
-73,397
8,248,327
-4,221
7,189
-23,639
-73,397
8,183,852
-902,337
7,600,562
-294
2,622
(*)
15,694
-739
15,694
(*)
11,275
343
219
343
219
1,580
1,732
1,580
1,732
2,361
1,133
2,361
1,133
14,405
10,980
784
13
14,405
10,980
784
13
62,422
86,844
6,357
293
72
13
62,422
86,844
6,357
293
72
13
72,614
64,960
5,923
768
1,688
19
72,614
64,960
5,923
768
1,688
19
26,182
26,182
156,000
156,000
145,972
145,972
5,791
5,791
70,122
70,122
17,283
17,283
205,122
205,122
180,523
180,523
8,127
8,127
86,308
86,308
82,788
82,788
-2,643
-2,643
-1,366
82
-1,366
82
1,153
13
1,153
13
-24,669
881,283
2,622
2,371
6,217
294
23,639
64,475
739
7,656
21,897
69,267
838
-838
11,275
CD
T A B L E III— B U D G E T R E C E IP T S AN D O U T L A Y S -C o n tin u e d (In thousands)
Outlays
Applicable
Receipts
Comparable Period Prior Fiscal Year
Current Fiscal Year to Date
This Month
Classification of
OUTLAYS-Continued
Net
Outlays
Outlays
Applicable
Receipts
Net
Outlays
Outlays
Applicable
Receipts
Net
Outlays
Treasury Department—Continued
Bureau of the Mint:
Salaries and expenses . . ....................................................
Other................................................................................
Bureau of the Public Debt..................................................
Internal Revenue Service:
Salaries and expenses.........................................................
Accounts, collection and taxpayer service ..................
Compliance .............................................................................
Interest on refunds of taxes ....................................... * ..
Payments to Puerto Rico for taxes collected .............
Federal tax lien revolving fund .......................................
$2,738
89
4,380
$2,738
89
4,380
$21,092
1,436
72,464
$21,092
1,436
72,464
$29,275
2,165
69,388
$29,275
2,165
69,388
2,600
41,868
47,916
16,612
9,498
-84
$23
2,600
41,868
47,916
16,612
9,498
-107
34,301
511,880
599,435
175,421
109,344
101
$117
34,301
511,880
599,435
175,421
109,344
-16
30,994
446,123
613,279
182,393
101,493
327
$552
30,994
446,123
613,279
182,393
101,493
-224
Total--Internal Revenue Service.................................
118,410
23
118,387
1,430,481
117
1,430,364
1,374,610
552
1,374,058
1,003
5,886
3,016
-185
10,824
8
67,860
41,133
6,636,369
10,824
8
67,860
-6,069
6,636,369
10,147
430
55,585
37,149
564
10,147
-135
55,585
-4,010
Office of the Treasurer:
Salaries and expenses.........................................................
Check forgery insurance fund..........................................
U. S. Secret Service ..................................................................
Office of the Comptroller of the Currency........................
General revenue sharing.........................................................
Interest on the public debt (accrual basis):
Public issues ...........................................................
Special issues.................... ....................................................
1,740,021
444,323
1,740,021
444,323
18,967,267
5,200,226
18,967,267
5,200,226
17,077,687
4,771,120
17,077,687
4,771,120
Total--Interest on the public debt...............................
2,184,344
2,184,344
24,167,493
24,167,493
21,848,807
21,848,807
Proprietary receipts from the public.................................
Interest and dividends from Export-Import Bank of
the United States ......................................................................
Intrabudgetary transactions................................... .................
1,003
5,886
3,460
-185
444
47,202
41,159
89,895
-89,895
579,744
-579,744
467,800
-467,800
39,317
-39,317
-125,235
-1,251,701
123,406
-123,406
-1,251,701
-1,122,779
95,073
-95,073
-1,122,779
2,252,813
129,972
2,122,841
31,732,734
751,208
30,981,526
22,729,995
605,987
22,124,008
Atomic Energy Commission......................................... ..
209,680
10
209,670
2,393,484
475
2,393,009
2,392,374
415
2,391,960
Environmental Protection Agency:
Revolving fund for certification and other services. . . .
Other .............................................................................................
36
188,541
174
56
-138
188,485
846
1,112,562
636
97
209
1,112,466
292
763,039
341
89
-49
762,950
General Services Administration:
Real property activities:
Intragovernmental funds .....................................................
Construction, public buildings projects........................
Operating expenses, public buildings service..............
Repair and improvement of public buildings................
Sites and expenses, public buildings projects...........
Other
......................................................................
37,531
16,057
4,648
4,700
900
981
37,531
16,057
4,648
4,700
900
981
447
174,160
465,688
73,482
23,930
9,458
447
174,160
465,688
73,482
23,930
9,458
-3,052
108,752
418,079
88,168
25,513
8,427
-3,052
108,752
418,079
88,168
25,513
8,427
64,818
64,818
747,166
747,166
645,886
645,886
-13,433
6,213
-13,433
6,213
38,475
94,372
38,475
94,372
-55,583
89,047
-55,583
89,047
Total—Treasury Department...................................
Total—Real property activities...................................
Personal property activities:
Intragovernmental funds....................................................
Other.................................................... ....................................
TABLE
-125,235
III— B U D G E T
R E C E IP T S
AN D
O U T L A Y S —Continued
(In thousands)
TABLE
Classification of
O U T LA YS—Continued
General Services Administration--Continued
Records activities:
National Archives trust fund............................
Other........................................ ..................................
Automated data and telecommunications activities
Property management and disposal activities:
Public enterprise funds..............................................
Intragovernmental funds ............. ..............................
Other............................ .......... ........................................
General activities:
Public enterprise funds ........... ..................................
Intragovernmental funds............................................
Other..............................................................................
Proprietary receipts from the public........................
Intrabudgetary transactions............. ............................
III__B U D G E T
Applicable
Receipts
Outlays
Net
Outlays
Outlays
Applicable
Receipts
Applicable
Receipts
Outlays
5,459
-#873
29,017
8,635
179
-128
1,640
20,608
-257
31,294
(*)
28
-28
-257
31,294
1,014
-1,014
-1,717
2,590
-486,536
-697
-1,357
1,539
-10,304
1
1,082
146,920
-1,081
-1,357
1,539
-146,920
-10,304
153,488
13,112
589,016
3,421,730
416,760
417,753
319,870
-245,838
-54,057
-85,038
8,061,052
2,228,900
93,652
177
11,002
81,213
720,074
495,549
8,630
478,114
2,159
-8,630
-478,114
-2,159
-49
-2,435
10,710,469
50
146
-3,447
51
1,640
20,608
2,011
2,011
68,491
286
-68,491
-181
-1,717
2,590
-697
69,297
2,528
2,564
306,022
941,817
3,329,082
493,362
448,455
13,384
3,315,698
742,504
3,434,842
7,035
22,280
17,599
702,109
207,019
30,365
78,737
42,804
-23,330
-56,458
-25,205
702,109
207,019
123,406
412,123
227,068
9,294,602
2,512,121
364,531
561,231
287,680
-241,125
-149,108
-60,612
9,294,602
2,512,121
170,921
363,696
234,832
8,061,052
2,228,900
5,989
50,969
49,114
816
7,831
15
5,173
43,137
49,098
76,451
610,167
526,153
10,198
91,280
171
66,253
518,887
525,981
92,215
813.726
495.726
783
38,569
167
-783
-38,569
-167
7,963
486,697
1,995
-7,963
-486,697
-1,995
286
-181
308,550
-4
-171
-4
-171
-50
-2,379
486,536
-50
-2,379
-49
-2,435
1,061,938
200,087
861,851
13,779,663
1,811,746
11,967,917
12,458,584
1,748,116
15,362
37
143
15,218
37
151,310
364
3,226
295
151,015
364
3,222
129,225
418
3,369
9,006
339
68
1,885
(*)
81
4,970
1,619
68
1,885
81
14
4,970
1,619
-14
8,686
Net
Outlays
#4,586
29,017
8,635
50
146
-3,447
-2
Net
Outlays
32,296
2,396
5,634
#805
Comparable Period Prior Fiscal Year
Current Fiscal Year to Date
#4,636
32,296
2,396
National Aeronautics and Space Administration,
Total—Veterans Administration . . .
(In thousands)
-#388
2,646
12,335
#417
2,646
12,335
71,861
Other independent agencies:
Action ................................. ...............................................
Administrative Conference of the United States .,
American Battle Monuments Commission.............
Arms Control and Disarmament Agency ...............
Cabinet Committee on Opportunities for SpanishSpeaking People................................. ..........................
Central Intelligence Agency—Construction...........
Civil Aeronautics Board:
Payments to air carriers........................................
Salaries and expenses.............................................
Proprietary receipts from the public..................
See footnotes on page 3.
AIMD O U T L A Y S —Continued
This Month
Total—General Services Administration.
Veterans Administration:
Public enterprise funds:
Direct loan revolving fund.....................................
Loan guaranty revolving fund..............................
Other............................................................................
Compensation, pensions, and benefit programs.
Medical care ..................................................................
Benefits, refunds and dividends:
Government life insurance fund...........................
National service life insurance fund. . . . . . . . .
Other.........................................................................
Proprietary receipts from the public:
Government life insurance fund..........................
National service life insurance fund..................
Other . . ; . . . . . . ........................................................
Intrabudgetary transactions:
Payments to veterans life insurance funds:
Government life insurance fund......................
National service life insurance fund.............
R E C E IP T S
4
Ü
8 ,6 8 6
930
930
72,223
14,325
72,223
14,325
-132
132
128,886
418
3,367
9,002
862
862
10
10
62,977
13,215
62,977
13,215
-104
104
(0
IO
o
T A B L E III— B U D G E T R E C E IP T S AND O U T L A Y S —Continued (In thousands)
Applicable
Receipts
Outlays
Other independent agencies—Continued
Civil Service Commission:
Payment to civil service retirement and disability
fund........... ............................................... ...........................
Government payment for annuitants, employees
health benefits.............................................. .....................
Civil service retirement and disability fund.............
Employees health benefits fund .....................................
Employees life insurance fund.......................................
Retired employees health benefits fund......................
Federal Labor Relations Council..................................
Other.................... .............. ...................................................
Proprietary receipts from the public..........................
Intrabudgetary transactions:
Civil service retirement and disability fund:
Receipts transferred to foreign service
retirement and disability fund............................
General fund contributions................................... .
-1,023,011
Total—Civil Service Commission...................
602,111
Commission of Fine Arts ..................................................
Commission on Civil Rights ................................... ..
Committee for Purchase of Products and Services of
the Blind and Other Severely Handicapped..................
Consumer Product Safety....................................................
Corporation for Public Broadcasting..............................
District of Columbia:
Federal payment.................................................................
Loans and repayable advances..................................... .
Emergency Loan Guarantee Board................................. .
Equal Employment Opportunity Commission...............
Export-Import Bank of the United States. . . . . . . . . . . .
Farm Credit Administration:
Public enterprise funds......... ........................................
Proprietary receipts from the public........... ............
Federal Communications Commission..........................
Federal Deposit Insurance Corporation............ ..........
Federal Field Committee for Development Planning
in Alaska........... ...................................................................
Federal Home Loan Bank Board:
Public enterprise funds:
Federal Savings and Loan Insurance Corp. Fund
Other .................................................................................
Interest adjustment payments......................................
Federal Maritime Commission.......................................
Federal Mediation and Conciliation Service................
Federal Metal and Nonmetallic Mine Safety Board of
Review........... I .......................................................................
Federal Power Commission........................ .....................
Federal Trade Commission..............................................
Foreign Claims Settlement Commission......................
Historical and Memorial Commissions ........................
Indian Claims Commission................................................
See footnotes on page 3.
10
431
12
m
Net
Outlays
11,023,011
383,689
181,058
27,688
2,254
50
7,915
383,689
82,702
-7,383
2,212
50
7,915
-691
691
134,160
......... i
455
1,457
3,286
6,484
1
2
6,651
109
-2,402
3,078
213
454
809
3
1,814
2,249
88
760
121
64,570
2,334
(*)
-
1,866
1
-1
■
$1,569,581
11,161,416
$1,161,416
137,608
4,523,297
1,426,151
340,702
13,877
620
80,058
137,608
4,523,297
19,274
-151,072
-1,767
620
80,058
-1,224
109,568
3,777,847
1,239,737
371,375
14,403
559
60,290
109,568
3,777,847
-54,089
-116,113
-1,663
559
60,290
-5,541
-1,569,581
-3,528
-1,161,416
4,601,252
5,570,251
128
3,637
11,406,878
491,775
15,644
1,224
6,516,773
10
431
143
4,620
143
4,620
12
140
140
1,915,521
20
20
35,000
35,000
14,566
35
2,508
185,574
175,532
-860
28,148
51,661
1,729
1,002
5,513
5,633
-1
3,283
-167
33,888
97,142
109
-12
-66,972
745
213
453
809
-59,465
28,975
2,988
5,385
10,641
3
3,680
2,247
88
761
37
22,473
26,628
768
7,066
1,060
121
Net
Outlays
n,569,581
467,950
-
Applicable
Receipts
Outlays
-5,541
-1,569,581
20
10,000
Net
Outlays
-1,023,011
20
24,566
35
2,509
Applicable
Receipts
Outlays
,023,011
198,356
35,072
42
Comparable Period Prior Fiscal Year
Current Fiscal Year to Date
This Month
Classification of
OUTLAYS—Continued
2
2
55,778
634,165
195,653
26,273
5,103
(*)
L,293,826
487,488
16,066
-6
-3,528
-1,161,416
1,797,386
(*)
3,772,865
128
3,637
35,000
35,000
177,740
185,858
-1,242
20,796
153,074
114,357
177,740
137,218
-1,796
20,795
738,718
4,840
5,143
-303
-21,890
-537,023
28,515
118,377
17
551,157
28,498
-432,780
-12
48
-255,119
2,702
2,988
5,357
10,641
40,481
26,995
189,307
29,066
5,162
.. ¿2
B
37
22,460
26,613
768
1,963
1,060
47
21,362
24,556
632
1,861
1,044
185,574
123,871
-2,589
28,146
-120
-2
10,011
48,640
555
1
2
-2
48
15
14
(*)
(*)
1,205
-148,826
-2,071
5,151
10,011
47
21,347
24,542
631
656
1,044
E
C la s s if ic a t io n o f
O U T L A Y S — C o n tin u e d
Other independent agencies—Continued
Intergovernmental agencies:
Advisory Commission on Intergovernmental
Relations . ............................................................................
Appalachian Regional Commission:
Salaries, expenses, and other..............................
Intrabudgetary transactions.........................................
Delaware River Basin Commission.................................
Interstate Commission on the Potomac River Basin.
Susquehanna River Basin Commission...........................
Washinton Metropolitan Area Transit Authority.........
International Radio Broadcasting...................... ................
Interstate Commerce Commission ......................................
National Capital Planning Commission............................
National Commission on Libraries and Information
Science.......................................................................................
National Council on Indian Opportunity.............................
National Credit Union Administration:
Public enterprise funds......... .........................................
Proprietary receipts ......................................... .................
National Foundation on the Arts and the Humanities. . .
National Labor Relations Board............................................
National Mediation Board.......................................................
National Science Foundation ..................................................
Occupational Safety and Health Review Commission...
Postal Service............................................................................
President’ s Council on Youth Opportunity.......................
Railroad Retirement Board:
Payment for military service credits ....................... ...
Railroad retirement accounts:
Administrative expenses................................................
Benefit payments, e tc.....................................................
Interest on refunds of taxes ......................
Payment to railroad unemployment ins. account..
Proprietary receipts from the public.............................
Intrabudgetary transactions:
Railroad retirement accounts:
Payment for military service credits.. . . . . . . . .
Payment from railroad retirement supplemental
receipts transferred to railroad unemployment
insurance account.................................................... ..
Interest on advances to railroad unemployment
insurance account...........................................................
Total—Railroad Retirement Board...............
Renegotiation Board..................................................................
Securities and Exchange Commission........... ...................
Selective Service System........................................................
Small Business Administration:
Public enterprise funds:
Business loan and investment fund.............................
Disaster loan fund..............................................................
Lease guarantees revolving fund.................................
Other...................... ...................................................................
Proprietary receipts from the public...........................!
Intrabudgetary transactions..........................................
Total—Small Business Administration................
See footnotes on page 3.
ri“ -B U D G E T
I
R E C E ÎP T
s
T W B
OU'
Current F isc a l Year to Date
This M o n t h
Applicable
Receipts
Outlays
^S--Contmuediinthôu!
Net
Outlays
Applicable
Receipts
Outlays
$98
3,973
-1,401
283
34
1,181
4,100
102
75,825
38,520
44,915
1,302
269
219
901
7,851
3,975
230
42,874
328
1,005,439
958
..H
9
........... 15
*852*608
1,936
218,144
-701
45,567
69,598
148
1,691
117,003
7,851
3,966
230
42,858
328
153,431
*65,668
48,414
2,814
582,665
3,933
11,445,818
(*)
m
i
(*)
25,654
9,474
471
35,601
$741
$741
2,349
-1,089
246
(*)
1,480
-1,089
246
421
180
116
83,995
32,000
59,678
981
20
44,283
1,302
116
83,995
32,000
60,099
1,161
269
219
92
300
20
92
300
(*)
22,611
-10,852
9,744
10,017,244
*65,667
48,275
2,814
582,486
3,933
81,428,574
6
6
44,022
47,467
2,440
566,620
837
12,755,106
81
21,645
21,645
20,757
20,757
20,163
2,419,033
17
5,572
20,163
2,419,033
17
5,572
19,721
2,107,479
7
19,721
2,107,479
7
11,888
11,888
-21,645
-21,645
-20,757
-20,757
-5,572
-5,572
-701
-2,166
-2,166
-3,717
-3,717
219,380
2,437,047
2,437,046
2,123,490
2,123,489
354
2,591
4,836
4,721
29,865
78,988
4,719
29,850
78,974
4,678
25,889
74,867
4,677
25,883
74,846
19,913
60,124
-324
1,691
469,237
1,271,949
2,551
163,379
1,163,295
-1,685
442,833
372,302
1,153
21,095
(*)
(*>
354
2,592
4,837
11,759
1,936
218,144
m
219,380
-57
$946
387520
(*)
Net
Outlays
2,792
-1,401
283
34
75,825
632
Applicable
Receipts
Outlays
221
221
4,103
102
Comparable Period P rio r F is c a l Year
Net
Outlays
....¡S
20,686
-1
305,857
108,654
4,236
-2
.s
.. ÍÓ
81,402
1,764,422
418,758
20,686
-10
-
(*)
1
147
..............585
ÍÓ,*982,*78Í
837,383
-9,616
m
44,022
47,320
2,440
566,035
837
1,772,326
81
-1
11,888
(*)
1,345,664
19,360
-
300,760
83,095
1,897
11,888
.. Í6
142,073
289,207
-744
21,095
-16
385,767
451,616
ro
I»
IO
T A B L E M I -B U D G E T R E C E IP T S AN D O U T L A Y S -C o n tin u e d (In thousands)
Current Fiscal Year to Date
This Month
Classification of
OUTLAYS-Continued
Applicable
Receipts
Outlays
Other independent agencies—Continued
Smithsonian Institution......................................................
Subversive Activities Control Board.............................
Tariff Commission......................................................... ....
Temporary Study Commissions......................................
Tennessee Valley Authority:
Tennessee Valley Authority fund......................
Proprietary receipts from the public......................
M
Net
Outlays
Applicable
Receipts
Outlays
Comparable Period Prior Fiscal Year
Net
Outlays
Applicable
Receipts
Outlays
Net
Outlays
$70,464
338
5,579
10,725
$11
$70,453
338
5,579
10,725
$57,931
421
5,126
10,831
$16
$57,915
421
5,126
10,831
00
$5,742
35
472
627
109,903
$57,210
4
52,694
-4
1,130,472
763,026
26
367,446
-26
1,086,152
637,999
130
448,153
-130
Total—Tennessee Valley Authority......................
109,903
57,214
52,690
1,130,472
763,052
367,420
1,086,152
638,129
448,023
United States Information Agency:
Salaries and expenses.................................................. ..
Construction of radio facilities....................................
Other............... . ...................................................................
Proprietary receipts from the public......................
21,826
134
469
198,512
2,388
5,574
403
198,512
2,388
5,574
-403
190,905
3,218
4,191
48
21,826
134
469
-48
418
190,905
3,218
4,191
-418
22,382
206,474
403
206,071
198,314
418
197,896
-10
529
8,664
-1 ,8 0 9
923
7,741
-1,809
6,762
-1,333
534
6,228
-1,333
1,057,668
25,451,394
14,117,194
11,334,200
24,685,115
14,766,562
9,918,552
-30
-30
-24
-24
$5,743
35
472
627
Total—U. S. Information Agency...........................
22,430
48
Water Resources Council:
Planning expenses and other........................................
Intrabudgetary transactions...................... . .................
615
86
-10
Total—Other independent agencies......................
2,221,180
Undistributed intrabudgetary transactions:
Federal employer contributions to retirement and
Social insurance funds:
Legislative Branch:
United States Tax Court:
Tax court judges survivors annuity fund.........
The Judiciary:
Judicial survivors annuity fund...............................
Health, Education, and Welfare Department:
Federal old-age and survivors insurance trust
fund...............................................................................
Federal disability insurance trust fund................
Federal hospital insurance trust fund..................
State Department:
Foreign service retirement and disability fund.
Other independent agencies:
Civil Service Commission:
Civil service retirement and disability fund .
Subtotal....................................................................
Interest credited to certain Government accounts:
The Judiciary:
Judicial survivors annuity fund.................................
Defense Department:
Civil:
Soldiers* and Airmen's Home permanent fund..
See footnotes on page 3.
H S H
1,163,512
(*)
(*)
(*)
-63
-63
-743
-743
-707
-707
-56,000
-7,000
-13,000
-56,000
-7,000
-13,000
-615,000
-80,000
-615,000
-80,000
121,000
-579,000
-78,000
-85,000
-579,000
-78,000
-85,000
-759
-759
-8 ,7 9 8
-8 ,7 9 8
-8 ,1 2 8
-8 ,1 2 8
-173,254
-173,254
-2,100,924
-2,100,924
-2,017,590
-2,017,590
-250,076
-250,076
-2 ,9 2 6 ,4 9 5
-2,926,495
-2 ,7 6 8 ,4 4 9
-2 ,7 6 8 ,4 4 9
-9
-9
-360
-360
-302
-302
-766
-766
-3,101
-3,101
-3 ,2 0 7
-3 ,2 0 7
B U D G E T R E C E IP T S
-
121,000
-
A N D O U T L .A Y S - Cdntïïmed (In thousands)
1 AÜLÉTTP
^ ^ ^ Í^ ^ W
^ O U T lS Y S Í ^ o m T H ü S ^ T r R h S ü s S f fa s r
Applicable
Receipts
Outlays
Undistributed intrabudgetary transactions—Continued
Interest credited to certain Government
acc ounts—Continued
Health, Education, and Welfare Department:
Federal old-age and survivors insurance trust fund ,
Federal disability insurance trust fund........................ .
Federal hospital insurance trust fund......................
Federal supplementary medical insurance trust fund
Interior Department:
Indian tribal funds.................................................................
Labor Department:
Unemployment trust fund................................... ................
State Department:
Foreign service retirement and disability fund...........
Transportation Department:
Highway trust fund.......................... ......................................
Veterans Administration:
Government life insurance fund.......................................
National service life insurance fund................. ............
Civil Service Commission:
Civil service retirement and disability fund.......... ...
Railroad Retirement Board:
Railroad retirement accounts ................................... .......
Other........... ; ..................................................................................
Subtotal .................................................................................
Total—Undistributed intrabudgetary transactions
Total outlays........................ .................................... ....
.
Comparable Period P rior F isca l Year
Current F isca l Year to Date
This Month
Classification of
O U TLAYS—Continued
Net
Outlays
Outlays
Applicable
Receipts
Net
Outlays
Outlays
Applicable
Receipts
Net
Outlays
-$792,167
-204,182
-83,810
-17,173
-$792,167
-204,182
-83,810
-17,173
-$1,847,842
-434,739
-197,689
-43,070
-$1,847,842
-434,739
-197,689
-43,070
-$1,718,114
-388,438
-189,756
-28,942
-$1,718,114
-388,438
-189,756
-28,942
-264
-264
-14,270
-14,270
-8,369
-8,369
-166,014
-166,014
-487,330
-487,330
-496,121
-496,121
-1,389
-1,389
-2,986
-2,986
-2,806
-2,806
-205,630
-118,532
-246,740
-246,740
-205,630
-15,247
-147,082
-15,247
-147,082
-714,753
-99,144
-714,753
-99,144
-31,053
-308,959
-1,566,219
-31,614
-292,242
-1,464,486
-31,614
-292,242
-1,464,486
(*>
-31,053
-308,959
-1,566,219
-261,606
-492
-261,606
-492
-257,764
-1,275
-257,764
-1,275
-2,360,529
-2,360,529
-5,446,456
-5,446,456
-118,532
(*>
-2,610,605
24,597,148
5,705,575
-2,610,605
20,891,573
-8,372,951
288,970,475
-8,372,951
246,603,359
(Net Totals)
(Net Totals)
TOTAL BUDGET
$42,367,116
-5,089,065
-7,857,514
265,713,255 $33,837,401
-5,089,065
-7,857,514
231,875,854
(Net Totals)
Receipts (+) ............. .......................................................................
28,503,506
232,191,842
208,648,559
Outlays (-)........................................................................ ..............
-20,891,573
-246,603,359
-231,875,854
Budget surplus (+) or deficit (-) ...............................................
+7,611,934
-14,411,517
-23,227,295
MEMORANDUM
Receipts offset against outlays (In thousands)
Current
Fiscal Year
to Date
Comparable Period
Prior Fiscal Year
Proprietary receipts ........................................................
$9,626,795
Interest and dividends from Export-Import Bank
of the United States....................................................................
123,406
Intrabudgetary transactions....................................................... 23,111,902
$4,428,138
95,073
14,979,596
Total receipts offset against outlays
32,862,103
19,502,807
IS)
CO
24
T A B L E IV— M E A N S O F FINANCING (In thousands)
Classification
(Assets and Liabilities
Directly Related to the Budget)
Net Transactions
(-) denotes net reduction of either
liability or asset accounts
Fiscal Year to Date
This Month
This Year Prior Year
Account Balances
Current Fiscal Year
Beginning of
Close of
This Year This Month This Monti
LIABILITY ACCOUNTS
Borrowing from the public:
Federal securities:
Public debt securities........................................................ ..
Agency securities:
Defense Department:
Family housing mortgages........... ..................................
Homeowners assistance mortgages............................
Housing and Urban Development Department:
Federal Housing Administration..................................
Government National Mortgage Association.............
Transportation Department:
Coast Guard:
Family housing mortgages.........................................
Treasury Department:
Federal Farm Mortgage Corp. liquidation fund..
Other Independent agencies:
Export-Import Bank of the United States....................
Federal Home Loan Bank Board:
Federal Home Loan Bank Board revolving fund..
Home Owners' Loan Corporation fund................. ..
Postal Service.....................................................................
Tennessee Valley Authority............................ ...............
Total agency securities................................................
1803,193 130,881,144
129,130,716 $427,260,461
$457,338,412
1458,141,60j
-10,542
-252
-102,696
-1,619
-96,054
1,573
1,583,599
4,303
1,491,445
2,935
-1,172
-42,120
-440,000
-32,748
-1,085,000
453,770
4,920,000
412,822
4,480,000
1,480,1
2,684
411,650
4,480,1
-164
-143
2,792
2,628
2,621
65
2,221,056
-4
-19
-1
84
69
-320
402,401
-806,241
1,818,655
2,221,376
-2
-241
-4
5,152
207
250,000
1,855,000
4,911
206
250,000
2,175,000
80,000
400,000
-241
-16
250,000
499,700
67,708
215,539
-1,269,170
10,893,562
11,041,393
Total Federal securities..............................................
870,902
31,096,683
27,861,547
438,154,023
468,379,805
4,91
201
250,000
2,255,1
11,109,10]
469,250,id
Deduct:
Federal securities held as investments of
Government accounts (See Schedule B ).......................
Non-interest-bearing public debt securities
held by International Monetary Fund............................
3,239,686
11,821,392
8,419,740
113,559,439
122,141,146
125,380,83]
825,000
825,000
825,001
Total borrowing from the public..........................
-2,368,784
19,275,291
19,441,806
323,769,584
345,413,659
Accrued interest payable on public debt securities..................
-1,305,192
231,143
252,415
2,641,612
4,177,947
343,044,81]
2,872,15]
-652,571
906,826
495,692
2,490,606
4,539,334
2,490,606
4,108,662
2,490,1
-221,900
975,497
-2,299,076
3,652,990
9,902,794
6,628,222
7,603,Tlj
-2,920,379
16,554,788
24,749,729
343,343,929
362,819,096
359,898,11]
4,398,128
2,431,660
1,668,473
11,309,647
9,343,179
13,741,30]
-8,181
710,921
1,957,632
-400,000
1,949,450
-400,000
1,949,45]
-400,00]
-8,181
710,921
1,557,632
1,549,450
1,549,451
360,186
-1,301,168
50,000
1,078,832
-988,467
3,687,761
515,533
2,026,408
565,533
4,758,314
1,172,311
2,469,759
17,070,573
13,484,570
2,386J
565^
18,242,881
24,855
756,783
349,731
2,174,775
2,906,703
2,93h55j
4,783,169
1,929,094
2,819,490
19,245,348
16,391,272
+21,930,240 +324,098,582
+346,427,823
21,174^
+338,724^
Deposit funds:
Allocations of special drawing rights......................................
Other...................................................................................................
Miscellaneous liability accounts (includes checks
outstanding etc.)...............................................................................
Total liability accounts...........................................
ASSET ACCOUNTS (Deduct)
Cash and monetary assets:
Within general account of Treasurer, U. S.............................
With other Government officers:
Special drawing rights:
Total holdings......................................... ...............................
Certificates issued to Federal Reserve Banks.............
Balance...............................................................................
Other...............................................................................................
With International Monetary Fund.............................................
Total cash and monetary assets......................
Miscellaneous asset accounts........................................................
Total asset accounts...........................................
Excess of liabilities (+) or assets (-)......................................... .
-7,703,548 +14,625,694
TRANSACTIONS NOT APPLIED TO CURRENT YEAR'S
SURPLUS OR DEFICIT (Add)
Seigniorage..........................................................................................
Increment on gold..............................................................................
Off-budget Federal agencies:9
Net receipts or outlays (-)..........................................................
Total.......................................................................
Total budget financing [Financing of deficit (+) or
disposition of surplus (-)]........................................................
See footnotes on page 3.
3,886,76]
32,061
395,133
580,591
861,698
363,071
395,1»
59,553
-609,309
-145,234
-668,862
-609,301
91,614
-214,177
1,297,056
-305,791
-214,It
+346,122,033
+338,510,09
-7,611,934 +14,411,517
+23,227,295 +324,098,582
25
TABLE IV—SCHEDULE A -AN ALYSIS OFCHANGE IN EXCESS OF LIABILITIES (In thousands)
Classification
loseof
s Month
Excess of liabilities beginning of period:
F Based on composition of unified budget in preceding period . .
I Adjustments during current fiscal year for changes in
I composition of unified budget „ „ .. ... ............................ .................
« , 141,605
1 , 480,903
2,08|
411,650
4 , 480,000
2,691
63
2 , 221,051
This
Month
Fiscal Year to Date
This Year
Prior Year
1346,427,823 1324,098,582
1302,168,342
Excess of liabilities beginning of period (current basis)..............
346,427,823
324,098,582
302,168,342
Budget surplus (-) or deficit:
I Based on composition of unified budget in prior fiscal year *.
I Adjustments during current fiscal year for changes in
I composition of unified budget ..........................................................
-7,611,934
14,411,517
23,227,295
Budget surplus (-•) or deficit (Table m ).................... ..
-7,611,934
14,411,517
23,227,295
-110,456
50,904
-32,061
549,515
6 59,794
-395,133
-1,442,290
[Transactions not applied to current year's surplus or deficit:
I Off-budget Federal agencies:
Export-Import Bank of the United States.........................
Rural Electrification and Telephone revolving fund.
I Other................................. ......................................
145,234
Total.......................................................................................................
-91,614
214,177
-1,297,056
Excess of liabilities close of period....................... ............................
338,724,276
338,724,276
324,098,582
Bee footnotes on page 3.
26
TA B LE IV—SCH ED U LE B -IN V E S T M E N T S OF GO VERN M ENT ACCOUNTS
IN FEDERAL SECURITIES (In thousands)
Net Purchases or Sales (-)
Classification
This Month
Fiscal Year to Date
Prior Year
This Year
Legislative Branch:
Library of Congress..................................................
United States Tax Court.............................................
-111
The Judiciary:
Judicial survivors annuity fund......................................
Agriculture Department:
Public debt securities......................................... ...............
Agency securities................................................! ! ! ! !
49
914
895
7,234
-640
1,616
59,215
38,526
952
7,232
53,215
47,736
775
1,877,346
-50,000
983,898
-50,000
-145,898
’ *220*648
32,647,577
555,000
7,011,654
34,619,243
555,000
7,516,057
2,833,958
50,000
478,075
179
3,679,574
50,000
707,922
82
6,000
-
6,002
Commerce Department...........................................................
Defense Department . . . .........................................
Health, Education, and Welfare Department:
Federal old-age and survivors ins. trust fund:
Public debt securities................................
Agency securities.....................................! ! ! ! ! ! ! ! ! ! !
Federal disability insurance trust fund:
Public debt securities....................................................
Agency securities ................ \[
Federal hospital insurance trust fund
Public debt securities.....................................................
Agency securities .............................................................
Federal supplementary medical ins. trust ’fund* !" !
Other............................................................... ..........................
Housing and Urban Development Department:
Community Development Planning and Management:
New Communities Guarantee fund.. . . . . . . . . . . . . .
Federal Housing Administration:
Federal Housing Administration fund:
Public debt securities....................................
Agency securities......................................... ! ! . ! ! ! !
Housing Management:
Community disposal operations fund:
Public debt securities....................................
Agency securities ...................................... ! ! ! ! ! ! ! !
Rental housing assistance fund
................ . .
Government National Mortgage Association:
Participation sales fund:
Public debt securities..................... ...............
Agency securities .........................................................
Guarantees of Mortgage-Backed Securities . . . . . .
Management and liquidating functions fund:
Agency securities .........................................................
Special assistance functions fund:
Agency securities.................. ............... ..
Federal Insurance Administration:
s
National Insurance development fund.........................
Interior Department:
Public debt securities .........................................................
Agency securities......... .........................................................
111
48
6,386
-
Securities Held as Investments
Current Fiscal Year
Beginning of
Close of
This Year
This Month T his Month
301
326,380
2,298,046
287,172
791,575
492,791
’ *-8,"291
1,338,407
” 221,’ 556
-97
1,735
3,511
2,602
4,827
6,603
40,006
-9,029
115,514
-6,549
1,098,371
206,027
1,138,300
197,026
154
388
2,743
388
7,571
599,950
98,475
3,421
50,352
97,371
75,160
844,092
112,460
7,644
48,172
91,933
80,986
876
739
1,000
33,024
7,665
438
176
277,167
21,650
4,661
-2,316
-6,839
5,826
-295,193
93,475
2,776
39
-24,685
-
1,000
53,21-
77
34,945,6
555,
7 ,803,2?
4 ,172,36
50,
1 , 138,37
877,11
120, if
90,56
Labor Department
Unemployment trust fund:
Public debt securities........................................... ..
Agency securities......... ...................................................
O ther.................. .......................................................................
552,694
......... -9
1,144,212
...........-42
-1,328,370
- 100,000
-9
9,812,535
.............73
10,404.053
.............. 40
State Department:
Foreign service retirement and disability fund . . . .
Other..........................................................................................
11,192
-40
5,993
60
6,108
58,569
130
53,370
230
64,56;
Transportation Department
Highway trust fund........................... ..........................
O ther............................................................................ ..
61,221
1,093,670
13,751
4,456,381
32
2,614,708
1,157
5,488,830
23
2,954,406
2,482
5 , 550,05}
Treasury Department................................................................
General Services Administration. . . . . . . . . . . . . . . . . . .
821,513
-3
1,200,525
-527
See footnotes on page 3,
(*)
-1 0
353,449
1,325
10,956,74
199
2,968,151
2r
TA B LE IV—SCH ED ULE B--INVESTMENTS OF GOVERNM ENT ACCO U N TS
27
IN FEDERAL SECURITIES—Continued (In thousands)
Securities Held as Investments
Current Fiscal Year
Net Purchases or Sales (-)
Classification
This Month
veterans Administration:
Veterans reopened insurance fund..................................
IVeterans special life insurance fund.............................
Government life insurance fund.......................................
National service life insurance fund:
, Public debt securities...............................................
i Agency securities.............................................................
Other........................................................................................
ther independent agencies:
I Civil Service Commission:
Civil service retirement and disability fund:
Public debt securities...............................................
Agency securities........................................................
Employees health benefits fund..................................
Employees life insurance fund....................................
I Retired employees health benefits fund..................
Emergency Loan Guarantee Board.................. .............
Federal Deposit Insurance Corporation.......................
I Federal Savings and Loan Insurance Corporation: ,
Public debt securities .................................................... .
I Agency securities......... ...................................................,
National Credit Union Administration:
I National credit union share insurance fund.............
Postal Service:
j Public debt securities
.................................... . . ,
Agency s e c u r it ie s ......................................................
!Railroad Retirement Board:
Public debt securities ................................................
Agency securities............................................. .................
Other...............................................................
Fiscal Year to Date
This Year
Prior Year
Beginning of
This Year
This Month
Close of
This Month
18,531
3,524
9,249
$32,787
31,610
-26,895
$31,207
27,998
-41,618
$220,206
321,028
716,600
$244,462
349,114
680,456
$252,993
352,638
689,705
135,085
272,281
-5ÓÓ
*-ÌÌ* 3 6 Ì
87,194
-25,000
11,360
6,155,084
310,000
12,790
6,292,280
310,000
1,929
6,427,365
310,000
1,429
3,197,590
3,040,753
27,293,189
375,000
206,153
1,091,126
31,081
1,085
5,098,506
28,773,029
375,000
248,738
1,232,657
36,381
4,315
5.638.677
30,490,779
375,000
188,607
1,242,782
36,381
4,315
5,635,829
2,648,384
143,550
2.839.678
141,950
2,906,576
141,950
1,717,750
léÓ*Ì3Ì
-
100,000
‘ *‘ -17*546
151,656
5,300
3,230
537,323
60,205
118,852
2,961
1,085
437,838
66,898
258,192
-1,600
147,642
-100
10,904
9,912
16,185
27,189
27,089
-423,146
-27,910
-180,898
-99,410
1,265,811
104,410
1,265,811
104,410
1,508,059
32,910
1,084,913
5,000
15,701
24,125
-110,078
6*580
“ *34,‘ 740
30*400
4,534,777
50,000
98,480
4,543,201
50,000
126,640
4,558,902
50,000
133,220
Total public debt securities . . . . .............
Total agency securities..................................................]
3,261,496
-21,810
11,924,936
-103,544
8,571,456
-151,716
111,459,652
2,099,787
120,123,092
2,018,053
123,384,588
1,996,243
Grand Total...............................................................
3,239,686
11,821,392
8,419,740
113,559,439
122,141,146
125,380,831
10,125
-2,848
MEMORANDUM
¿vestments in securities of privately owned
povernment-sponsored enterprises:
J Milk market orders assessment fund..............................
^vestments in non federal debt securities of Farmers
Home Administration:
IPostal Service..........................................................................
Total................
-173
-173
28
T A B L E V -C O M P A R A TIV E S T A T E M E N T OF BUDGET RECEIPTS AND O UTLAYS
BY M ONTHS OF CURREN T FISCAL YEAR (In millions)
(F ig u re s are rounded in m illio n s of d o lla rs and m ay not add to totals)
Classification
July
Aug. Sept. Oct.
Nov. Dec.
Jan.
RECEIPTS
Individual income taxes.................................. .. $7,355 $8,380 $11,005$7,595 $8,613 $8,206 $12,897
Corporation income taxes.................................. 1,071 665 4,965 965 559 5,632 1,382
Social insurance taxes and contributions:
Employment taxes and contributions.......... 3,728 5,367 3,674 3,239 4,044 2,606 3,972
Unemployment insurance..............................
260 1,175
174
93
62 209 637
Contributions for other insurance and
retirement......................................................
340
289 307 301 311 288 276
Excise taxes........................................................ 1,442 1,351 1,327 1,387 1,452 1,286 1,437
Estate and gift taxes..........................................
334 423 316 409 487 364
396
Customs................................................................
289
237 278 237 281 284 234
244
Miscellaneous......................................................
492 266 295 343 383 276
Total--receipts this year...................... 15,207 18,213 22,183 14,738 16,748 18,972 21,130
T o ta l—re c e ip ts p r io r y ea r
TT.................................................... 1 3 ,2 2 1
OUTLAYS
Legislative Branch..............................................
The Judiciary......................................................
Executive Office of the President....................
Funds appropriated to the President:
International security assistance................
International development assistance..........
Other..................................................................
Agriculture Department:
Foreign assistance, special export programs and Commodity Credit Corporation
Other..................................................................
Commerce Department......................................
Defense Department:
Military:
Department of the Army............................
Department of the Navy..............................
Department of Air Force..........................
Defense agencies........................................
Civil defense................................................
Allowances undistributed..........................
Total Military..........................................
Civil..................................................................
Health, Education, and Welfare
Department:
Social and Rehabilitation Service................
Federal old-age and survivors insurance
trust fund........................................................
Federal disability insurance trust fund. . . .
Federal hospital insurance trust fund........
Federal supplementary medical
insurance trust fund......................................
Other..................................................................
1 5 ,6 4 1
1 9 ,7 1 9
1 2 ,4 5 0
1 4 ,9 3 3
1 7 ,2 1 6
1 7 ,6 0 5
35
13
6
-170
74
88
48
13
6
80
90
128
37 39
14 15
4
5
61 88
72 97
124 116
47
17
4
118
143
107
56
16
5
157
101
108
47
14
6
117
125
139
2,433
255
89
831
700
147
177 520
224 562
103 115
285
395
100
86
220
-15 1,277
114
128
Feb. March April
May
June
$8,067 $3,409 $11,587 $3,825 $12,321
923 8,739
672 4,867 5,657
6,067 4,957 5,614 6,915 4,687
684
63
107
445 2,156
291
301 309
278 320
1,186 1,244 1,318 1,446 1,397
317
330 466
568 489
261
255 278
262 280
384
289 360
348 264
18,067 15,987 25,860 16,584 28,504
2 4 ,5 3 3
1 5 ,2 4 1 1 5 ,2 2 4
1 7 ,2 7 2 ; 25,593
Fiscal Com-1
arable
Year p
To PeriodI
P
Date rior I
. F.Y. I
$103,261 194
36,096 32,ld
54,870 46,120
6,063 4,351
3,612 3,437|
16,272 15,471
4,898 SÜ
3,175 3,287
3,944 - 3,633]
iterior D
Hustice De
232,192
MM\
44
53
17
15
5
5
31 157
98 -128
129 106
42
13
5
42
96
153
44
18
5
39
137
115
49
17
6
451
120
214
540
183
60
1,171
1,025
1,528
23
305
122
47
596
96
-38
100
90
-134
568
158
4,517
5,671
1,363
5,066]
5,869|
1,250
67
703
100
Busing ai
Jjepartmi
431
54
1,523
1,434
;1 m
1,391 1,259 1,551 1,707 1,815 1,728 1,789 1,690 1,776
1,381 1,670 1,459 1,861 1,937 1,859 1,919 1,882 1,962
1,948 2,011 1,808 1,968 1,873 1,844 1,983 1,911 2,138
584 751
469 717 378 524 620 528
636
6
7
3
6
6
6
5
7
8
1,784 1,567
1,990 2,089
1,948 1,991
477 584
7
6
2,175 20,231
2,452 22,461
2,191 23,615
677 6,945
74
8
22,51
22,336
23,999]
6,14u
7a
5,193 5,662 5,204 6,066 6,250 5,965 6,332 6,075 6,633
101 118
109 140
128
185 186 162 112
6,207 6,238
118 112
7,503 73,327
233 1,704
75,151
1,53]
1,051 1,045 1,167 1,585 1,008 1,325 1,244 1,039 340
2,993 2,998 3,001 3,604 3,671 3,639 3,721 3,791 3,866
380 384 '387 453 452 466
465
478 491
548 656
386 453
595
663 613 550 527
148 190
230
197 235
274 245 225 198
498 942
866
998 966
778 544 1,131 818
918 1,401
3,857 4,652
490 515
587 629
227 236
1,046 150
1,285 13,408
3,882 43,677
509 5,468
635 6,841
229 2,635
1,242 9,980
14,151
35,841
2,54]
8,64a
mus m i,
bfootnot
29
TAB LE V--COMPARATIVE S T A T E M E N T OF BUDGET RECEIPTS AND OUTLAYS
BY M ONTHS OF CURRENT FISCAL YEAR-Continued (In millions)
( F ig u r e s a r e rou nded in m illio n s o f d o lla r s and m a y not add to to ta ls )
Classification
July
Aug. Sept.
Oct. Nov, Dec.
Jan.
Feb. March April
May
June
Com
Fiscal parable
Year Period
To Prior
Date
F.Y,
OUTLAYS—C ontinued
busing and Urban Development
Repartaient.................................................
lerior Department........................
Jstice Department....................................
¡bor Department:
¡Unemployment trust fund.....................
(Other........................................................
iteDepartment., .......... ..........................
[ansportation Department:
Highway trust fund........... ..
Ether........................................................
leasury Department:
¡Interest on the public debt..................
■ Interest on refunds, etc. . . . . . . . . . .
■ General revenue sharing ....................
■ Other .................. ..
lomic Energy Commission . . . . . . . . .
Ivironmental Protection Agency . . . .
.„«eneral Services Administration . . . . .
NBational Aeronautics and Space
"^^Administration........................................
l|terans Administration:
¡Compensation, pension, and benefit
[programs.............................. .................
Government life insurance fund . . . .
[National service life insurance fund
p j f c ............... ................KBB
^^Ter independent agencies:
1
Service Commission . . . . . . . . .
’ ^TSxport-Import Bank of the
[United States ...................................
2 ^;^JFostal Service.......................... ..............
»’rt^Blmall Business Administration . . . ,
0oM^BTennessee Valley Authority . . . . . . .
'» O t h e r .........................................................
’ dMidistributed intrabudgetary
^^ansactions:
■ Federal employer contributions to
Î5151!■ retirement fund ..................................
’ ^Tnterest credited to certain
1
accounts.................................................
’
owances undistributed .......................
,«
14 1
Total outlays—this year..............
3
5848^1 Total O u tlays-prior ye a r .......................................
MiiBurpius (+) or deficit (-) this year . . .
2544^B
^u
s' +^or
p rior y e a r ,
lee footnotes on page 3.
$513 $623 $358 $158 $353 $366 $459 $309 $205
97
95
78 -179 -1,174
9 -310
888 177
139 153
121
108 107 131 130 126 109
534 523
562
513 453 372 348 386 465
227 291
245
338 345 237 258 276 211
45
45
42
50
41
69
43
48
112
217 275
321
487 515 494 503 477 374
254 250
370
261 289 244 311 252 279
1,872 1,867 1,911 1,933 1,934 1,957 2,070 2,010 2,128
17
10
13
12
12
14
19
15
12
9 H
2,617 2,514
3
3
0
1
2
0
-387
-67
1
4
9
-225
6
1
-19
-23
210 225
210
146 199 171 191 187 196
65 134
63
89
71
74
83
83
43
52
82
37
54 -75
48
54
89
101
241 301
271
289 289 273 271 272 284
$163 -$205
95
84
139
131
372
459
301
257
50
29
228 334
257
314
2,144 2,157
13
27
1,493
3
110
26
219
229
107
111
28 -23
255
265
$296 $3,600
-204 -2,219
137 1,531
368 5,353
297 3,283
592
19
496 4,722
379 3,462
2,184 24,167
182
17
(**) 6,636
-4
-79
210 2,393
188 1,113
3
448
306 3,316
$3,642
1,25b
1,180
6,926
3,107
536
4,677
2,854
21,849
188
87
2,392
763
589
3,422
844
6
41
95
390
807
6
51
290
370
825
6
50
162
383
851
6
54
149
369
847
6
51
206
400
814
9
55
136
386
702
5
43
111
468
9,295
66
519
2,088
4,601
99 -243
97 188
45
39
282 332
499
233
-6
372
SU
232
136
5
350
124
53
45
347
Í50
22
24
332
Í53
81
53
302
Í.429
1,346
367
3,591
8,061
81
720
1,848
3,773
39
1,772
452
448
3,435
-228 -249 -238 -229 -223 -208
-24 -160 -37 -47 -130 -2,266
-279
-251 -264
-248
-260
-250 -2,926
-2,768
-118 -2,361 -5,446
-5,089
612
5
35
230
329
644
5
37
169
372
' -59 "i¿9
29 170
34
12
285 430
610
4
33
184
373
703 1,034
5
4
32
35
154 202
371 390
49 ' ' 54
46
208
59
41
309 285
-18
83
16
-35
-146
-65
-76
18,591 20,581 18,471 20,055 21,165 19,721 23,631 20,227 20,806 22,306 20,157 20,892 246,603
1 8 ,5 6 8
1 9 ,5 8 1
1 8 ,2 0 2
1 8 ,7 8 1
1 8 ,9 3 2
1 7 ,4 9 0
1 9 ,4 8 1
1 8 ,7 6 4
2 0 ,3 2 9
1 8 ,5 9 7
1 9 ,777
2 3 ,3 7 5
2 3 1 ,8 7 6
-3,384 -2,369 +3,712 -5,317 -4,418 -750 -2,501 -2,160 -4,820 +3,554 -3,573 +7,612 -14,412
-5 ,3 4 8
-3 ,9 4 0
+ 1 ,5 1 8
-6 ,3 3 0
-3 ,9 9 8
-2 7 5
-1 ,8 7 6
-3 ,5 2 3
-5 ,1 0 5
+ 5 ,9 3 7
-2 ,5 0 6
+ 2 ,2 1 9
-2 3 ,2 2 7
30
TAB LE VI—TR U S T FUND IMPACT ON BUDGET RESU LTS AND INVESTMENT HOLDINGS (In millions)
Current Month
Classification
Receipts
Trust receipts, outlays, and invest
ments held:
Federal old-age and survivors
insurance.............. ..........................
Federal disability insurance . . . . .
Federal hospital insurance . . . . . .
Federal supplementary medical
insurance ................................ .......
Federal employees retirement . . .
Federal employees life and health
benefits ...........................................
Federal Deposit Insurance Corp ..
Airport and airway..........................
General revenue sharing................
Highway............ ...........................
Indian tribal funds...........................
Military assistance advances........
Railroad retirement........................
Unemployment............ .....................
Veterans life insurance............ ..
All other trust ................................
Trust funds receipts and outlays
on the basis of Table HI and
investments held from
Table IV—B...............................
Intragovernmental receipts offset
against trust fund outlays . . . . . . .
Total trust fund receipts and
outlays...................................... ..
Federal fund receipts and outlays on
the basis of Table HI...................... .
Intragovernmental receipts offset
against Federal fund outlays . . . . . .
Total Federal fund receipts and
outlays ............................................
Total intragovernmental receipts and
outlays.................................................... :
Net budget receipts and outlays.......... .
12,949
580
1,041
111
180
Fiscal Year to Date
Excess of
Receipts
Outlays receipts
or out
lays (-)
3,034
298
538
-1,538
282
503
13
1,719
117
107
2,378
Outlays
10,713 139,956
4,882
5,378
7,597
6,093
1,161
1,426
2,186
-714
-134
-537
654
758
6,637
8,295
4,526
5,665
-9
-335
2,154
1,183
4,720
6,063
-252
-29
24
79,288
Excess of
receipts
or out
lays (-)
Securities Held as Investments
Current Fiscal Year
Beginning of
This Year This month
1756
495
1,504
265
2,900
134
537
104
1,658
1,139
9
335
-971
1,344
252
53
133,203
7,012
2,884
478
27,668
1,328
5,099
Ì35,174
7,516
3,730
708
29,148
1,518
5,639
4,456
5,489
’¿’ 585
9,813
7,183
*4^593
10,404
7,285
103
10,514
103,807
111,307
1
Close of
this month
f35,50l|
7,8
4,22$
1
114,85;
12,718
9,414
7,036
2,378
22,877
17,643
5,234
92,006
81,492
10,514
161,198 186,124
-24,926
121
121
22,885
17,651
5,234
161,319 186,245
-24,926
-3,795
28,504
-3,795
20,892
7,612
-21,134 -21,134
232,192 246,603
-14,412
See footnotes on page 3.
Note: Intragovernmental receipts and outlays are transactions between Federal funds and trust funds, such as, Federal payments and contributions,
Federal employer contributions, and interest and profits on investments in Federal securities. They have no net effect on overall budget receipts
and outlays since the receipt side of such transactions is offset against budget outlays. In this table, intragovernmental receipts are shoymasan!
adjustment to arrive at total receipts and outlays of trust funds and Federal funds respectively. Included in total intragovernmental receipts and
outlays are $8,295 million in federal funds transferred to trust funds for general revenue sharing.
TABLE VII—SUM M ARY OF RECEIPTS BY SOURCE AND OUTLAYS BY FUNCTION (In thousands)
Source
This Month
Total Budget
Fiscal Year
To Date
31
Comparable Period
Prior Fiscal Year
NET RECEIPTS
dividual income taxes......................................
orporation income taxes.......................... ....... .
ocial Insurance taxes and contributions:
¡Employment taxes and contributions...... ........ .
Unemployment insurance...............................,
Contributions for other insurance and retirement,
jcise taxes ............... ........... ...................... .
state and gift taxes ................ .......................
stoms.................................................. ....
Miscellaneous................................................ .
Total............................. ........................
$12,321,123
8,739,442
4,686,721
106,515
291,428
1,397,343
316,532
260,759
383,644
28,503,506
$103,260,527
36,096,144
54,870,061
6,063,441
3,612,261
16,271,536
4,898,489
3,175,268
3,944,115
232,191,842
$94,736,616
32,165,916
46,119,776
4,356,671
3,437,322
15,476,901
5,435,862
3,286,906
3,632,589
208,648,559
8,043,257
488,575
306,022
3,448
173,139
1,307,011
313,558
1,336,408
1,645,922
6,552,936
865,501
2,015,911
450,673
-185
-2,610,605
20,891,573
76,055,667
3,185,343
3,315,699
6,180,602
610,604
12,392,883
4,166,696
10,820,501
18,359,453
72,834,876
12,003,592
22,796,433
5,617,593
6,636,369
-8,372,951
246,603,359
78,336,072
3,785,746
3,421,763
7,061,398
3,759,276
11,196,707
4,215,694
10,198,471
16,980,431
64,557,519
10,747,366
20,584,295
4,888,631
-7,857,514
231,875,854
OUTLAYS
ational defense............... ...............................
ternational affairs and finance..........................
pace research and technology............... ...........
Agriculture and rural development.....................
atural resources........................... *..............
Commerce and transportation......................
immunity development and housing....................
■ ducation and manpower................. ...................
jealth......... ......... .......................................
'come security...............................................
Veterans benefits and services...... ....................
merest..........................................................
general government.........................................
general revenue sharing.....................................
Bndistributed intrabudgetary transactions............
Total........................................
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9
ÙTOR I M M E D I A T E R E L E A S E
July 26. 1973
O ffic e of the White H ouse P r e s s S e c re ta r y
T H E W H IT E H O U S E
S T A T E M E N T B Y T H E P R E S ID E N T
The b est w ay to hold down the co st of liv in g is to hold down the co st of
G overnm en t. T oday th ere is new and en couragin g eviden ce that we can
win that b a ttle .
The la te st M on thly Statem en t of R e c e ip ts and O u tla y s shows that F e d e r a l
outlays fo r f is c a l y e a r 1973 w ere held to $ 2 4 6 .6 b illio n - - a fig u re w ell
below the $250 b illio n ce ilin g on spending that I had recom m en ded to the
C o n g re ss. S in ce o v e r a ll r e ce ip ts to taled $232. 2 b illio n , the d e fic it fo r
isca l y e a r 1973 w as $ 1 4 .4 b illio n . T h is w as a m uch s m a lle r d e fic it
t an the $24. 8 b illio n d e fic it p ro je cte d in m y B udget M e s s a g e la s t
Ja n u a ry . M o r e o v e r , the budget w as w ithin $2 b illio n o f being in
balance during the p erio d fr o m Ja n u a r y to Ju n e o f th is y e a r - - a period
when it w as e s p e c ia lly im portan t to hold down G o vern m en t spending.
During the debates on budget p o lic y la s t f a ll and la s t w in te r, it w as w idely
an ” frequ en tly a s s e r te d that we could not hold spending to the
J
b illio n le v e l and that the only w ay to prod uce an a n ti-in fla tio n a ry
u get w as by in c r e a sin g ta x e s . I r e je c te d that contention then - - and
I re je ct it now, a s we look to a new f i s c a l y e a r . We held the budget
me in the y e a r ju s t p a st without r a is in g ta x e s . I b e lie ve we can do so
again - - and, in fa c t, a ch ie v e a b alan ced budget - - i n f i s c a l ye>ar 1974.
In e a r lie r y e a r s , budget d e fic its have so m e tim e s helped take the s la c k
out o f the econom y and in c r e a s e e m p lo ym en t. H o w e v e r, we re co gn ize d
xn the su m m er of 1972 that a m a jo r p ro b le m w as developin g a s the econ om ic
oom got w ell underw ay. W e could fo r e s e e th at the p r e s s u r e s fro m e xistin g
jj* ®r «*l p r o g ra m s and new le g is la tio n could push spending fo r f i s c a l y e a r
3 to $260 b illio n or m o re - - m u ch m o re than we thought an a lre a d y
strong econom y could to le r a te w ithout g r e a te r in fla tio n . I th e re fo re
called upon the C o n g r e s s to hold the lin e on spending at $250 b illio n .
The C o n g re ss h a s a cte d re sp o n sib ly on that re q u e st. T h e re have been
many d iffe re n ce s betw een the C o n g r e s s and the A d m in istra tio n over the
evel o f F e d e r a l spending on m any s p e c ific p r o g r a m s , but? the im portant
point is that our o v e r a ll spending go a l h a s been a ch ie v e d .
I r e c a ll how both H o u se s of the C o n g r e s s approved legisla tio n la s t fa ll to
c e ilin S in F e d e r a l spending at the $250 b illio n le v e l. W hile te ch n ica l
x e re n ce s prevented the two H o u se s fro m a g re e in g on a co m m o n v e rs io n
of that c e ilin g , and w hile o v e r a ll C o n g r e s s io n a l a ctio n fo r the la s t f is c a l
year even tu ally contem plated m u ch h ig h e r exp en d itu re s, it w as c le a r
n e ve rth e le ss that a m a jo r ity in both H o u se s o f the C o n g r e s s a cce p te d in
fke a d v isa b ility of holding spending to a low er le v e l. When the
c ips w ere down, it w as that sp ir it of r e s tra in t w hich p re v a ile d .
I tru st that the two b ran ch es can fo rg e an e ffe c tiv e p a rtn e rsh ip on behalf
of budgetary r e sp o n sib ility a ga in in th is new f is c a l y e a r - - and that one
year fro m now the fig u r e s w ill show th at the budget fo r fis c a l y e a r 1974
was in b a la n ce . T he fa c t that we n e arly ach ieved a b alan ce in the second
e lf of f is c a l y e a r 1973 en cou rages us to b e lie ve th is a r e a lis tic o b je ctiv e .
It should not be overloo ked, h o w ever, that the veto o f ce rta in b ills and the
re se rv in g of ce rta in funds w as e s s e n tia l in achieving our budgetary goals
or the p ast tw elve m o n th s. In flatio n continues to be our m o st im portant
(M O R E )
-
2-
econom ic problem - - and budget and m onetary restrain t continue to be our
most im portant tools for fighting it. C u r P h ase IV controls w ill help to
moderate inflation, but a balanced budget and m onetary restrain t m ust
be our m ajor weapons again st risin g p r ic e s .
With the econom y now operating at a high le v e l, revenues in fis c a l year
1974 should approxim ate, without any tax in c r e a s e s , the ove ra ll le ve l of
expenditures I proposed la st Ja n u a ry - - about $269 b illio n . B alancing
the budget th erefore m eans that we m ust hold expenditures to th at le ve l
in the coming- y e a r , despite the fa ct that higher p r ic e s , higher in terest
rates and new le gisla tio n w ill a ll be working to drive spending h igh er.
I am confident that with the continuing cooperation of the C o n g re ss we
can m eet that goal and thus help protect the A m e r ica n people against
the twin dangers of higher p r ic e s and higher ta x e s .
#
#
#
Department oftheTREASURY
SHINGTON, O C. 20220
T E LE P H O N E W 04-2041
FOR IMMEDIATE RELEASE
July 26,1973
WITHHOLDING OF APPRAISEMENT ON
PRIMARY LEAD METAL FROM CANADA
Assistant Secretary of the Treasury Edward L. Morgan
announced today a withholding of appraisement on primary
lead metal from Canada pending a determination as to whether
it is being sold at less than fair value within the meaning
of the Antidumping Act, 1921, as amended. This lead metal
is used chiefly in the production of storage batteries,
pigments and chemicals, including gasoline additives.
The decision will appear in the Federal Register of
July 27, 1973.
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 publica
tion of the "Withholding 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 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.
During the year beginning May 1972, imports of primary
lead metal from Canada amounted to approximately $18.6 million.
as
isles get to your sea'
h@r@8 pleas®
as possible.
r si
You knot* who he is. He*s perhaps the most mult1-purpose gentleman
In the whole government h< tre. He earn® to government first as secret«
of Labor» having been a 1 tfeor expert at the University ©f Chicago
of ;he School of Business Administration
timi i he was dean to© [sic]. He came down
abo * initially in this administration. Uh ere
the Office of Management and Budget» he asked
____ ___ ,r a: id become the first Director of the combine«
Office of Management and iudget« at which time he took a substantial
55 F »
t
ian to do something like that,
year and a half ago» the President
asked him to assume the post of secretary of the Treasury» an extres
ty critical post 1n governmti it. And for some months now» he's
been doubling in that post aiid also as counsellor to the President
Jor the whole economic area <if the government» where he serves
H v@rye very we l l .
** —
r *” ^ ^
r
w
—
is that
1n life.
he
of 8us*
was a 1
the
r$t i
tinis
T I»
,1rpl
1w
s Pii. D,
that's better
1tz when he was dean of the Sci
the University of Chicago. An«
low dean® but a dean at Purdue
introduce a fellow dean 11k© t!
Three men® there gives it
5
U. S. TREASURY DEPARTMENT
SECRETARY GEORGE SHULTZ:
ADDRESS
U. S. Department of Agriculture
Washington, D. C.
July 2«. 1973
igl
X r
away; I w a s t r a v e l l i n g
to u ris t,
[la u g h te r .]
A n d one ©f them s t a r t e d
c o n ve rsa tio n .
H e s a i d " I t h i n k we o u g h t to g e t a c q u a i n t e d . 15
He g a v e h i s n a m e .
And he s a i d , " I ' m dean a t s t a t e c o l l e g e .
I'm
c a rried .
I h a ve one son.
He I s a n a g r i c u l t u r a l a t t a c h e . ”
And
the s e c o n d o n e $ a 1 d 9 " W e l l s t h a t ' s I n t e r e s t i n g .
I ' m " ~~ h e g a v e
I'm m a r r i e d .
his n a m e .
He s a i d * " I ' m a d e a n a t s t a t e u n i v e r s i t y .
I a ls o h a v e one $©n9 and h e ' s an a g r i c u l t u r a l a t t a c h e . "
And th e
t h i r d man p a u s e d a b i t .
H e s a i d * % © y $ ® i n t h e p r e s e n t context*
I' m a l i t t l e e m b a r r a s s e d .
Yo u s e e * I ' m an a g r i c u l t u r a l a t t a c h e .
I'm n o t m a r r i e d .
1 have one s o n , and h e 's a d e a n .*5
a
[L a u g h te r .]
I g iv e you th e s e c r e ta ry o f the T r e a s u r y ,
[A p p la u s e .]
SECRETARY GEORGE S H U L T Z :
W ell * I t h i n k I s h o u ld
to E a r l ' s s t o r y a b o u t d e a n s * t h e r e a s o n w h y we b o t h s t o p p e d
dean® b e c a u s e we h e a r d a b o u t t h a t o l d s a y i n g t h a t o l d d e a n s
die; th e y j u s t l o s e t h e i r f a c u l t i e s .
add
being
never
[L a u g h te r .]
I a p p r e c ia te th e i n t r o d u c t i o n * b u t I sh o u ld say th a t
George H e a n y d i d a m u c h m o r e s t r a i g h t f o r w a r d j o b o n me t h e o t h e r
day.
He w a s i n t r o d u c i n g me t o a u n i o n g r o u p .
And he s a i d v e r y
s i m p l y - - lie s a i d » I i n t r o d u c e t o y o u t h e g r e a t e s t s e c r e t a r y o f
the T r e a s u r y s i n c e d o h n Cof 1n a l l y . 9,
[L a u g h te r .]
So
1 get
It
everyw here,
[L a u g h te r .]
I e x p e c t e d t h a t I w o u l d come o v e r h e r e a n d t h e r e w o u l d
h@ a s n a i l g r o u p o f p e o p l e w h o w e r e t h e a t t a c h e s f r o m a r o u n d t h e
world® a n d we c o u l d h a v e a n i c e i n t i m a t e d i s c u s s i o n a b o u t y o u r
p ro ble ms a n d o u r p r o b l e m s a s t h e y r e l a t e t o y o u r s .
A n d so I accepted
£h@ i n v i t a t i o n o n t h a t b a s i s ® a n d I ' m h e r e w i t h o u t a n o t e a n d w i t h o u t
* speech* and I f i n d i t ' s l i k e a p p e a r in g b e f o r e a S e n a te c o m m it t e e .
Over h e r e i n t h e A g r i c u l t u r e D e p a r t m e n t ® e v e r y t h i n g i s t e l e v i s e d *
ai*d I 9^ a l i t t l e n o n p l u s s e d .
B u t w h a t I t h o u g h t I w o u ld do i s
U ! k a b o u t a s u b j e c t t h a t s e e m s t o me v e r y c e n t r a l t o y o u r w o r k *
and i t c e r t a i n l y h o o k s w h a t y o u d o a n d t h e p r o b l e m s t h a t a r e v e r y
®och @n t h e f r o n t b u r n e r I n t h i s c o u n t r y t o g e t h e r .
A n d t h a t i s®
J f c o u r s e * t h e p r o b l e m o f i n f l a t i o n a n d w h a t w© a r e d o i n g a b o u t .
* t 9 and t h e r e l a t i o n s h i p t o i t o f w h a t i s h a p p e n i n g to f o o d p r i c e s
as a c e n t r a l e l e m e n t .
A n d I ' l l t a l k a b o u t ® i n a g e n e r a l way® w h a t
art d o in g,
A n d t h e n I w a n t t o w i n d up w i t h some com m ents a b o u t
™ t 1 t s e e m s to m@s a n y w a y 9 y o u c a n d o f o r u s t o h e l p w i t h t h e
Problem.
A n d I m e a n t h i s in a v e r y p e r s o n a l a n d d i r e c t way® b e c a u s e
* t h i n k © u r i n f o r m a t i o n a b o u t w h a t i s g o i n g o n i s s o c r i t i c a l to
0yr u n d e r s t a n d i n g a n d t o t h e p o l i c y d e c i s i o n s t h a t a r e m a d e .
3
Nets I w o u l d c l a s s I f 1 our p r o g r a m In d e a l i n g w i t h I n f 1a 11on
basically under fo u r h e a d in g s ,
A nd t h e f i r s t ® and I ' m sure® as
e c o n o m i s t s , we w o u l d a l l a g r e e m o s t i m p o r t a n t ® 1 s a p o l i c y o f d i s c i p l 1 si
0n t h e b u d g e t a n d r e s t r a i n t o n m o n e t a r y p o l i c y .
T h a t i s a n e s s ential
in g r e d ie n t ; I t a lw a y s has been
it w ill be.
I t w orks.
And w i t b o u t
1 t s w e 're n o w h e re .
So we m u s t c o n t i n u e o n t h a t p a t h , a n d we mu st
c on tin u e t o e x e r c i s e r e s t r a i n t and d i s c i p l i n e on t h e b u d g e t .
T hat
is a primary t a s k o f t h e e x e c u t i v e b r a n c h , a n d we c o u n t o n t h e
Federal R e s e r v e t o b e h a v e i n a s i m i l a r f a s h i o n on t h e m o n e t a r y
side.
Now t h e q u e s t i o n i s , d o we h a v e w h a t i t t a k e s t o e x e r c i s e
the n e c e s s a r y d i s c i p l i n e ?
A n d I t h i n k , in t e r m s o f t h e f i s c a l
1974 b u d g e t , w h i c h i s t h e y e a r t h a t w e ’ r e n o w 1 n , t h e m e a s u r e o f
r e s t r a i n t I s w h e t h e r o r n o t we c a n a c h i e v e a b a l a n c e d b u d g e t i n
this f i s c a l y e a r .
And I b e l i e v e t h a t is th e r i g h t f i s c a l p o l i c y ,
and I b e l i e v e I t c a n b e d o n e .
T h a t is th e P r e s id e n t 's g o a l .
Revenues
have b e e n r i s i n g f o r a v a r i e t y o f r e a s o n s , s o m e g o o d , s o m e n o t
so g o o d .
B u t t h e y have been r i s i n g , and t h e y have r i s e n 1n o u r
e s t i m a t e s a p p r o x i m a t e l y t o t h e l e v e l o f the P r e s i d e n t ' s b u d g e t
r ^ u e s t made i n « J a n u a r y .
T h e r e i s n o r e a s o n w h y we c a n ' t e x e r c i s e
th@ d i s c i p l i n e we n e e d t o h o l d s p e n d i n g w i t h i n t h a t f r a m e w o r k a n d ,
th e re fo re , b a la n c e th e b u d g e t.
A n d t h a t i s w h a t we n e e d i n t h i s
fiscal y e a r .
Mow, I know t h a t t h e r e is a tre m e n d o u s am ount o f c o n t r o v e r s y
in v o lvin g th e C o n g re ss and th e a d m i n i s t r a t i o n a b o u t th e b u d g e t
and t h e c o m p o s i t i o n o f t h e b u d g e t , a n d s o o n a n d s o forth.
But
as I h a v e g o n e a r o u n d a n d t e s t i f i e d b e f o r e I t h i n k a t l e a s t a s
iany c o m m i t t e e s a s y o u d o , E a r l - - a n d t h e s u b j e c t o f t h e b u d g e t
cosies u p p r a c t i c a l l y a l w a y s - - I f i n d t h a t , w i t h a l l t h e c o n t r o v e r s y ,
t h e r e _i s b a s i c a l l y v e r y l i t t l e c o n t r o v e r s y a b o u t t h e d e s i r a b i l i t y
h olding f e d e r a l sp e n d in g u n d e r c o n t r o l .
E v e r y b o d y a g r e e s ©n
that.
S© t h a t 1 s a g o o d m a r k e r f o r u s .
And I b e l i e v e and I hope
t h a t , as m
m r k a t t h i s p ro b le m and as t h e s i m i l a r i t y o f v ie w
on t h e o v e r a l l o b j e c t i v e r e a l l y t a k e s h o l d — a n d I t h i n k t h e American
peo pl e a r e v e r y m u c h b e h i n d u s - - m
w i l l be a b l e t o keep t h i s
spending u n d e r c o n t r o l .
Now, m
a r e a b o u t now r e a d y now — w e ' v e a b o u t f i n i s h e d
t j b e l a t l o n s I n t h e T r e a s u r y on w h a t has a c t u a l l y h a pp e n e d i n
nseal 1973. A n d t h e r e s u l t s of t h a t , w h i c h t h e y o u g h t t o b e a b l e
a n n o u n c e t o m o r r o w — n o t q u i t e p r e p a r e d y e t — t h e r e s u l t s ©f
w® k n o w e n o u g h a b o u t t o s a y t h a t n o t o n l y h a s t h e P r e s i d e n t
acnieved t h e g o a l o f s t a y i n g w i t h i n t h e tw o h u n d r e d a n d f i f t y b i l l i o n
a ® t t h a t was s e t a b o u t t h i s t i m e l a s t y e a r , b u t he h a s m o r e t h a n
jo jiivtd th a t g o a l,
ye have sta y e d w e ll under th e t m — w e ll
™ 0 r ***© f o r t y - n i n e b i l l i o n .
And why i s t h a t ?
Th a t is because
® manag ed t o g e t p e r v a s i v e l y , t h r o u g h o u t t h e g o v e r n m e n t , a n a t t i t u d e
J f l L * ? ^ y s t d i s c i p l i n e o u r s e l v e s ; we m u s t he c a r e f u l .
And t h a t
tud@ h a s p r e v a i l e d .
» •
Gf
Wo h a v e a l i t t l e s i g n u p
® c **® ®p !ed u p , u s e d d o l l a r b i l l «
I n my o u t e r o f f i c e .
It's sort
And t h e r e 's a s ta te m e n t u n d e r
arv
It th a t is kin d o f a pledge from th e T r e a s u r y :
JiM@ s p e n d t h i s
d o l l a r l i k e i t } $ o u r © w n . M A n d I t h i n k t h a t i s t h e a t t i t u d e we
need I n g o v e r n m e n t .
I ' m s u r e we h a v e i t .
A n d a s we h a v e I t , w e ' l l
be a b l e t© h o l d t h i s s p e n d i n g u n d e r c o n t r o l .
Uow9 th e P r e s i d e n t f e e l s » and I a g r e e w i t h him » t h a t
m ca n d o t h i s j o b © f b a l a n c i n g t h e b u d g e t i n f i s c a l * 7 4 w i t h o u t
a tax I n c r e a s e .
And li® $ n o t d e s i r a b l e a t t h i s tim e t o have a
tax i n c r e a s e .
And I w o u ld g i v e t h e f o l l o w i n g r e a s o n s .
Firs t»
in t e r n s o f f i s c a l p o l i c y , a b a l a n c e d b u d g e t i s t h e r i g h t f i s c a l
p olicy.
The economy is c o o lin g o f f a l i t t l e fro m th e v e r y h e c t ic
pace o f t h e f o u r t h q u a r t e r a n d t h e f i r s t q u a r t e r .
A n d we w a n t
i t t o c o o l o f f , b u t we d o n ' t w a n t t o o v e r d o I t .
Me w a n t i t t o
eoie o u t w i t h a s o r t o f a s o f t l a n d i n g o n a f o u r p e r c e n t » o r s © 9
real g r o w t h r a t e .
T h a t 's th e d e s ir a b le o b je c t iv e t h a t w e 're s h o o tin g
for.
S e c o n d , t h e r e i s , o f c@ urs@ B th e q u e s tio n a b o u t w h e th e r o r
not © t a x i n c r e a s e w o u l d r e p r e s e n t a g e n u i n e f i s c a l r e s t r a i n t »
©r w h e t h e r , , b y c o n t r a s t , w h a t y o u w o u l d g e t I s k i n d o f a f i s c a l
v e r s i o n o f P a r k i n s o n * s L a w t h a t m i g h t be s t a t e d a b o u t a s f o l l o w s :
that s p e n d in g w i l l r i s e t o m e e t a t l e a s t a l l t h e r e v e n u e s a v a i l a b l e
to be s p e n t .
And I f t h a t ' s t r u e 9 and I t h i n k t h e r e ' s a l o t o f
evidence t h a t 1 t ' s t r u e » t h e n a m o d e r a t e s i z e t a x I n c r e a s e w o u ld
not fee f i s c a l d i s c i p l i n e a t a l l , b u t w o u l d fee s i m p l y a w a y o f i n c r e a s i n
the o v e r a l l s i z e o f g o v e r n m e n t , w h i c h I s a t h i r d r e a s o n w h y t h e
President has opposed a t a x In c r e a s e a t th e p r e s e n t t i t l e .
And» f i n a l l y * I t h in k I f th e a n a ly s is Is t h a t w h a t's
needed i s a t a x i n c r e a s e t o b e e f f e c t i v e i m m e d i a t e l y 9 t h e n t h e
prospects f o r g e t t i n g t h a t j o b done and g e t t i n g i t done w i t h a
M a t , c l e a n t a x b i l l o f some k i n d a r e m i n i m a l .
I t 9s a v e r y c o m p l e x
su b je ct.
M e 'v e had a g r e a t d e a l o f t a l k a b o u t t a x r e f o r m .
The
a d m in is tr a tio n has p ro p o s a ls u p ; t h e y 'r e p ro p o s a ls o f a g r e a t v a r i e t y
©f s o r t s i n b e f o r e M a y s a n d H e a n s r i g h t n o w .
And I t ' s g o in g to
be q u i t e a j o b 1 n s o r t i n g a l l t h a t o u t .
S© I t i s n o t a s u b j e c t
th a t r i g h t now l e n d s i t s e l f t o q u i c k a c t i o n .
So f o r a l l t h o s e r e a s o n s , m
d o n ' t t h i n k t h e t a x increase
r©ute 1 s t h e r i g h t r o u t e .
Furtherm ore,
t h i n k t h e j o b ea
fee
d©ne^@n t h e s p e n d i n g s i d e a n d we c a n a c h i e v e
need b ud g et
f i s c a l ®74s and t h a t t h a t 1s a p r i n c i p a l weapon in t h e f i g h t
g a in st In fla tio n .
^ ® w 9 s e c o n d , w h a t d o we n e e d to d o 7
H e ll, I th in k m
w@d t o e x a m i n e o u r p o l i c i e s t h r o u g h o u t t h e g o v e r n m e n t , a s w e l l
e n c o u r a g i n g p r i v a t e I n d u s t r y t© d o t h e s a m e , a l l ©tsr p o l i c i e s
t h a t h a v e t o d o with p r o d u c t i o n .
Mow c a n we i n c r e a s e t h e s u p p l i e s
of
t h in g s w here p r ic e s a r e g o in g up?
T h a t 1s t h e fu n d a m e n ta l
1ft w h i c h w e ' l l a f f e c t i n d v i d o a l m a r k e t s .
And ©f c o u r s e in
f i e l d ©f f o o d , w h ic h i s t h e b i g g e s t e le m e n t i n te rm s ©f s e g m e n ts
the e c o n o m y , t h e b i g g e s t e le m e n t i n o u r i n f l a t i o n p i c t u r e , t r a m e n Qous e f f o r t s h a v e b e e n m a d e t o i n c r e a s e s u p p l i e s .
S r e a f am ounts
o f new a c r e a g e h a v e b e e n r e l e a s e d » a n d t h e S e c r e t a r y a n n o u n c e d
l a s t Meek t h a t » as f a r a s t h e n e x t c r o p y e a r I s c o n c e r n e d » [ i t ]
■fs a b s o l u t e l y a l l « o u t *
R igh t?
feihat’ s y o u r p h r a s e ?
Y o u ’ re going
to p lo w up t h e f e n c e p o s t s » o r p l o w u p t h e f e n c e h o l e s » ©r w h a t e v e r
It Is .
Rows®
L e a v e t h e p o l e s » b u t p l o w - - how do y o u p l o w up
the row s w i t h o u t h i t t i n g t h e f e n c e s ?
C o u l d y o u t e l l me t h a t ?
I alw ays w ondere d a b o u t t h a t .
B u t any way» th e p o in t is t h i s is
the t im e f o r a i l - o u t p r o d u c t i o n .
And I m ig h t s& y» beyond t h a t »
l o o k i n g t o t h e f u t u r e - » a n d t h i s I s w h y » a t l e a s t t o me» t h e r e ’ s
so much d i s t r e s s i n g a b o u t a l o t of t h e d i s c u s s i o n a b o u t a f a r m
b ill — as m
l o o k out i n t o t h e f u t u r e » t h i s i s t h e time w h e n i t
seems a s t h o u g h we c a n r e - a r r a n g e o u r b a s i c p o l i c i e s h e r e .
And
m© h a v e a c h a n c e f o r o u r f a r m e r s » w h o a r e p r o b a b l y t h e h a r d e s t
w o r k i n g s e g m e n t o f our p o p u l a t i o n — we h a v e t h e c h a n c e f o r o u r
f a r m e r s t o h a v e a h i g h i n c o m e b u i l t on r e a s o n a b l e p r i c e s a n d l o t s
o f o u t p u t » i n s t e a d o f th e o t h e r way a ro u n d w here yo u g e t h ig h p r ic e s
through r e s t r i c t i n g o u t p u t .
So we h a v e a n o p p o r t u n i t y f o r a r e a l
r e - a r r a n g e m e n t o f o u r a g r i c u l t u r a l p o l i c y its t h e i n t e r e s t o f i n c r e a
s i n g s u p p l y » n o t o n l y f o r © u r u s e h e r e a t h@sne9 hut fo r m e e t i n g
demands a l l a r o u n d t h e w o r l d .
And t h a t is n e t o n ly good f o r th e
r e s t ©f t h e w o r l d » b u t 1 t * s v e r y good f o r u s » b e c a u s e i f w @ *re
g o i n g t o I m p o r t a l l t h e s e t h i n g s t h a t we w a n t t o i m p o r t » t h e r e ’ s
g o t t o be s o m e t h i n g m
s e l l to p a y f o r i t .
And a g r i c u l t u r e Is
t h e b e s t t h i n g w@®ve g o t g o i n g f o r u s w h e n i t c o m e s to © y r e x p o r t s .
S o t h a t ’ s o n e k i n d o f t h i n g t h a t i t s e e m s t o me i m p o r t a n t
t o do i n I n c r e a s i n g s u p p l i e s ,
Me h a v e — b e y o n d t h a t » w e h a v e
very l a r g e s t o c k p i l e s o f many c o m m o d itie s » m o s t ©f w h ic h c a n ’ t
be s o l d w i t h o u t c o n g r e s s i o n a l a c t i o n .
$© m
have a b i l l In b e fo re
t h e C o n g r e s s t© a l l o w u s t o d i s p o s e © f s t o c k p i l e s w h e r e t h e y ’ r e
declared n o n s t r a t a g i e .
T h e y ’ r e n o t n e c e s s a r y f o r national d e f e n s e .
S© whe n w e ® r e h o l d i n g a b i g s t o c k p i l e o f s o m e t h i n g t h e p r i c e o f
"h lch Is g o in g up» l e t ’ s s e l l i t » and l e t ’ s g e t th e c o n g r e s s io n a l
a u t h o r i t y t o d© t h a t .
Th at increases s u p p ly .
Now» m h a v e a l o t © f n e g a t i v e s . And I t h i n k e v e r y o n e
nas h a d l i t t l e d e m o n s t r a t i o n s h e r e l a t e l y w h i c h y o u s e e m o r e c l e a r l y
when t h e e c o n o m y i s o p e r a t i n g a t f u l l c a p a c i t y In a k i n d of a taut
way In t h e m a r k e t s .
You see t h i s b a s ic le s s o n t h a t i f c o s ts e x c e e d
p rices» i t ' s n o t v e r y good f o r p r o d u c t i o n .
A n d t h a t l i n e about
Y©u m a k e 1 t u p o n v o l u m e * d o e s n ’ t p l a y a n y w h e r e a n y m o r e .
S©
JJJ s e e t h e b a b y c h i c k b u s i n e s s t h a t ’ s g o t t e n a l o t o f p u b l i c i t y »
t h a t Illustrates t h a t p o i n t .
A n d a s f a r a s l*m c o n c e r n e d » I ’ v e
• e a r n e d a n ew w o r d t h a t I ’ m s u r e e v e r y o n e h e r e k n o w s .
B u t t o me
6
Os* to look at another segment of our society, it*© $&@
vsry large Increases 1n investment in new plant and equipment.
Asid to some extent9 1t represents a p r o b ] e r r s , b e c a u s e i t ' s a s u r g i n g
sector of the economy. And there's a temptation to say, “Hell/
because 1t's surging, let's see 1f we can't u n d e r c u t It a l i t t l e
hit.
But 1f you think about that f o r a minute, that Is the f u t u r e *
That is the way we're going to Increase supply. That I s the way
*i@sr@ going to get our costs down. That Is the way we're going
to be competitive In the world. That Is the way we°r@ going to
maintain the pace of the rising standard of living for all Americans
So let's think twice before we do things that, fundamentally, are
th e ways In which we're going to increase supply.
In fact, let's
tarn it the other way. let's d© more to do the things that w i l l
Increase s u p p l y .
yell, I could g© through a long list. Me have the anoma
lous fact t h a t , due to governmental regulation® an awful lot of
©yr trucks when they go from HA H to a,B , M when they come back t©
A again they're not allowed t o carry anything in the truck*
Mbtit sens® does that make? In a day when we're worried about costs
©f agricultural products, in a day whan we're worried about the
sisa o ( g a s o l i n e ^
in
a d a y when w e *r@
w o rrie d
about
the
en vironm ental
considerations from what carriers put out, what sense does that
m u to require empty backhauls? It's ridiculous.
But to get
something done about It 1s ©n@ ©f the hardest things you can imagine
md* of course, I should say It isn't always government that Is
t m culprit.
Government Is only d@1ng something because there
are pressures In the society for having government do it. But
it s bad for us. S© let os examine the point and see If we can't
©o something about 1t.
S© we c o u l d J u s t g o t h r o u g h e x a m p l e a f t e r
example o f t h i n g s t h a t m
c a n d© that will increase
tn&i i s t h e s e c o n d t h i n g m need t© keep ©yr eye on
with t h e i n f l a t i o n p r o b l e m .
e x a m p l e after
supply. So
in deal in©
t h i r d , i s t h e a r e a of ©sir c o n n e c t i o n s w i t h t h e
®c©n©my.
And o f c o u rs e m
see more c l e a r l y In th e l a s t s i x
****** o r s o t h e v e r y s t r o n g m y i n w h i c h t h e U . 5 . i s a p a r t a n d
parcel o f t h e w o r l d e c o n o m y .
I th in k m
have a ll sa id t h i s .
In .
:®jp r h e t o r i c we h a v e s a i d t h a t in t h e p a s t .
B u t we h a v e n e v e r
??@fs i t d e m o n s t r a t e d s o s t r o n g l y , t h a t w h e n a l l t h e e c o n o m i e s of
to® w o r l d a r e r i s i n g , a n d , I n w o r l d m a r k e t s , c o m m o d i t i e s t h a t we
I®1 ” e x p o r t a n d i m p o r t a r e r i s i n g r a p i d l y i n p r i c e , t h a t 1 s g o i n g
§a
®ur e c o n o m y .
A n d we h a v e no w a y a r o u n d i t .
And a t th e
f«*
t t « e , i t has I t s p ro b le m s f o r u s ; I t a ls o has I t s a d v a n ta g e s
9P u s .
A n d l e t me j u s t c o m m e n t b r i e f l y o n t h a t .
^
7
?
9« | t s t r a d © «” «* a l o t o f I t s t a r i f f s If? t h © b u d g e t t h a t w a s s e n t
up l a s t J a n u a r y * n o t ^ b e c a u s e t h e y n e c e s s a r i l y w a n t e d t o t r e a t t h e i r
t r a d i n g p a r t n e r s b e t t e r 9 b u t b e c a u s e t h e y w a n t e d t© l o w e r p r i c e s
in C a n a d a ,
Why c h a r g e y o u r s e l f s o m e t h i n g e x t r a o n s o m e t h i n g t h a t ’ s
in s h o r t s u p p l y ?
A u s t r a l i a ' s j u s t d o n e t h e same t h i n g .
Why n o t
us?
I t makes s e n s e ,
I mean w e ’ r e t r y i n g t o i m p o r t b e e f ,
Whv
^ ' r e t r y i n g to I m p o r t l u m b e r .
Why p a y a
t a r i f f on i t ?
And so o n .
A n d s© t h e P r e s i d e n t h a s a s k e d f o r a u t h o r i t y f r o m t h e
C o n g r e s s » i n c a s e s w h e r e we h a v e a t a r i f f o n s o m e g o o d t h a t ’ s i n
s h o rt s u p p l y w i t h r i s i n g p r i c e s h e r e a t home» t o h a v e a u t h o r i t y ,
a! l ! f s t t e m p o r a r i l y * t o r e d u c e t h a t t a r i f f .
I t ’ s a se n sib le s o rt
©t t h i n g t o m
in re c o g n is in g o y r in te rc o n n e c tio n s w ith th e w orld
ec on om y a n d * in t h i s c a s e » t a k i n g a d v a n t a g e o f t h e d i s c i p l i n e t h a t
ty© w o r l d e c o n o m y c a n g i v e I n o u r o w n p r i c e s t r u c t u r e *
N ®w » © f c o u r s e » m
h a ve w orke d t o g e t a more f l e x i b l e
^ o n e t a r y s y s t e m m é t© g e t t h e d o l l a r m o r e r e a l i s t i c a l l y v a l u e d ,
all t h r o u g h t h e W o rld War I I p e r i o d » e v e r y b o d y d e v a lu e d a g a i n s t
d o lla r.
On .th e w h o le » t h e t r a d i n g a r r a n g e m e n t s t h a t b u i l t
yp w e r e d o n e a g a i n s t t h e b a c k g r o u n d o f t h e U . $ . c o y I d d o n o w r o n g .
j u s t w ere bound t o be th e s t r o n g e s t and w o u ld n e v e r h a ve a p ro b le m
And t h e r e s u l t o f a l l t h a t w a s , I t h i n k » t h a t I n t h e i n t e r n a t i o n a l
aeosiomic s p h e r e t h i n g s g o t s t r u c t u r e d i n s u c h a w a y t h a t t h e y w e r e n ’ t
; ? 2 y r a Ì v i ? * a ? e i , w® ^ ° Y a r ti >e l a s t t w o y e a r s » we h a v e c h a n g e d
* ¡¡¿¿a iid
d o l l a r now I s v e r y r e a l i s t i c a l l y v a l u e d and
at t h i s p o i n t I s u n d e r v a l u e d .
I d o n ’ t th in k th e r e ’ s any doubt
adout t h a t .
A t any r a te » from th e s ta n d p o in t o f th e c o m p e titiv e n e s s
i ♦ S ? - « * 0 ! ® * in m r ì d » e r k e t s * w e ’ r e v e r y c o m p e t i t i v e n o w .
And
i t h i n k t h a t t h e Zlm© i s r i g h t .
And I know t h e P r e s i d e n t w i l l
nt w *
a?
^ 1s »
y©© h a v e b e e n h e r e a n d a s i n t h e C o m m e r c e
uepirtm ent» m
a r e a l mov® o n t h e e x p o r t f r o n t .
B u t we h a v e a
r e a l i s t i c p o s i t i o n in w o r l d m a r k e t s » a n d m
have the p ro sp e c t
©? a m o r e f l e x i b l e s y s t e m t h a t w i l l h e l p k e e p it t h a t w a y ,
3@ t h a t
1s
an e le m e n t
in
h * « r « ^ 4"7 ' " 5
®® ? @ TC t o a s u b j e c t t h a t i s v e r y m u c h in y o u r
Jill!"? a 5d v a r * s e n s i t i v e .
And t h a t is th e p ro b le m o f e x p o r t '
^ ? r 01! *
Assd &®r@ tt5@ P r e s i d e n t h a s s t a t e d v e r y d e f i n i t e l y o u r
Po licy is a g a i n s t e x p o r t c o n t r o l s .
Me d o n ’ t t h i n k t h a t t h e y ’ r e
a « So d 4. d f ? *
^ a v e e x p o r t c o n t r o l s on s o y b e a n s r i g h t now and
t L i l k i l 2 v 5 ^ r ? i a te d ^ p ro d t,c ts *
M
1 m s t $%y * t i s i m p r e s s i v e
s u b s t i t u t a b i l i t y o f p r o d u c t s i n t h e s e n s e i n w h i c h y o u s a y ’»
r ® 9 o 1 n g t o d o s o m e t h i n g ©n p r o d u c t ® A » K t h e n t h a t i m p l i e s
s2 f * y ? u ? ! s o m e t h i n g & h m t a w h o l e r a n g e o f s u b s t i t u t a b l e p r o d u c t s ,
1SSI t * l i t t l e t h i n g t o p l a y a r o u n d w i t h .
A n d we f e l t t h a t
c « L 2 ? ? e $ 5 a r £ * tl§@ s e c r e t a r y o f A g r i c u l t u r e d 1 d s t o p u t t h o s e e x p o r t
oi » A» I 0
t
f
e
i s y e a r ’ s c r o p » ©van t h o u g h i t was d o n e w i t h
?a Bi L r #l u ! i a ? c ? A
Best @ y r P ° , 1 c y b a s i c a l l y i s a g a i n s t t h a t a n d
® r e s i s t t h a t 1 f we p o s s i b l y c a n * .
8
A n d t h e r e a s o n why 1s s i m p l e *
I t 1s e s s e n t i a l l y a c i r c u l a r
p ro p o sitio n .
T h a t i s , 1 f we h a v e a g o o d t h a t we e x p o r t i n U r g e
p r o p o r t i o n a n d t h e r e s t o f t h e w o r l d w a n t s t o b u y i t , a n d w® c o n t r o l
that e x p o r t , a n d , 1 f t h a t s p r e a d s , t h e n , o b v i o u s l y , p e o p le a ro u n d
th e w o r l d s a y , " W e l l , I g e t t h i s d o l l a r I n e x c h a n g e f o r t h e t h i n g s
that I I m p o r t t o th e U . S . , w h a t can I spend 1 t o r ? b
A n d we h a v e
always s a i d i t i s c o n v e r t i b l e i n t o t h e g o o d s a n d s e r v i c e s I n t h e
la rg e st and m ost d i v e r s e m a rk e t in th e w o r l d .
And t h a t ' s a p r e t t y
good a r g u m e n t .
But i f you w o n 't s e ll th e th in g s th e y w ant m o s t,
you a r e u n d e r c u t t i n g t h a t a r g u m e n t .
And so t h e v a l u e o f t h e d o l l a r
n a t u r a l l y d e c l i n e s , a n d we h a v e t o p a y m o r e f o r t h e s e m a n y t h i n o s
t h a t we I m p o r t .
A n d so f r o m t h e s t a n d p o i n t o f o u r c o n s u m e r s , t h e c o n s u m e r
winds u p p a y i n g t h a t p r i c e .
H e m a y n o t p a y i t f o r p r o duct " A ® ;
he may p a y i t o v e r h e r e f o r p r o d u c t ® Z . °
But th e r e 's a co n n e c tio n .
In o t h e r w o r d s , w e j u s t g o r i g h t a r o u n d i n t h i s c i r c l e a n d w@ m e e t
o u rse lve s.
So i t i s n ' t a d e s i r a b l e p o l i c y f r o m o u r p o i n t of v i e w
or a n y b o d y e l s e ' s p o i n t o f v i e w , a l t h o u g h , i f t h e w o r s t c o m e s t o
the w o r s t , we * 1 1 a l w a y s h a v e t © l o o k t o o u r o w n ho me m a r k e t .
But
the g e n e r a l , b a s i c p h i l o s o p h y o f © o r p o s i t i o n 1 s t o o p p o s e e x p o r t
c on tro ls and m a in t a in o u r c o n n e c tio n to th e w o r ld economy in th e
s t r o n g e s t w a y t h a t we c a n .
f i n a l l y , l e t me c o m e t o t h e i n t e r n a l e c o n o m i c
* ok
2 t 0B
as t h e y have been announced w it h th e la b e l
or P h a s e I V m o s t r e c e n t l y .
H e r e we h a v e a p r o g r a m t h a t i s t o u g h
as J u d g e d b y t h e i n t e r n a l s t r u c t u r e o f t h e p r o g r a m , t h e d e f i n i t i o n ,
B a s i c a l l y , o f t h e k in d o f c o s t s t h a t can be p a ssed th r o u g h i n th e
form © f p r i c e s .
S© i t i s a t o u g h p r o g r a m f r o m t h e s t a n d p o i n t o f
U s in te rn a l s tr u c tu r e .
S e c o n d , i t is a pro gram t h a t , w h il e i t is somewhat c o m p li
cated as a r e s u l t o f t h i s , n e v e r t h e l e s s I t h i n k 1 s made f u n d a m e n t a l l y
?!r ?
fey 1 t ; a p r o g r a m t h a t , o n t h e o n e h a n d , 1 $ p h a s e d
IS k
s t a g e s f o r d i f f e r e n t p r o d u c t s I n o r d e r t© s p r e a d
w
bulge o f
t h e c o s t i n c r e a s e s t h a t i n t h e p i p e l i n e so t h e y d o n ' t
f i n come a n d
f e l t us a t o n c e a n d g i v e a l i t t l e c h a n c e t o a s s i m i l a t e
: nef® c o s t s ; a n d , o n t h e o t h e r h a n d , c o m p l i c a t e d a n d s e l e c t i v e
* sense
t h a t w h e r e d i f f e r e n t i n d u s t r i e s seem t o b e g e n u i n e l y
! « ! r r ? n t 185 t h ® a ® t u r e 0 f t h e p r o b l e m t h a t we f a c e , w e h a v e t r i e d
to Q e s i g n r e g u l a t i o n s t h a t s u i t t h e m s e l v e s t o t h a t i n d u s t r y .
The
jood i n d u s t r y , o f c o u r s e , i s o n e .
The p e tro le u m in d u s tr y is a n o th e r .
J * v e b a d « s e p a r a t e a p p r o a c h t o h e a l t h f o r s o m e t i m e ; t h e sail©
or c o n s t r u c t i o n , an d so o n .
And w here t h e r e a re s p e c ia l p r o b le m s ,
1 * 7 ? t r i e d to have a program t h a t 's d e s ig n e d to meet th o s e s p e c ia l
to « l e B S i
Assd in t h @ p r o c e s s o f b e i n g s e l e c t i v e , o f c o u r s e , a l s o
s a y , f u n d a m e n t a l i y and f o r r e a s o n s t h a t I was s u g g e s t i n g i n
tn© s e c t i o n o f my r e m a r k s w h e r e I w a s t a l k i n g a b o u t ^ t h e i m p o r t a n c e
t
[e a s in g su pp ly — fu n d a m e n ta lly to s e le c t o u rse lve s o u t ,
and*♦
.o u r
05St arsd t@
oyr
o u t o f’ wa9e
p ric e c o n tro ls ,
by I d e n t i f y i n g i n d u s t r i e s o r p la c e s where th e i n f l a t i o n
n u S I e ® d o e s i | , t s «®® t o b e p a r t i c u l a r l y a c u t e a n d t o e x e m p t t h o s e
a? f ? S * r@ls
c o n t r o ls , p a r t ly in the In te r e s ts o f g e ttin g ou t
” ® c o n tr o ls , p a r t l y - I n th e in te r e s ts o f not p la c in g unnecessary
2
9
5
m~
burdens on a section of the economy» and partly in the interests
of saying 'we have only so much in the way of admlnlstrative effort
that can be put Into this» let us put that administrative effort
in where it is most needed*6 Änd s© where we find special problems
of encouraging supply In the long run -- and long-term coal contracts
have been used as an illustration of that -- or where we find that
the supply and demand conditions are controlling price adequately —
and interestingly enough» lumber right now seems to be a good example
of that -- we are just exempting.
S© 1t is toughs it spreads the bulge; it is selective
in these senses that I have mentioned® and is designed t© give
us some grip on the Inflation problem® to use the notion of controls
1n the most effective way m can® but® in the meantime® to work
on the budget and the monetary policy® to m r k on the problem of
increasing supply® t© maintain our Connections with the world economy
and to get the benefits from doing that® so that as time passes
we can get ourselves back into a situation where m have a free
economy® free agriculture. Änd I might say on free agriculture®
I notice agriculture comes in very hard to see that you don't hold
the prices down. And we get a lot ©f wailing against government
when you're holding prices down. On the other hand® I hadn't noticed
so much complaint when government was holding the prices up. And
I say that as only typical of everybody. Everybody likes to have
It both ways. But we have got to get ourselves into a frame o f
iind where we're willing to take it both ways In the interests
of the kind of economy that wo really believe in*
So that is an outline of our program® as far as the
fight on inflation 1s concerned.
It's certainly the number one
problem m have in the economy. Otherwise® the eeonoiiy looks great.
Me v@ got three million mere jobs than m did a year ago.
have
plant and equipment spending rising® and so on and s© cm and so
en. There's a lot of good in the situation.
s
N o w let me c o m e d i r e c t l y t o y o u a n d f i t y o u r i g h t i n t o
picture® a s I s e e I t ® ' c a u s e ® a s I t h i n k i s c l e a r ® f o o d © r i c e s
and f o o d s u p p l y a r e r e a l l y a t t h e h e a r t © f t h e i n f l a t i o n p r o b l e m
” n
as * t is a f f e c t i n g us r i g h t n ow .
And t h i s 1$ an a r e a
v w @ th e n o t i o n o f t h e U . $ , and t h e w© r1d econom y i s p e rh a p s
tft t s t r o n g e s t o f a n y s e c t o r o f o u r e c o n o m y ® g i v e n t h e v e r y h i g h
p r o p o r t i o n o f ©yr agricul t u r a l p r o d u c t i o n t h a t we e x p o r t .
.^
Now® ©ur efforts to deal w i t h t h e problem are h e a v i l y
®@ptndtnt ©u the accuracy ©f our e s t i m a t e s © f w h a t i s g o i n g o n .
^ i s not sufficient ©t all to h a v e a g o o d e s t i m a t e o f h o w m u s h
fkA u c i ^ ® n there is going t o be 1 n t h e U . S . a n d h o w issueh d e m a n d
:"er® ]* 9 ® i m to be 1st the 0. S.® d i f f i c u l t a s t h o s e t h i n g s a r e
d^ k i
¥
* ate
that m
know ing
a ll
of
those
u n c e rta in tie s .
Th a t Is a
D e p a r t m e n t w o r k s on® a n d
work on® the A g r i c u l t u r e
It's a ve ry Im p o rta n t p a rt o f the In fo rm a tio n needed*
B u t i t 1s
by no n ie an s s u f f i c i e n t .
I t is o b v io u s ly c r i t i c a l to have th e best
e s t i m a t e s we c a n of what i s t h e l i k e l y s u p p l y s i t u a t i o n i n o t h e r
p a r t s of the w o r l d a n d w h a t 1 s t h e l i k e l y a m o u n t to b e c o n s u m e d
in o t h e r p a r t s © f t h e w o r l d .
We h a v e to p u t t h i s — a n d I ' m s a y i n g
only t h e s i m p l e s t t h i n g s t h a t I * m s u r e e v e r y b o d y h e r e know s b e t t e r
than I .
B u t it I s s o r t o f t h e m o s t e l e m e n t a l t h i n g t o h a v e t h i s
k in d o f w o r l d w i d e i n f o r m a t i o n i n o u r h a n d s s o t h a t w@ c a n r e a l l y
understand th e s i t u a t i o n .
A n d t h e b e t t e r we c a n u n d e r s t a n d i t .
the m o r e i n t e l l i g e n t l y c a n we o p e r a t e o u r p o l i c i e s .
And as 1 h a ve seen a d e s c r i p t i o n o f t h i s g ro u p as a
group o f p e o p l e w h o s e s t a t i o n s a r e l i t e r a l l y a l l o v e r t h e w o r l d
and w h o s e e x p e r t i s e i s d i r e c t l y o n t h i s point, it s e e m s t o me t h a t
w. m u s t l o o k t o y o u t o p r o v i d e u s w i t h a c o n t i n u i n g f l o w o f w h a t
rig h t a t t h i s moment 1s p e r h a p s t h e m o s t e s s e n t i a l i n f o r m a t i o n
I n p u t * I n t e r m s o f w h a t i s g o i n g o n * t h a t we m u s t h a v e i n d e a l i n g
with t h e o v e r a l l p r o b l e m o f i n f l a t i o n .
So I ' m p l e a s e d t o h a v e
had an o p p o r t u n i t y t o m a k e t h i s p i t c h t o y o u a b o u t t h e c e n t r a l
role t h a t w h a t y o u can do f o r us w i l l p l a y I n t h e w o r k t h a t l i e s
ahead o f u s .
A n d I k n o w t h a t we c a n c o u n t o n y o u t o g i v e u s a
con tin u in g f l o w o f th e m ost a c c u r a t e I n f o r m a t i o n t h a t yo u can g e t *
and n o t o n l y t o g i v e u $ t h e I n f o r m a t i o n t h a t ' s t h e r e * b u t t o hi
candid I n d e s c r i b i n g t h e r a n g e o f e r r o r t h a t ' s i m p l i c i t i n I t *
so t h a t we k n o w t h a t * w e l l * h e r e ' s y o u r b e s t e s t i m a t e a n d y o u ' r e
q u i t e s u r e t h a t ' s r i g h t * o r h e r e ' s y o u r b e s t e s t i m a t e * hut r e a l l y
there a r e t r e m e n d o u s u n c e r t a i n t i e s * a n d I t m i g h t be a s l o w a s t h i s
sjd i t m i g h t b e a s h i g h a s t h a t * o r w h a t e v e r * so t h a t we u n d e r s t a n d
the q u a l i t y o f t h e I n f o r m a t i o n * a s w e l l a s t h e a b s o l u t e n u m b e r
t h a t may b e I n v o l v e d .
S o * M r . S e c r e t a r y * I a p p a r e c l a t e t h e c h a n c e t o come
o v e r here from t h e T r e a s u r y a n d t a l k t o y o u .
I n e v e r t h o u g h t when
i was n o m i n a t e d ^ f o r s e c r e t a r y © f t h e T r e a s u r y t h a t s o m u c h © f my
concern m u l d w i n d up b e i n g a b o u t a g r i c u l t u r e .
B u t* you know*
you a l w a y s c o m e t o t h e m o s t i m p o r t a n t p l a c e s o o n e r o r l a t e r * a n d
»ood h a s g o t t o b e I t r i g h t n o w .
Thank you
very
mush.
[A p p la u s e .]
SECR ETAR Y BOTZs
W e l l * th a n k you v e r y much* S e c r e t a r y
aeorgt S h u l t z .
I t r i e d t o t e l l you years a g o a g r i c u l t u r e w a s b a s i c .
a J
y®w g o t t h e l e s s o n .
The S e c r e t a r y was r u n n i n g a b i t b e h i n d *
n? 4 - s
s a i d t h i s i s t h e s e c o n d of four s p e e c h e s h a ' s
| ving t o d a y *
A n d I s a i d w h e n e v e r I w a s f a c e d w i t h that s i t u a t i o n *
? 2 a v ® tfj® s a m e s p e e c h f o u r t i m e s .
B e s a i d * ay @ 1 1 * t h a t ' s w h a t
* meant.
p
[L a u g h te r .]
OF
Department ofthefREASURY
WASHINGTON. D.C. 20220
T E LE P H O N E W 04-2041
YÂ
789
EMBARGOED FOR RELEASE UNTIL
IO ïOQ A.M.f EDTf JULY 27, 1973
TESTIMONY BY THE HONORABLE WILLIAM E. SIMON
DEPUTY SECRETARY OF THE TREASURY
BEFORE THE
SENATE ANTITRUST AND MONOPOLY SUBCOMMITTEE
FRIDAY, JULY 27, 1973
Mr. Chairman and Members of the Committee:
I am delighted to appear before you today to discuss
competition in the oil industry and, in particular, the supply
and distribution of petroleum products.
I plan to discuss
the present voluntary allocation program and possible changes
in it; the recent Federal Trade Commission staff report on
the structure of the industry; and, finally, the problems of
home heating oil which we will face this winter.
The Growth of Demand for Energy
The first thing to understand is that the demand for
energy has been increasing continually while supply has not.
With six percent of the world's population, we are consuming
33 percent of the world’s energy.
Furthermore, the demand for
energy in this country is growing at an annual rate of about
four percent and, by 1990, our energy needs will be double
S-259
2
those of 1970.
Much of this increase in demand will be
reflected in an increase in the demand for oil, which has
grown, in part, because there has been a shift away from
coal to oil and, in part, because of an inability to obtain
natural gas, an alternative to oil.
Domestic demand for oil
has increased from 15.1 million barrels a day in 1971 to 17.3
million this year and will increase to about 21 million in
1975 and to approximately 25 million in 1980.
The demand for gasoline in the United States has also
been growing faster in the past several years than at any
other time in recent history.
Since 1968, gasoline demand
has risen at an annual rate of about five percent.
During
the past two years the rate of increase has been about seven
percent per year.
Part of this rise in demand can be explained
by growth in the population, growth in the economy, and the
increasing number of cars on the road.
There are over 96
million cars in use in the United States today, a gain over
last year of more than four percent.
Demand has also risen significantly because of the many
power-using devices added to cars.
These include automatic
transmissions, air conditioning, various safety features, and
the changes made in automobiles since 1970 in compliance with
EPA regulations issued under the mandate of the Clean Air Act.
Producers' compliance with these regulations has led to sub
stantially reduced engine efficiency.
As more vehicles come
3
on the road equipped with safety, emission control, and
physical comfort devices, average mileage per gallon will
decrease further.
An automobile that once got 14 miles per
gallon, now gets eight or nine miles.
Because new automobiles are not getting the gasoline
mileage obtained by their counterparts five and ten years
ago, and because we are driving more, gasoline consumption
has risen.
We are using 300,000 barrels per day more
gasoline this year than last year.
Failure to Build Refineries
While gasoline demand has been growing at about seven
percent per year, the volume of crude oil processed by
refiners has risen only three
percent per year.
We are now
extremely short of refinery capacity and, at the time of the
President's Energy Message, which announced the new oil import
program, no new refineries were under construction.
more, expansion of existing refineries had ceased.
Further
Growth
in the capacity of the industry had come to an end because
the industry found that it was more profitable to invest
abroad than in the United States.
There were a number of
reasons for this:
CL)
Environmenta1 restrictions and local opposition
have made it increasingly difficult to find acceptable sites
for new refineries in this country.
Because of resistance
4
to refinery siting, it may take three years to obtain»site
approvals today, in addition to the three years required for
construction.
Yet, modern refineries can be designed so that
they do not significantly pollute the environment.
C2)
U, SY oil import restrictions, in the past, created
uncertainty as to whether new domestic refineries could obtain
sufficient imported supplies of crude oil.
As long as the
government set import quotas on a year-to-year and, in some
cases, on a month-to-month basis, no company was assured of
the stability of supply necessary to encourage domestic
refinery construction.
This impediment ended on April 18
when we terminated volumetric quotas on oil imports.
(3)
The tax and other economic benefits available to
refiners in the Caribbean and in Canada have been more
lucrative than similar provisions available in the United
States.
Deepwater ports in the Caribbean and Canada have
also permitted savings in the use of very large crude carriers.
For these and other reasons, U. S. refinery construction
has been standing still while U. S. demand for refinery
products has been increasing,
our growing lack of refined
products was driven home to the public late in 1972 with
shortages of distillates and other heating fuels in various
parts of the country.
Refineries had to increase their per
centage of distillate production and correspondingly, reduce
gasoline production.
Now we are experiencing gasoline
- 5 shortages in various parts of the country despite the fact
that gasoline production this year is higher than it has
ever been.
The Problems of the Independent Oil Companies
With this discussion of demand and supply as background,
I would like to turn now to the problems faced by the independ
ent segment of the petroleum industry.
The independent refiners
and marketers, especially, are confronted by related but
distinct problems.
The refiners face crude oil shortages;
the marketers, gasoline and fuel oil shortages.
To understand how these problems developed, it is
important to realize that, until the early 1970's, we had
surplus crude oil capacity in the United States.
This enabled
independent refiners to buy crude oil and build refineries to
supply, among others, independent jobbers, marketers, and
other wholesale customers.
There was also a surplus of
gasoline and other products being produced by the major oil
companies' refineries.
Independent marketers took advantage of
the surplus and opened thousands of gasoline stations to sell
gasoline purchased in the spot market.
Because of bulk
purchases on the margin and efficient servicing of consumers,
these marketers were able to sell gasoline for a few cents a
gallon less than the major oil companies.
These independents
have had a healthy influence on the petroleum industry by
6
giving consumers a greater choice between price and service.
They have made it possible for consumers to buy gasoline
at lower prices.
The gasoline shortage has hit the independents hardest.
In the first place, independent refineries can no longer get
adequate supplies of crude oil.
They used to obtain domestic
crude oil by exchanging their import licenses with the major
oil companies.
The major companies used the import licenses
to import cheaper foreign crude for their own use, while
providing the independent refiners with domestic crude oil.
In addition, the so-called "sliding scale" method of allocating
import licenses under the old system gave smaller refineries
more than a proportionate share of the licenses.
All this has changed during the last two years.
Quoted prices of foreign crude oil are now equal to or higher
than prices of American crude sold in the same markets.
There is a worldwide shortage of low-sulfur or "sweet" crude.
As a result, major oil companies have had no economic incentive
to trade their domestic sweet crude production for imported
crude obtained by means of the independents' import tickets.
Moreover, it is estimated that only 40 percent of the U. S.
refineries are equipped to handle high sulfur crude or to
convert high-sulfur residual oil to low^-sulfur residual oil.
Further, because of local air quality standards, some plants
that are designed for refining high-sulfur crude are compelled
7
to use low-sulfur crude.
0
^
3
The result is that the independent
refineries, particularly those in the midcontinent area,
have not been able to get the sweet crude they need and are
operating at less than full capacity.
Independent gasoline marketers are also in a difficult
position.
The wholesale market for gasoline has become very
tight and many of the independents find it impossible to
purchase gasoline wholesale.
Hundreds of independent gasoline
stations across the country have closed down.
Those that
can obtain gasoline abroad, find it available only at much
prices.
This hurts them competitively because their
main selling point with the public has been their ability to
under price the major oil companies.
In the face of these problems, we have gone to great
lengths to help protect the independents.
Our basic objective
has been to balance the need to preserve the independent
segment of the petroleum industry with the desire to create
a vigorous domestic industry through incentives for construc
tion of new refineries in the United States and for exploration
for new reserves of crude oil,
8
In the past, the Oil Import Appeals Board (OIAB)
would not distribute import licenses in cases of hardship
until September of each year.
These licenses were, by and
large, distributed to the independent refiners and marketers.
Early this year, the OIAB began to allocate tickets immediately
upon application.
allocation.
It had soon disbursed its entire 1973
Then, on March 23, 1973, the President issued
a Proclamation granting unlimited allocations to the Oil
Import Appeals Board in an effort to make more crude oil
and product available to both the independents and the
Nation.
Finally, on April 18, in another Proclamation,
the President removed volumetric controls altogether.
The government has also been allocating its "royalty
oil" to certain independent refineries in need.
Under
the terms of relatively recent lease sales, the government
can collect some of its royalties in cash or in a share of the
oil produced on leased lands.
In choosing the latter course, it
has diverted crude oil from the major to the independent
refineries.
The Interior Department estimates that the amount of
royalty oil accruing from all federal lands is about 225,000
barrels a day.
The Secretary of the Interior has decided to
take as much of that royalty oil as possible in kind and to
distribute it to independent refiners.
Although the independ
ent refiners are a small segment of the industry, their
contribution is significant and the additional supplies of
royalty oil are important to their survival.
The Voluntary Allocation Program
Despite this and other actions, however, we realized that
immediate measures had to be taken to assure adequate supplies
of crude oil and refined products to independent refiners and
marketers.
The Congress enacted the Economic Stabilization
Act with a provision granting the Administration authority
to allocate petroleum and petroleum products.
In order to
exercise this authority and adopt a mandatory allocation
program, however, public hearings had to be held.
The
Administration felt that the American people could not wait
that long.
Therefore, it acted immediately and adopted the
voluntary allocation program.
This program relies on volun-
tary compliance with guidelines set by the government.
Our
purpose was to apportion, as evenly as possible, any curtailent of consumption that resulted from shortages of gasoline
10
and distillates.
At the same time, we adopted priorities for
farming, food processing, other essential industries, and
health and emergency services.
Compliance
We have found a widespread willingness on the part of
the industry to participate in some form of allocation program.
There are many companies that are genuinely trying to cooperate,
although particular features of the program pose difficulties
and, for this reason, different allocation schemes have been
adopted.
One measure of the degree of compliance by the
industry is provided by a recent survey conducted by the
National Federation of Independent Business.
Of the 2,471
gasoline retailers replying, 2,091 indicated that their
suppliers had complied with the guidelines.
However, the program is confronted with some legal and
supply difficulties.
Some companies report that they cannot
fully comply with the guidelines because prior contractual
arrangements legally commit them to provide fixed amounts of
crude or product to certain customers.
Others simply do not
have enough crude or products to meet base period requirements.
Speed and Effectiveness of Assistance
The administration of the program is moving forward.
Since it was announced on May 10, 1973, we have expanded the
program's staff to over 80.
jn addition, several agencies
11
of the government have been most helpful in responding to
our needs, but their workloads limit the amount of assistance
they can provide.
We still have considerable staffing, space,
and computer problems to resolve.
However, we feel that
these problems can be remedied in the very near future by
further augmentation of our staff and by revising the alloca
tion program's guidelines in ways that would limit the amount
of workload.
Preparations For A Mandatory Program
At the same time that we put the voluntary program into
place, we also began to prepare for a mandatory fuel allocation
program to be adopted if necessary.
The measures we have
taken to this end include the publication in the Federal
Register on May 21 of a notice of public hearings regarding
allocation of crude oil and refinery products and the holding
of hearings so that the public has an opportunity to express
itself on how the program is working and modifications that
must be made in it.
On June 11-14, 1973, we held public hearings to evaluate
the operation of the program.
Much has been learned from the
administration of the program and from comments by those
testifying.
We received oral or written testimony from over 100
witnesses, representing a broad cross-section of the industry,
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12
state and local government and consumer interests, as well
as U. S. Senators and Representatives.
We ashed those
appearing before us to address themselves to two basic issues:
First, based on the experience of the past weeks, how
can the voluntary program be improved and made more workable?
Second, do we need a mandatory program, and if so, how
should it be structured?
In general, we learned from these hearings that the
voluntary allocation program was working well in some instances
and working only partially in others.
not working at all.
In some cases it was
Criticism ranged from insufficient
voluntary compliance, to reports of businesses actually
closing their doors because of no available supplies of gasoline
or fuel oil.
We learned that the voluntary program was working
much better for refined products than for crude oil.
Perhaps
most important, we learned that we do need an improved
allocation program, possibly with some mandatory features,
in order to supply equitably the fuel needs of all segments
of the industry.
Interestingly, many major oil companies
spoke out in favor of a mandatory program, in order to invoke
force majeure clauses in their existing contracts, while some
independents, particularly the branded jobbers, preferred to
retain the existing voluntary program.
Many witnesses noted the need to have greater flexibility
built into the program.
Many wanted a more current base period,
13
while some wanted the government to allow companies to develop
their own baste periods and allocation programs subject to
government approval ;tc Several stressed that consideration
should be given to persons who had supply contracts or were
established customers.
Others stressed that special considera
tion be given to persons who did not have contracts and were
spot buyers.
Many industry representatives and state and
local officials emphasized the needs of particular segments
of the country or economy and urged that the priority list be
expanded to include these needs.
Finally, many major oil
companies noted that, although many of their sales were to
dealers selling under their brand names, most of these
dealers were actually local independent businessmen and, as
Such, should be given equal consideration with other independend marketers.
Xri light of these reactions, we have now reviewed a
number of alternative allocation programs with John Love,
the newly appointed Director of the President's Energy
Policy Office.
(1)
These options include:
Retaining a voluntary allocation program with
suggested revisions;
(-2)
Adopting a partially mandatory-partially voluntary
program; or
(31
Adopting a fully mandatory program covering all
segments of the industry.
14
No final decision has
yet been made by the Administration
as to which alternative should be adopted or whether the
program should be mandatory or voluntary.
In considering a possible mandatory program, there are
some general objectives that we would want to pursue:
(.1)
To the extent possible, the program should be
self-administering, although all covered companies
must be required to participate.
(2)
To the extent possible, the program should not
conflict with existing business practices or
contractual arrangements.
(3)
Separate programs should be developed for crude oil
and for petroleum products and liquefied petroleum
gases.
(4)
There must be priority allocations to various end
users of finished products and liquefied petroleum
gases deemed to be essential to our Nation.
Included among these priority users are independent
marketers and distributors, as well as other whole
sale customers, supplying priority customers unable
to obtain the products they require through the
regular allocation program.
(5)
Further, any mandatory program must preempt various
state and local allocation programs.
15
(6 )
Also, any mandatory program should allow force ma jeure
provisions in contracts to become applicable, thus
terminating, where necessary, existing contractual
obligations.
(7) . In addition, in no case should a supplier be forced
to sell crude oil or product below cost, in this
way avoiding a possible legal challenge that the
program is confiscatory.
(8 )
Finally, there should be sanctions for those companies
refusing tg comply with the allocation program as
well as incentives for those companies agreeing to
comply with it.
The final decision on this program now rests with
Governor Love, .
«,.SSSSID-nX
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3301'.
The Federal Trade Commission Report
In your invitation for me to appear here today, I was
asked to comment on the recent Federal Trade Commission Report
on the relationship between the structure of the petroleum
industry and its implications for current shortages.
I would like to note at the outset that I have not yet
it S f lW
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P ill
had time to analyze thoroughly this report.
I have asked
ray staff to prepare an analysis of the report and if the
Chairman so desires, I will furnish this Committee with
a copy of that analysis.
Let me present, however, some
initial comments.
In the first place, the report singles out eight major oil
companies.
There are, as you know, at least fifteen to
twenty other very large oil companies with integrated
operatons, in addition to numerous independents who are
partially integrated.
Second, the report suggests that an alleged Cause
of the gasoline shortage is the fact that the major oil
companies have not raised their gasoline prices suffi
ciently in an attempt to squeeze the independents' market
share.
The report notes that "in a normal competitive
market a cure for shortage would be for prices to increase...
But what has happened here is that the majors have used
the shortage as an occasion to attempt to debilitate,
if not eradicate the independent marketing sector.
They
are doing this not by lowering prices in those areas where
they compete with independents but simply by not permitting
their prices to rise."
It is worth pointing out that what
the major oil companies have been doing in regard to
pricing of gasoline is simply following price
17
control regulations.
Generally speaking, the price controls
during Phase II applied to major companies, but did not
affect independents v
Few people realize that the freeze actually continued on
major oil product prices from August 1971 through January 1973.
During Phase II, the Price Commission allowed price increases
for certain refinery products, but did not grant price in
creases for two important products —
gasoline:
Number 2 fuel oil and
which together, accounted for over 70 percent of
refinery output in this country.
Under Phase III, only the
prices of the 23 largest companies were directly controlled
by the government.
However, the effects of these controls
were felt throughout the industry.
In short, the FTC is right that major oil companies did
not raise their gasoline prices, but the obvious reasons for
this was federal price controls rather than an anti
competitive motive.
The FTC's proposal to break up the integrated oil
companies by divestiture of refining or producing operations
from marketing gives me great concern because of its implica
tions for domestic energy supply in the future.
18
Mr. Halverson of the Bureau of Competition has called
for "significant divestiture" of refineries and pipelines
in the anti-trust complaint against the eight major oil
companies.
Anti-trust policy is a little out of my line, but I
am most concerned about our Nation's petroleum needs and how
best to get through the immediate situation facing us.
One
of the main problems today, as I have already pointed out,
is a shortage of refinery capacity.
And, I believe that
this shortage could be made worse by divestiture.
In the first place, it costs a quarter of a billion
dollars to build a modern refinery of the type that meets
environmental standards, is efficient, can handle high sulfur
crude oil, and will produce the products we need.
We must
build the equivalent of about 60 refineries in the next 12
years if we are going to keep up with projected demand for
petroleum products.
This will cost about $15 billion.
Who has the. ability to build these refineries?
part, the integrated oil companies.
For the most
19 •Since our announcement of the new oil import program on
April 18, 14 companies have, in fact, announced plans for
refinery construction or expansion amounting to 2.5 million
barrels per day of new capacity.
are currently under construction.
None of these new plants
In most cases, the financing
of these plants comes from internally
generated
funds of
the major oil companies plus loans based on the assets, earn
ings/ and crude oil sources of these companies.
If a major suit
were undertaken to separate these companies from their
refineries, I have serious reservations about whether the
capital could be attracted for expansion of the industry.
Moreover, the threat of a suit could delay the much needed
construction of new capacity.
We simply cannot wait years
for the industry to expand its output.
Further, divestiture is a two-edged sword.
Several inde
pendent marketers, have announced plans to build or participate
in the building of new refineries.
This is a major step
forward, not only for the independents, but for the Nation..
Yet, if we force divestiture we shall also prevent the
building of these refineries.
20
Heating Oil Supplies
While gasoline has been uppermost in the minds of our
Nation this summer, we have also been concerned about assur
ing adequate supplies of heating oil for next winter.
Total
distillate demand is now running about 6 percent more this
year than last year.
The most important reason for this is,
undoubtedly, the increased use of Number 2 fuel oil by
utilities in order to meet higher environmental standards.
As of July 20, fuel stocks held by refineries were about 9
million barrels more than a year ago.
were abnormally low in 1972.
However, inventories
In 1971, distillate fuel stocks
were about 10 percent above current levels.
As I have indicated, the major reason there has been such
a substantial increase in the demand for distillate fuel oil
is air quality standards.
oil with residual oil.
Many utilities are mixing Number 2
Some are actually switching to Number
2 fuel oil altogether in an effort to meet these standards.
This is imposing an enormous strain on our productive capa
bility and is making it difficult, especially for our independ
ent marketers of fuel oil, to obtain needed supplies for their
customers.
I am concerned about the situation in certain areas
such as New England.
The New England Fuel Institute reports
that as of the first of July of last year seven independent
terminal operators had 2,410,000 barrels of Number 2 fuel
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oil in storage.
As of the first of July of this year,
however, they had only 355,000 barrels in storage.
These
terminal operators report that by September 30th of this
year they must build up their stocks to 12 million barrels
if they are to avoid a fuel oil crisis in New England next
winter.
I would point out that this situation could have been
avoided had various communities in New England allowed the
construction of several proposed new refineries during the
past five years.
These refineries would have been built,
incidentally, by independent marketers and, had they been
built, not only would New England*s fuel oil shortage be
largely resolved, but also the difficulties faced by the
independent marketers.
Nevertheless, there are steps that have been taken to
help resolve the problem this winter.
1.
We have already opened up oil imports so that
unlimited amounts of fuel oil can be brought in.
As a
result, imports have totalled about four times what they
were in the first six months of last year.
enough,
But this is not
it now appears that in order to avoid a
shortage, imports will have to rise to a level of 400,000
to 500,000 barrels a day from now until well into the winter
22
heating season.
X see no evidence of this increase and I
urge petroleum industry leaders to concentrate on methods
for increasing the importation of fuel oil immediately.
On
our part, we will provide all the assistance that we can.
2.
We are, as I have said, working on a more effective
allocation program which will help to distribute more evenly
supplies of fuel oil throughout the country. It is important
to realize, however, that this program will not create any
new oil and cannot correct an absolute shortage.
3.
Most industry leaders today are calling for a
temporary relaxation in environmental standards that are
requiring the burning of fuel oil by electric utilities
and low sulfur
fuel oil in home and industrial uses in areas
without serious air pollution problems.
if sulphur standards
for residual oil in major cities on the East Coast were changed
from
existing levels of 0.2 or 0.3 percent to 1.0, or even
0.5 percent, we would release a very significant quantity of
home heating oil.
This change can only be made by EPA and
the state governors.
However, it is a change which, I believe,
is urgently needed and needed now if we are to make plans
for importing the needed fuel oil.
- 23 License Fee Free Imports
Some have criticized the government's establishment
of a 50,000 barrels per day license fee free allowance for
Number 2 fuel oil imports into District X.
They claim that
it is inadequate to meet District I's fuel import needs.
I
do not agree with this position.
As you know, on April 18, when the President eliminated
volumetric quotas on petroleum imports, he also abolished
all tariffs,’ (:ln, their place, the President established a
system of license fees.
Under the new system, all holders
of import allocations in the past were granted, for a time,
license fee-exempt tickets in an amount equal to existing
allocations.
For District I there had been a quota of
50,000 barrels per day and this quota was, therefore, conp p Y ¿ }c * pr
£ > '* f t O f ■ *+
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vetted, along with all other quotas, into a license fee-free
allocation of 50,000 barrels per day.
We have made no
exceptions for three reasons :
1.
We feel very strongly that we had to stop the
prad tríce cff granting individual benefits to individual sections
of thë*country or industry. This practice led to a patch&' x>n h j c e d P o i
1■
i i & 'i o l ¿100v
work, stop-ànd-go oil import program and was one of the
reasons why the program broke down.
2.
Creating new exceptions for a particular
region of the country or a particular segment of the industry
24
could have jeopardized the legal basis of the new oil import
program.
3.
Further, as I mentioned earlier, weL converted"the
OIAB into a workable mechanism for providing license'feeexempt imports to independent segments of the industry
experiencing hardship.
Since May 1, 1973, the Board has
already issued tickets for District I allowing more than
3.2 million barrels of fee-exempt Number 2^ ftiel dil
imports.
The Board will undoubtedly issue»mote tickets
when needed.
Conclusion
In closing I would say that we have tried to advance
energy policies that are responsive to our Nation's, needs.
;,B flJXW prtols
On April 18, 1973, the President presented a broad and
comprehensive energy message which is a blueprint for
action that must be taken.
The basic goal of the policies
suggested in the message is to assure adequat supplies of
I y ; S O X I jOS"I
energy in the short run, while also reducing, pur dependence
upon foreign supplies in the long run by fostering a
vigorous domestic energy industry.
td
Further, in July, the President announced a $10 billion
energy, res^arcfv,,and development program.
This program should
speed up the development of clean energy products, including
synthetic oil and gas from coal, stack scrubbers which will
permit us to use more coal without polluting the atmosphere,
nuclear power, and research into other sources of energy
such as geothermal and solar power, and oil shale.
This
program* will ^sfcartrto produce results in the early 1980s, as
these new, energy s^nrces begin to supply a significant part
of our energy needs.
We have also initiated a program to triple the acreage
on the Outer Continental Shelf made available for oil and
gas explora^jj.Qpi7^n^e have asked the Congress for authority
to build the badlynneeded Alaska pipeline which, when
completed, will result in more than two million barrels of
oil a day by 1980.
oil imports.
This is equal to one-third of current
Moreover, construction of the Alaskan pipeline
will encourage additional development of Alaskan oil fields.
Projectj,c^£fDJndiq§£e that the North Slope has potential
reserv0 gag§ §$ muq&cas 80 billion barrels.
Eventually, we
could achieve an Alaska production of between five and six
million barrels a day.
Finally, the President has called on all consumers —
the Government, industry and the general public —
energy.
to conserve
He has established an Office of Energy Conservation
26
in the Department of the Interior to spearhead this program.
The Federal Government is taking the lead
:
board seven percent cutback in its energy ^t^iizatiioriP
Effective conservation measures by both government and the
public are essential.
In short, we are undertaking long-term measures which,
I think, will assure an adequate supply of oil for the
Nation and, because of this, an equitable allocation of
crude oil and products.
It is in this effort that we
really need the assistance of Congress.
I am basically opposed, as I am sure are most of the
Members of this Committee, to the needless injection of
government regulation and control into any industry,
particularly where there is every evidence of ihtense and
healthy competition.
I do not want to take-¿riy step wHiCh
would discourage private initiative.
At the same time,
we are in a situation in which we must make decisions on
priorities.
We cannot afford to let crops go unplanted
or unharvested for lack of diesel fuel for ¿hr1 tractori .fD
We cannot let our vital industries close do&h£
.;m We canfiot7
endanger public health or safety.
And, finally, we should
not let the independent segment of the oil industry, which
provides competition in the marketplace, be forced to shut
down.
Thank you.
sdas ssii el
-0 O0 -
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Departmentof th eTR EA S U R Y
I h INGTON. D C. 20220
T E L E P H O N E W 04-2041
1
July 30, 1973
■TTENTION: FINANCIAL ED ITOR
|0R RELEASE 6:30 P.M.
RESULTS OF TREASURY’S WEEKLY BILL OFFERING
The Treasury Department announced that the tenders for two series of Treasury
{bills, one series to be an additional issue of th'e bills dated
May 3, 1973
, and
the other series to be dated
August 2, 1973
, which were invited on July 24, 1973,
lere opened at the Federal Reserve Banks today. Tenders were invited for $2,500,000,000
lor thereabouts, of 91-day bills and for $1,700,000,000, or thereabouts, of
182-day
Hills. The details of the two series are as follows:
NGE OF ACCEPTED
[COMPETITIVE BIDS:
High
Low
Average
91-day Treasury bills
maturing November 1, 1973
Approx. Equiv.
Annual Rate
Price
97.915
97.888
97.897
53# of the amount of
8.248#
8.355#
8.320#
1/
182-day Treasury bills
maturing January 31, 1974
Approx. Equiv.
Price
Annual Rate
95.732
95.708
95.715
8.442#
8.490#
8.476#
1/
91-day bills bid for at the low price was accepted
10# of the amount of 182-day bills bid for at the low price was accepted
^OTAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San F ra n c is c o
TOTALS
Applied For
$
32,180,000
3,093,845,000
43,810,000
36,110,000
32,055,000
15,670,000
276,240,000
52,725,000
21,075,000
30,970,000
35,370,000
125,495,000
Accepted
$
22,180,000
2,016,445,000
23,785,000
35,960,000
30,055,000
15,670,000
166,890,000
33,755,000
8,135,000
27,970,000
23,400,000
96,025,000
$3,795,545,000
$2,500,270,000 a/
Applied For
$ 21,100,000
2,688,270,000
13,960,000
71,460,000
19,700,000
19,775,000
278,740,000
67,630,000
21,805,000
34,120,000
33,015,000
116,140,000
$3,385,715,000
Accepted
$
10,950,000
1,344,175,000
11,505,000
30,805,000
19,690,000
17,515,000
152,995,000
26,030,000
3,805,000
24,905,000
12,515,000
45,340,000
$1,700,230,000
[/Includes $308,210,000 noncompetitive tenders accepted at the average price of 97.897
[/ Includes $233,005,000 noncompetitive tenders accepted at the average price of 95.715
Ihese rates are on a bank discount basis.
The equivalent coupon issue yields are
•62$ for the 91-day bills, and 8.98# for the 182-day bills.
V
kSHINGTON, D C 20 120
T E LE P H O N E W 04 2041
FOR IMMEDIATE RELEASE
July 31, 1973
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 $4,300,000,000, or thereabouts, for
cash and in exchange for Treasury bills maturing August 9, 1973,
of $4,305,425,000
in the amount
as follows:
91-day bills (to maturity date) to be issued August 9, 1973,
in the amount
of $2,500,000,000, or thereabouts, representing an additional amount of bills
dated May 10, 1973,
and to mature November 8, 1973
originally issued in the amount of $ 1,801,695,000,
(CUSIP No. 912793 SCI)
the additional and original
bills to be freely interchangeable.
182-day bills, for $1,800,000,000, or thereabouts, to be dated August 9, 1973,
and-to mature
February 7, 1974 , (CUSIP No. 912793
SX5 ).
The bills of both series will be issued on a discount basis under competitive
and noncompetitive bidding as hereinafter provided, and at maturity their face
amount will be payable without interest.
They will be issued in bearer form only,
and in denominations of $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 clos
ing hour, one-thirty p.m., Eastern Daylight Saving time, Monday, August 6, 1973.
Tenders will not be received at the Treasury Department, Washington;
must be for a minimum of $10,000.
$5,000.
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.
Fractions
It is urged that tenders be made on the printed forms and for
warded in the special envelopes which will be supplied by Federal Reserve Banks
or branches on application therefor.
Banking institutions generally may submit tenders for account of customers
provided the names of the customers are set forth in such tenders.
Others than
Banking institutions will not be permitted to submit tenders except for their own
(OVER)
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 thosi
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 acceptj
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
August 9, 1973,
in cash or other immediately available funds or in a like face amount of Treasury
bills maturing August 9, 1973.
treatment.
Cash and exchange tenders will receive equal
Cash adjustments will be made for differences between the par value ofl
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 accnj
when the bills are sold, redeemed or otherwise disposed of, and the bills are ex
cluded 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
for the bills, whether on original issue or on subsequent purchase, and the amoun^
actually received either upon sale or redemption at maturity during the ta x a b le
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.
Department of theTREASURY
C 20220
ASHINGTON, D.C:
î( JW I
TELEPHONE W04-2041
July 31, 1973
FOR RELEASE 6;30 P.M
RESULTS OF TREASURY NOTE AUCTION
The Treasury has accepted $2.0 billion of the $2.1
billion of tenders received from the public for the 4-year
7-3/4% notes auctioned today. The range of accepted
competitive bids was as follows:
Price
High
Low
Average
99.31 1/
99.01
99.07
Approximate Yield
7.95%
8.04%
8.03%
1/ Excepting 15 tenders totaling $2,627,000
The $2.0 billion of accepted tenders includes 75% of
the amount of notes bid for at the low price, and $0 . 6
billion of noncompetitive tenders accepted at the average
price.
In addition, $0.6 billion of the notes were allotted
to Federal Reserve Banks and Government accounts at the
average price, in exchange for securities maturing August 15.
¡Department o f
ÌINGTON, D C. 20220
^T
T E L E P H O N E W 04-2041
FOR IMMEDIATE RELEASE
August 1, 1973
TREASURY ANNOUNCES ACTIONS ON
THREE INVESTIGATIONS UNDER THE ANTIDUMPING ACT
Assistant Secretary of the Treasury Edward L. Morgan
announced today actions on three investigations under the
Antidumping Act of 1921, as amended.
In the first two cases there is a withholding of
appraisement pending completion of the antidumping investi
gations, and in the third case there is a determination of
sales at less than fair value. These decisions will appear
in the Federal Register of August 2, 1973.
In the first case, Assistant Secretary Morgan announced
that the Treasury is withholding appraisement on primary
lead metal from Australia. This lead metal is used in the
production of storage batteries, pigments and chemicals,
including gasoline additives. 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. If a determination of sales at
less than fair value were made in this investigation, the
case would be referred to the Tariff Commission, which would
consider whether an American industry was being injured. If
both 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 year beginning May 1972, imports
of primary lead metal from Australia totaled approximately
$11 million.
In the second case, the Treasury is withholding appraise
ment on racing plates (aluminum horseshoes) from Canada. A
final Treasury decision in this investigation will likewise
be made within three months. If a determination of sales at
less than fair value were made in this investigation, the case
would also be referred to the Tariff Commission, which would
(OVER)
-
2-
consider whether an American industry was being injured.
During the period of January 1972 through March 1973, imports
of these racing plates from Canada totaled approximately
$140,000.
In the third case, the Department announced that polychloroprene rubber from Japan is being, or is likely to be,
sold at less than fair value within the meaning of the Anti
dumping Act. This rubber is an oil resistant synthetic
rubber particularly suitable for the manufacture of chemical
equipment because of its high resistance to chemical action.
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 duties will be assessed on all entries of
polychloroprene rubber which have not been appraised and on
which dumping margins exist. A notice of "Withholding of
Appraisement" was issued on June 14, 1973, which stated that
there was reasonable cause to believe or suspect that there
were sales at less than fair value. During calendar year
1972, imports of polychloroprene rubber from Japan were
valued at approximately $8 million.
# # #
FOR RELEASE ON DELIVERY
STATEMENT OF THE HONORABLE GEORGE P. SHULTZ
SECRETARY OF THE TREASURY
BEFORE THE JOINT ECONOMIC COMMITTEE
THURSDAY, AUGUST 2, 1973
10:00 A.M.,EDT
Mr. Chairman and Members of the Joint Economic Committee:
It is a pleasure to be here today to participate in
your mid-year review of the economy.
I recognize that the
members of the Council of Economic Advisers participated
in an extensive and detailed review with you here yesterday,
so I shall limit my opening remarks to a few basic points.
In the first half of the year, the economy moved very
rapidly toward full employment of its manpower and productive
facilities.
The pace of domestic economic expansion exceeded
expectations and there were unusually large gains in pro
duction and employment.
Some other developments were far less welcome.
The
dollar declined in value both in terms of foreign currencies
and in terms of purchasing power for U. S. goods and services.
It was necessary to resort again to a temporary freeze on
S-260
2
domestic prices.
These developments testify to the need
for policies that will guide the economy on to a much less
inflationary path of expansion.
There is no mystery as to the correct direction for
policies during such a period of intense inflationary
pressure.
Fiscal and monetary policies must exert a re
straining influence.
No wage-price control program, however
well designed, can achieve its objectives if total spending
is pressing hard against productive capacity.
In the
present situation, there can be no ducking the need for
restraint in fiscal and monetary policies if more serious
inflationary risks are to be avoided.
It is clear that continued control of Federal spending
takes on a new urgency.
As I stressed in my appearance
before your Committee earlier this year, it is critical that
the Congress and the Executive Branch cooperate closely in
this important effort.
This Committee was instrumental in the successful
efforts to hold Federal spending below $250 billion during
fiscal year 1973.
Certainly there have been many differences
between the Congress and the Administration over specific
Federal program cutbacks and spending reductions, but the
important point is that our spending goal was achieved,
Together, we now have an even more challenging problem.
Inflation has emerged as our Number One economic problem and
we must insure that our financial policies are adequately
combatting rising prices.
Phase IV of the Economic
Stabilization Program can help to moderate inflation.
The
main weapon against inflation, however, remains our financial
policies, supplemented b y special measures to encourage
increased supplies of goods and services.
I would like to emphasize our judgment that fiscal re
straint is imperative, and the operational necessity for
exerting that restraint on expenditures.
We have estimated
that fiscal 1974 revenues will approximate the outlay level
proposed by the President last January,
With the help of the
Congress, expenditures can be held to that level, and we can
then look forward to a balanced budget.
This budget will
make available an additional $20 billion for Federal spending
over last year’s levels, but it will still require a major
effort by both the Congress and the Administration to live
within that spending total.
Nonetheless, such restraint must be exercised if we
- 4 -
are to avoid an unacceptable rate of inflation or higher
taxes -- or both.
The rate of advance in real output during the first
half of the year was impressive.
However, price performance
during the first half of the year was most unsatisfactory.
For example, the GNP deflator rose at nearly a 6-1/2% annual
rate in contrast to about a 3% annual rate in the last half
of 1972.
Consumer prices rose at an 8% annual rate in
contrast to less than a 4% annual rate in the last half of
1972.
Rates of advance in certain components of the wholesale
price index, especially for agricultural products and other
raw materials, were extremely rapid in the first half of the
year.
A number of factors combined to trigger this burst of
inflation.
They include the pressure of rising world-wide
demand for basic materials, crop failures abroad, bad weather
at home, and repeated threats of price freezes and rollbacks.
By late spring and early summer, it became clear that
further policy actions would be needed to contain inflation.
As you know, President Nixon announced on June 13 the re
imposition of a temporary price freeze of up to 60 days'
5
duration.
Subsequently, on July 18, we announced the
Phase IV controls program which will take effect in stages.
Phase IV is a tough program.
It is designed to spread
the inevitable bulge of post-freeze price increases over a
period of some months and to minimize the impact of infla
tionary pressures thereafter.
The program is designed to
fit the special circumstances of certain industries, and
some industries will be exempted from price controls based
on their own favorable pricing track record.
A wide range of important actions have been taken to
increase agricultural supplies and will be yielding their
benefits later this year and next.
In all the circumstances,
wage pressures have been moderate and can continue to be if
price rises are restrained.
Given the essential support of
restrictive fiscal and monetary policies, the economy will
work its way through to much lower rates of inflation.
Since I appeared before you in February, international
payments trends have moved toward equilibrium; interim
arrangements for exchange market operations have been
established; and important steps taken toward international
economic reform.
n 6 -
The exchange rate changes oyer the past two years have
laid the foundation for restoring international, and
specifically, U. S. balance of payments equilibrium-.
That
foundation would be undermined if recent rates of inflation
were allowed to continue.
I am confident we can keep that
from happening.
Our trade accounts have improved more than might have
been expected in a time of rapid growth in this country,
Our trade deficit, which was nearly $7 billion in 1972, was
only $1-1/4 billion in the first half of 1973,
The large ex
pansion of agricultural exports has been the most important
factor improving our trade balance.
have probably reached a peak.
Agricultural exports
But they will remain at a
high level while our industrial trade balance improves.
After some turmoil in the foreign exchange markets in
February and early March, members of the Group of Ten and
the European Community agreed on interim monetary arranger
ments until an improved payments equilibrium could be
achieved and monetary reform negotiations completed.
These
interim arrangements reflect recognition of the unusual
strains and speculative forces during this period of basic
adjustment.
Rather than a rigid defense of fixed parities,
they permit elasticity in exchange rates in response to
market forces.
7
Since that time the currencies of the European Community
which are jointly floating have appreciated significantly in
relation to the dollar.
Indeed, this movement has extended
beyond the changes that we and others have felt is necessary
to meet the requirements of longer term equilibrium.
At the
same time the dollar has remained quite stable in relation
to the currencies of Canada, Japan, the developing countries,
the United Kingdom, and Italy -- countries which account in
total for three-quarters of our trade.
We and others are
prepared to intervene in exchange markets when necessary
and desirable, to maintain orderly conditions.
I am convinced
and this view is shared by most of my colleagues abroad -that the transitional arrangements in place are the best
available response to current circumstances.
Meanwhile we are tackling the problem of establishing
a permanent system with a strong sense of urgency.
Two days
ago the C-20 Ministerial Committee on International Monetary
Reform completed its third meeting.
We had a very useful
give and take discussion on some of the key issues, and I
believe we can begin to see the outline of workable solutions
in important areas.
Significant differences certainly remain,
~ 8 -
but it is clear to me that there is a general will to keep
the ball rolling toward an agreed reform,
I am particularly
encouraged that there appears to be increasing acceptance
of certain elements we have felt extremely important,
including the need for symmetry in adjustment pressures
between deficit and surplus countries and the necessity
of backbone in the provisions to assure adjustment in the
new system.
As had been agreed in advance the meeting was a
working session with no communique.
I expect that the
Committee will be able to summarize in more concrete terms
the progress it has made at the annual meeting of the
International Monetary Fund in Nairobi at the end of September
and that we can proceed thereafter to hammering out a detailed
agreement.
0O0
Department of
HiNGTON, D C . 20220
^T
TELEPHONE W04-2041
I I
/¿.P '1 -
ATTENTION: FINANCIAL EDITOR
FOR RELEASE AT 6:30 P.M.. EDST
August 1, 1973
RESULTS OF TREASURY BOND AUCTION
The Treasury has accepted $500 million of competitive
and noncompetitive tenders received for its new 7-1/2%
20-year bonds auctioned today.
Tenders from the public,
all of which were accepted, totalled $260 million, including
$26 million of noncompetitive tenders.
Tenders of $240
million submitted for Government accounts also were accepted.
The lowest price accepted was 95.05, which is the
price to be paid by all bidders.
This price results in
a yield of about 8.00% (to the maturity date of August 15,
1993) .
In addition to the $500 million of accepted competitive
and noncompetitive tenders, $425 million of the bonds were
allotted to Federal Reserve Banks and Government accounts,
in exchange for securities maturing August 15, at the price
at which other tenders were accepted.
oOo
August 3,1973
Recom m endations
for Change
in the
US
Financial
System
mm*
V /f i /t
•
Department
of the Treasury
Washington, D.C.
20220
I
August 3,1973
Recommendations
for Change
in the
US
Financial
System
Department
of the Treasury
Washington, D.C.
20220
TABLE OF CONTENTS
Page
President Nixon’s Message to the Congress, August 2,1973___________
1
Summary of the President’s Recommendations________ ___________
5
Before— and— After Status of Financial Institutions_____________ __
6
Narrative Explanation: Background of Issues and Recommendations__
9
Questions and Answers About the Recommendations______________
15
Effects on Housing of Changes in Financial Structure_______________
29
U.S. Regulatory Agencies for Financial Institutions_______________
35
ill
OFFICE OF THE WHITE HOUSE PRESS SECRETARY
(Embargoed for Release until 12 NOON EDT, Aug. 3f 1973)
Jfothe Congress of the United States:
Our country depends on a strong, efficient and
lexible financial system to promote sound ecoiiomicgrowth, including the provision of adequate
jundsfor housing. Such a system is one which al
lowsfinancial institutions to adapt to the changg needs of borrowers and lenders, large and
inall,and is free to make full use of technological
^novations.
Events during the last decade, however, have
evealed significant defects in the operations of
Dur financial institutions. O n two recent occasions
hen the Federal Keserve System moved to re
train the economy, it was found that the inade[uaciesof our financial structures created unneces
sarilysevere burdens for the business community
nd the consuming public. The consumer-saver
hs denied a fair market return on his savings,
whilethe consumer and small businessman, as bor
rowers, often could not obtain adequate funds to
jneettheir requirements.
The inflexibility of our financial system can be
directly attributed to the methods used by the
povernment to direct credit flows— methods de
igned to meet the depressed economic conditions
pfthe 1930’s but poorly suited to cope with the
xpansionary conditions of the past decade. In repit years, government regulations have limited
efficiency and flexibility of our financial sysrm-Ironically, those regulations that were de
ignedin part to keep a steady flow of funds mov
ingmto housing loans actually served to diminish
flow, severely penalizing both the borrower,
rho could not find funds, and the saver who re
rived an unfairly low return on his savings.
As the Government tries to play its proper role
r building a better financial system, we must proW with one basic assumption:the public interF isgenerally better served by the free play of
competitive forces than by the imposition of rigid
N unnecessary regulation.
B y law, thrift institutions— a category primar
ily composed of savings and loan associations but
also including mutual savings banks— were creat
ed to provide funds for housing by maintaining
large holdings of residential mortgages. However,
earnings on holdings of previously acquired mort
gages do not respond to changes in market inter
est rates. W h e n market rates rise, the ability of
thrift institutions to attract funds is limited and
their ability to lend additional mortgage money
is diminished.
Attempts to alleviate this problem by restric
tive laws and regulations have achieved very little
at great cost. The main technique has been to im
pose ceilings on the interest rates that financial
institutions could pay savers for funds. The re
sult, however, has often been a reduction in the
flow of deposits to financial institutions. In many
cases, in fact, deposits have been withdrawn so
that they could be invested in higher yielding se
curities. Thus interest ceilings that were intended
as a protective shield for the housing market
turned out instead to be an additional burden.
Interest rate ceilings proved harmful to Amer
icans both as savers and as borrowers in the late
1960’s. Because the interest rate ceilings for de
posits were often below market interest rates,
small savers, who depended on banks and other
savings institutions, were denied a fair rate of re
turn on their money. O n the borrowing side, small
er increases in savings deposits resulted in a sharp
drop in loan funds available to consumers and
small business firms.
Since financial institutions were prohibited
from paying better interest rates, they were forced
to compete for customers in other ways. Much of
the public had to settle for so-called “free services”
or even offers of consumer goods when in fact they
may have preferred to receive higher interest on
their deposits. In addition, such competition often
led to increases in operating costs which prevented
1
lending rates from declining when credit condi
tions later eased.
Finally, because of reduced inflows of savings,
thrift institutions cut back on their mortgage lend
ing or borrowed from Federal H o m e Loan Banks
which had to pay market rates for their funds.
Although the Federal Government stepped in and
picked up some of the slack, mortgage flows were
still disrupted.
Recognizing the need for action on all these
problems, I appointed a Presidential Commissionon Financial Structure and Regulation during m y
second year as President to study this entire mat
ter and to make recommendations for reforming
our financial institutions. The Commission’s report
identified quite precisely the causes of rigidity and
instability in our financial institutions. Its rec
ommendations were of major assistance in our fur
ther deliberations concerning the best ways to cor
rect the weaknesses in our financial system.
The time to correct those weaknesses has come.
Our current efforts to fight inflation and preserve
the value of the dollar at home and abroad require
strong financial markets. Without strong markets,
the American public will be forced once again to
bear excessive burdens.
If we do not act promptly, there is every reason
to believe that those burdens will be even greater
in the 1970’s than they were in the 1960’s. E d u
cated by the last two credit crunches and by con
stant advertisements about interest rates, even the
small saver will shift his funds to places offering
higher yields. As market rates rise aboye passbook
ceilings and the saver shifts his funds to obtain
the higher interest rates, the result may be that lit
tle loan money is available from financial institu
tions.
In keeping with that analysis, I will propose to
the Congress legislation designed to strengthen
and revitalize our financial institutions. These
proposals may be divided into seven major areas :
(1) Interest ceilings on time and savings
savings deposits should be removed over a 5
year period.
(2) Expanded deposit services for con
sumers by federally chartered thrift institu
tions and banks should be allowed.
(3) Investment and lending alternatives
for federally chartered thrift institutions and
banks should be expanded.
(4) Federal charters for stock savings and
y2
2
loan institutions and mutual savings bar
should be permitted.
(5) Credit unions should be provided wit!
greater access to funds.
(6) F H A and V A interest ceilings si
be removed.
(7) The tax structure of banks and thrii
institutions should be modified.
These recommendations would achieve thebasf
reforms our financial system requires. They reprj
sent the best suggestions from many differed
sources— from the Presidential Commission
from business, Government, consumer and acj
demic communities.
The first five of these recommendations areI
signed to provide increased competition amonf
banks and thrift institutions. Such competitor
would help to eliminate the inequities now impose
upon the small saver and borrower. M y recommeij
dations, and the increased competition that woul
follow, should reduce the cost of the entirepacka
of financial services for the consumer. Furthe*
more, the saver would be assured a fair returnol
his money. In addition, thrift institutions wouf
be strengthened, so they would no longer needtlj
Government support required in the past.
Recommendations 6 and 7, along with the oth^
recommendations, are designed to promote
quate funds for consumer needs, including houj
ing finance. It is clear that interest ceilings ol
F H A and V A mortgage loans have failed tokeef
costs down, as evidenced in part by the widj
spread use of discount “points.” At the same tin!
these ceilings have restricted the flow of privaf
funds into mortgage markets. I will urge thati|
dividual states follow our lead and remove sin*
lar barriers to housing finance wherever such baj
riers exist.
The final recommendation would substantial!
broaden the base of housing finance. AlthougL
the final details have yet to be worked out, acti|
consideration is being given to the creation ofI
income tax credit tied to investments in housnf
mortgages. Such a credit would be available to¡1
lenders and could vary in direct proportion totff
percentage of invested funds held in the form |
such mortgages.
These recommendations are not the only stea
being taken to strengthen the housing financemaj
ket. In m y State of the Union Message on Coi|
munity Development of March 8,1973, I pledged
that this Administration would undertake a com
prehensive evaluation of our housing policies and
programs and would recommend new policies to
eliminate waste and better serve the needy. A n in
teragency task force, under the leadership of Sec
retary Lynn, is now completing that task, and m y
recommendations will be presented to the Con
gressin the near future.
My recommendations on restructuring financial
institutions represent a coordinated approach to
thischallenge, and I urge that they be considered
asa package. For example, removing interest ceil
The W
h it e
H
o u s e
,
ings will not make a positive contribution unless
banks and thrift institutions can expand their de
posit and lending services. Flexibility and effi
ciency will be enhanced by placing competing in
stitutions on a roughly equal footing with regard
to three essential considerations: deposit powers,
lending powers, and tax burdens. Finally, the tax
recommendation and the removal of F H A and
V A interest ceilings will help ensure more ade
quate funds for housing. The need for reform of
our financial institutions is pressing. I urge the
Congress to give these proposals its prompt and
favorable consideration.
August 2, 1973.
3
SUMMARY OF THE PRESIDENT’S RECOMMENDATIONS
I Events during the latter part of the 1960’s
[showed that U.S. financial markets are illlequipped to deal with periods of credit restraint.
JAs interest rates rose because of inflation, thrift
■institutions faced a severe profit squeeze which
■threatened to cut off funds for housing.
I Attempts to alleviate the crisis by regulation,
Imainly the imposition of ceilings on the amounts
[financial institutions could pay for funds, failed
|tokeep funds flowing into the institutions at pre
viouslevels.
Interest ceilings adversely affected the public
Idirectly and indirectly. In their role as savers, for
jwhom the thrift institution was a major place at
jwhich to save, consumers were denied a market
Irate of return on their money. Moreover, thrifts
beduced in a disproportionate manner the avail
ability of funds to consumers and small business
[firms.
Less direct, but equally costly to the public, in
terest ceilings contributed to severe setbacks in
effortsto meet our housing objectives, and helped
make the Federal Reserve’s attempt to combat in
flationwith monetary policy needlessly costly and
[complicated.
The time to correct those defects in our finan
cial structure is now. Current efforts to fight in
flation and preserve the value of the dollar at
home and abroad require strong financial institu
tions. Without them, there is every reason to
believe that the burdens of credit restraint will be
even greater than before.
Financial institutions are to be strengthened by
phasing out Regulation Q over a
year period;
permitting all federally chartered banks and
thrift institutions to offer a full range of check
ing and savings accounts, and permitting feder
ally chartered thrifts to offer consumer and real
estate related loans in competition with banks.
Housing finance will be strengthened by the
elimination of Federal Housing Administration
and Veterans Administration interest ceilings and
by a tax credit to all taxpayers investing in resi
dential mortgages.
The dual banking system will be preserved and
strengthened. Federal Reserve requirements on
“checking” accounts will apply only to members of
the Federal Reserve and Federal H o m e Loan Bank
systems. Federal charters will be available for
stock thrift institutions and for savings banks.
Credit unions are to be strengthened by broad
ened asset and liability powers and by access to
a new source of liquidity administered by the N a
tional Credit Union Administration.
5y2
5
517-349 0 - 73 - 2
BEFORE AND AFTER STATUS OF FINANCIAL INSTITUTIONS
COMMERCIAL BANKS
BEFORE
AFTER
Deposit Powers
payments of interest : severe restrictions on all
types of deposits.
51 /2 year phase-out of restrictions, then interest
freely determined. However, no interest on de
mand deposits.
savings accounts :individuals only.
savings accounts: full powers; individual and
corporate.
demand accounts : full powers ; individual
and corporate.
demand accounts: full powers; individual and
corporate (no change).
Negotiable Order of Withdrawal (N.O.W.)
accounts :not permitted.
N.O.W. accounts :full powers ;individual and cor
porate.
Lending and Investment Powers
re
re
real estate loans: severe restrictions
col
lateral, loan size, maturity and method of re
payment.
real estate loans :modest restrictions collateral,
loan size, maturity and method of payment; pirn
community rehabilitation loans under a 3 percent
leeway authority.
equities: holdings severely restricted.
equities :holdings severely restricted (no change).
Taxes
tax credits :none.
tax credits : special tax credits for investing in
residential mortgages.
Chartering alternatives
federal :yes
state :yes
federal: yes 1
,
mm
no change
state: yes J
J
Branching
national banks : 1state law governs location
state banks :
Jof branches.
national banks: 1 state law governs location of
state banks:
J branches (no change).
I
Summary
Consumer interests penalized. Opportunities
to compete for funds limited and prohibitions
restrict direct participation in housing and
real estate finance. Absence of mortgage in
vestment incentives given S & L ’s.
6
Consumer interests given high priority. Virtuallyl
unlimited opportunities to compete for funds; rej
striction against housing and real estate finance
modified, and positive incentives for such inves
ment, identical to those given S & L ’s.
THRIFT INSTITUTIONS
BEFORE
Deposit
AFTER
Powers
payment of interest:severe restrictions on all
types of deposits.
51/2 year phase-out of restrictions, then interest
freely determined. However, no interest on de
mand deposits.
savings accounts:full powers;individual and
corporate.
savings accounts: full powers; individual and
corporate (no change).
demand accounts:not permitted.
demand accounts: full powers; individual and
corporate.
N.O.W. accounts:not permitted.
N.O.W. accounts: full powers; individual and
corporate.
Lending and Investment Powers
loans for housing and closely, related areas.
plus
loans for housing and closely related areas;
(on a limited basis) consumer loans; real estate
loans under same conditions as commercial banks ;
construction loans not tied to permanent financ
ing; community rehabilitation loans under a 3
percent leeway authority.
commercial loans permitted only to extent they
are closely related to housing.
equities : no acquisition of private sector
issues.
equities :no acquisition of private sector issues (no
change).
securities: no acquisition of private debt
securities.
securities: limited acquisition of high-grade pri
vate debt securities.
Taxes
loan loss deductions: preferential treatment
compared to banks.
loan loss deductions :will move to experience basis ;
same treatment as banks.
tax credits :none.
tax credits: special tax credits for investment in
residential mortgages ; significant incentive to re
tain high percentage of portfolio in residential
mortgages.
¡Chartering a lte rn a tiv e s
federal :mutual associations only.
federal: mutual and stock associations.
state: mutual and stock associations.
state: mutual and stock associations (no change).
Branching
federally chartered : governed by F H L B B
federally-chartered: governed by F H L B B
change).
(no
state-chartered: governed by state law
state chartered: governed by state law
change).
(no
7
THRIFT INSTITUTIONS— Continued
BEFORE
AFTER
Summary
Consumer interests penalized owing to prohi
bitions against service competition and en
forced specialization between thrift institu
tions and banks.
Consumer interests strengthened by availability^
of new sources of supply of both deposit services
and lending services and the promise of direct
price competition between thrift institutions and
banks.
Opportunities to compete for funds limited
and little ability to withstand tight-money
pressures without substantial government
support.
Virtually unlimited opportunities to compete fon
funds. Ability to withstand tight-money pressures
strengthened, minimizing need for government!
rescue operations.
1
Bacl<
Pl
demi
accoi
p
opi
CREDIT UNIONS
rectLending and Investment Powers
:amo]
|Con|
less severe restrictions.
severe restrictions.
ofIt
Chartering alternatives
demi
j
conversion to mutual thrift institutions per serve
conversion to Mutual Thrift Institutions not
ber 1
mitted.
permitted.
was
Sources of Liquidity
the1;
of tl
private sector institutions,
N C U A - a d m in i S '
private sector institutions only.
tered Central Discount Fund for emergency] sum<
St
temporary liquidity purposes only.
esto
itw<
Taxes
n
ot
tax-exempt (no change).
tax-exempt
mon
sour
rates
prob
reme
plus
I
with
meni
(EF
twee
tent
p.o,
won
acco'
cum
ffieai
tem
depc
8
NARRATIVE EXPLANATION: BACKGROUND OF ISSUES AND RECOMMENDATIONS
Issue 1
PAYMENT OF INTEREST ON DEPOSIT
ACCOUNTS
Background
Prohibitions against the payment of interest on
demand deposits and interest ceilings on savings
accounts were initially a product of the 1930’s. The
popular notion at that time— since proved incor
rect— was that excessive interest rate competition
among banks was the cause of bank failures. Thus
Congress, with the enactment of the Banking Act
of1933, prohibited banks from paying interest on
demand deposits and authorized the Federal Re
serve Board to regulate the rate of interest m e m
berbanks may pay on savings accounts. That era
was also characterized by an orientation toward
theborrower, in an attempt to bring the nation out
of the Depression, rather than toward the conIsumer/saver.
Studies of the prohibition of payment of inter
eston demand deposits have shown the reasons for
itwere ill-founded. Moreover, the prohibition has
pot kept bank costs from rising during tightmoney periods because banks have developed other
sources of funds for which they have paid market
rates. Unfortunately, misconceptions about the
prohibition are so widely and strongly held that
removal is not feasible.
However, development of “negotiable order of
withdrawal” (N.O.W.) accounts and the develop
ment of “electronic funds transfer systems”
(EFTS) can be expected to blur the difference be
tween demand and savings accounts to such an ex
tentthat the prohibition will become meaningless.
p.O.W. accounts provide most of the benefits that
would be derived from interest-bearing checking
accounts without forcing banks to pay interest on
current demand deposits. They also allow banks a
means of experimenting before any move to a sys
tem where interest is explicitly paid on demand
deposits.
Working with the money flow theories of the
1930’s,Congress, in September 1966, turned to in
terest ceilings to protect the deposit holdings of
thrift institutions and thus the flow of funds into
mortgage markets. It enacted legislation giving
the Federal H o m e Loan Bank Board ( F H L B B )
and the Federal Deposit Insurance Corporation
(FDIC) authority to regulate, in conjunction with
the Federal Reserve Board (FRB), interest pay
ments made by the institutions they supervise. The
three supervisory authorities then agreed to
formalize the historical interest differentials paid
by thrift institutions over those paid by commer
cial banks at about 50 basis points (reduced to 25
basis points on July 5,1973).
Interest ceilings on savings accounts have failed
to achieve their objectives. Contrary to expecta
tions, they did not protect the liquidity of thrift
institutions by preventing an outflow of funds dur
ing periods of tight money, and thus did not pro
duce funds for the mortgage market. Large savers
enjoyed many alternatives for their savings which
paid the higher market rates and reacted accord
ingly. Faced with a loss of funds, thrift institu
tions cut back on their mortgage lending or bor
rowed from especially created agencies, which had
to pay market rates for their funds, or did both.
The result was significant instability in mortgage
markets, and accentuated differences between the
rate of return to large and small savers.
Ironically, even though the small saver received
less than the large saver, the cost of funds to thrift
institutions rose appreciably. Ceilings did force
those who, due to their unsophistication or small
savings, had only limited outlets for their savings
to accept less than market rates. However, large
savers who withdrew their funds had the option of
acquiring debt issues of Federal H o m e Loan
Banks at market rates. Funds raised in that man
ner were then relent to thrift institutions at rates
which were generally above deposit rates.
Interest ceilings also hampered the implemen
tation of restrictive monetary policy. Because de
pository institutions could not attract funds, large
and increasing credit flows were moving outside
the banking sector. The base on which the Federal
9
Reserve operates decreased in relative terms, and
its restrictive policies had to be made increasingly
stringent at the same time that they became in
creasingly ineffective.
Formalized interest differentials may have pre
vented, to some extent, a shift of deposits from
thrift institutions to commercial banks. If they
did, the interest differential helped to maintain the
viability of thrift institutions. That does not neces
sarily imply, however, that the differentials will
be effective in future periods of high and rising
interest rates. Educated by the last two “credit
crunches” and by constant advertisements about
interest rates, even the less sophisticated savers will
shift their funds to the highest yield if market
rates greatly exceed the passbook ceilings. Such
shifts began occurring in the summer of 1973.
Thus it is increasingly unlikely that interest
ceilings or differentials will continue to protect
thrift institutions. Additionally, large corpora
tions, which are not subject to ceilings, have al
ready successfully experimented with smalldenomination capital debentures— e.g., savings
bonds. Any corporation or governmental unit is a
potential competitor for the savings dollar. Sav
ings institutions therefore must be allowed to com
pete for these funds if they are to continue to pro
vide their intermediation function.
Should “free-competition” for funds cause some
institutions to make imprudent lending and invest
ing decisions, the situation can be remedied effec
tively through actions of the federal and state
supervisory authorities. Blanket regulation of the
entire deposit industry, geared to*the lowest com
mon denominator of management competence, is
neither justified nor desirable.
Recommendation
The payment of interest on demand deposits
will remain prohibited for all institutions.
Regulation Q is to be phased out over a period
of five and one-half years. Parity of interest ceil
ings between commercial banks and thrift institu
tions is to be achieved by raising the rate per
mitted banks in four annual steps commencing 18
months after enactment of the recommendation.
At the same time, preparations can be made for
the complete elimination of interest ceilings on
time and savings accounts.
N.O.W. accounts are to be subject to ceiling rates
so long as the ceiling system remains in force. Such
10
ceilings are to be uniform for banks and thrift
institutions and may be no higher than the maxi
m u m rate on passbook accounts.
Administrative decisions on the actual levelsof
ceiling rates will be made by a coordinating com
mittee composed of the FDIC, the FHLBB, the
FRB, and the Treasury Department.
Issue 2
EXPANDED DEPOSIT LIABILITY
POWERS AND RESERVES
Background
The elimination of preferential interest rate
treatment for thrift institutions will necessitate
adjustments in the structure of their deposit lia
bilities and assets so that they will be able to com
pete with commercial banks and other seekers of
the savings dollar. Additionally, the decreasing
effectiveness of interest ceiling differentials and
technological innovations that blur the traditional
lines between savings accounts and demand de
posits are actual developments which call for the
same remedy.
In the area of deposit powers, federally insured
thrift institutions are prohibited by law from of
fering third-party payment services (i.e.bona fide
checking accounts) but they may issue non-negotiable orders of withdrawal.
For their part, commercial banks are prohibited
from offering savings accounts to their corporate
customers. Such accounts were prohibited by the
F R B in 1936 on the theory that they represent the
indirect payment of interest on demand deposits.
(Section 19 of the Federal Reserve Act prohibits
member banks from paying interest directly or
indirectly on demand deposits.)
Those constraints upon federally insured thrift
institutions and member banks can be effective!
only in a world where all thrift institutions oper-l
ate under the same rules and where there are rela
tively high costs attached to shifting funds fronj
savings accounts to demand deposits. If that ever
were the case, it no longer is so. Non-federally
chartered thrift institutions in Massachusetts an
N e w Hampshire are offering negotiable order o
withdrawal (N.O.W .) accounts which are tanta
mount to and near-perfect substitutes for interest
bearing checking accounts. Such a system is made
possible by advances in computer technology
which enable any institution to offer customers
low-cost rapid transfers of funds from checking to
¡savingsaccounts and the reverse.
! It seems imprudent to try to block those inno
vativechanges sought by the consumer. Innovative
minds will always find ways around piecemeal re
strictions. However, if commercial banks and
thrift institutions are permitted to offer the same
(range of services, some suggest that they should
operatesubject to the same ground rules. The more
important of those rules covers the holding of re
serves against accounts subject to third-party
payments.
Imposition of comparable deposit reserves on
allbanks and thrift institutions is controversial.
Comparability does not exist now, and differences
between the Federal Reserve and the individual
states on the issue of reserves is one of the im
portant factors keeping the dual banking system
alive.Of the 509 state-chartered banks opened for
business in 1970 through 1972, only 30 joined the
Federal Keserve System. However, Federal Reserve member banks hold approximately 80 per!centof all demand deposits. There are substantive
Iadvantages to maintaining the dual system, par[ticularly the advantages and innovations of comIpetitive regulation and the avoidance of overly
[restrictive chartering policies.
I
Recommendations
For federal thrift institutions, checking ac
counts, third party payment powers, credit cards,
and N.O.W. accounts will be available to all cus
tomers, individual and corporate.
For national banks, saving accounts and N.O.W.
accounts will be available to all customers, indi
vidual and corporate.
All federally chartered institutions and all state
chartered institutions which are members of the
Federal Reserve System or the Federal H o m e
Loan Bank System will be required to maintain
reserves against deposits in demand and N.O.W.
accounts in a form and amount prescribed by the
FKB after consultation with the F H L B B . State
chartered savings and loan associations insured
bythe Federal Savings and Loan Insurance Cor
poration (FSLIC) need not be members of the
Federal Home Loan Bank System, just as state
chartered banks need not be members of the Fed
eral Reserve System.
N.O.W. deposits will be subject to the same
range of reserves as demand deposits. However,
the F R B after consultation with the F H L B B may
establish a different level of required reserves for
N.O.W. accounts.
Required reserves for demand deposits and
N.O.W. accounts will range from 1 to 22 percent.
Those for savings acounts will range from 1 to 5
percent and those for time accounts will range
from 1 to 10 percent.
For state chartered institutions F D I C and
F S L I C statutes will be changed to permit com
petitive equality, if such equality is sanctioned by
state law.
Issue 3
EXPANDED LENDING AND INVESTMENT
POWERS
Background
The removal of interest ceilings and the grant
ing of a greater range of deposit powers can be
expected to alter significantly the maturity struc
ture of thrift institutions deposits. Those changes
on the liability side require flexibility for compen
sating adjustments on the asset side. Such compen
sations should look to increasing income and
enhancing liquidity through portfolio diversifica
tion— objectives that can be achieved only through
the acquisition of shorter term and more diversi
fied assets, such as consumer loans. Opening up
those areas to thrift institutions can be expected to
create downward pressures on the cost of credit to
consumers and governmental bodies.
It might be argued that such significantly lib
eralized lending authority may curtail the flow of
funds into housing. That issue is not easily re
solved, but the Administration’s task force con
cluded that the expansion of powers, coupled with
the suggested tax changes, should not adversely
affect the supply of mortgage funds. It is impos
sible to give definitive support to that position be
cause theoretical arguments on both sides abound.
The key seems to be the extent to which: (1)
thrifts will shift long-term funds into short-term
(non-mortgage) assets, and (2) the extent to
11
which that shortfall would create market induce
ments encouraging other institutions (e.g. com
mercial banks and real estate investment trusts) to
fill the gap. In its study of the issue, an Adminis
tration housing study group, chaired by the Coun
cil of Economic Advisers, concluded that the
former would likely be small and that the latter
would operate, leaving mortgage flows unaffected.
The possibility that commercial banks may fill
the gap will be enhanced if current restrictions
on their real estate lending are removed, especial
ly in light of the removal of interest ceilings on
savings accounts. Furthermore, commercial banks
will be confronted by thrift institutions armed
with a full range of consumer finance powers and,
therefore will need to be more attentive to mort
gage credit demands if they are to hold their cus
tomers for other consumer business.
However, since housing has a high social prior
ity, it seems advisable to place some restrictions
on the acquisition of “non-mortgage” assets and
to increase the number of ways thrifts can par
ticipate in financing construction activity. In ad
dition, changes are also being recommended in the
taxation of banks and thrift institutions to assure
a steady flow of funds into housing.
Since the impact of the proposed changes on the
availability of mortgage funds is so important, a
synopsis of the Administration’s task force study
on this matter will be found later in this booklet.
line procedures established by the FHLBB. Such
investments are not to exceed 10 percent of total
assets, with the maximum limitation to be setat2
percent in the firstyear and growing to 10 percent
at the rate of 2 percent per year, over a 5-year
period;
(6) utilize for consume* loans the unused por
tions of authorized investments in private corpo
rate debt (commercial paper and debt securities)
and leeway loans;and
(7) continue the acquisition of a full range of
U.S. Government, state and municipal securities.
National banks will be granted:
(1) liberalized powers with respect to realestate
loans;
(2) a leeway authority, not to exceed 3 percent
of total assets, for community rehabilitation and
development and mortgage loans on residential
and related properties, including a participation
in rental income, or a share of capital gains on the
sale of property.
The F R B is to be granted more flexible author
ity to define assets eligible for discount, and the
F H L B B is to be given expanded authority to
broaden the definition of collateral required for
advances to savings and loan associations.
Issue 4
Recommendation
Federal savings and loan associations will be
authorized to :
(1) make consumer loans not exceeding 10 per
cent of their total assets ;
(2) make real estate loans under the same con
ditions as commercial banks ;
(3) make construction loans not tied to perma
nent financing (i.e.,interim construction financing
as offered by banks) ;
(4) make community rehabilitation and devel
opment and mortgage loans on residential and re
lated properties, including a participation in rent
al income or a share of capital gains on the sale of
property, but with this leeway authority not to ex
ceed 3 percent of their total assets ;
(5) acquire high quality commercial paper and
private investment-grade corporate debt securities
in accordance with approved-list and other guide
12
CHARTERS FOR THRIFT INSTITUTIONS
Background
The dual banking system has contributed a
great deal to the more efficient operation of fi
nancial markets. It has permitted an element of
competition among supervisory authorities which
has been conducive to innovation and experimen
tation by financial institutions. In addition, ithas
restrained supervisory authorities from overzealously protecting existing firms by restricting
entry to the field.
The dual banking system is, however, incom
plete. Federal charters are not available to mutual
savings banks and federal law explicitly prohibits
the federal chartering of
savings and loan
associations. Both types of institutions have been
operating in a more than satisfactory manner at
the state level for a number of years. There areno
stock
obvious reasons why federal charters should not
beavailableto them.
Recom m endation
The F H L B B is to be empowered to charter
stock thrift institutions, granting them powers
identical to those enjoyed by mutual savings and
loaninstitutions.
Newly empowered federally chartered thrift in
stitutions may be called either “savings and loan
associations” or “savings banks.”
State chartered mutual savings banks may con
vertto a federal charter and be granted all of the
assetand liability powers available to all federally
charteredthrift institutions. In addition, they may
retaintheir life insurance, equity investments and
corporate bond investments. Equity and corporate
investments may be no greater than levels deter
mined by their average percent of assets for the 5yearperiod January 1,1968 through December 31,
1972.
State chartered mutual thrift institutions which
convert to a federal charter will be insured by the
FSLIC, even if they had been insured by the
FDIC.
Issue 5
CREDIT UNIONS
Background
Credit unions represent a small but rapidly ex
panding portion of the nation’s financial system.
At the end of 1972, there were about 23,200 credit
unions holding total assets of more than $24.8 bil
lion.That represents only a 4.4 percent increase in
thenumber of firms since 1965, but a 134.6 percent
increase in their assets over the same period.
Because of their cooperative form of ownership
credit unions enjoy, by law, many advantages not
accorded other depository institutions, but must
satisfyspecial conditions to keep those advantages.
Their principal advantage isexemption from in
come taxes, while the main constraint on their op
erations is inability to offer services to non-mem
bers. Membership is limited to those who share a
common bond of association.”
That constraint does not impinge upon the op
erations of the vast majority of credit unions. Al
though there are credit unions that would prefer
to offer the services of “mutual saving institu
tions,” such an extension of powers would leave
them indistinguishable from taxable institutions
and their tax-free status could not be justified.
Credit unions deposit in and borrow from com
mercial banks. However, there is the possibility
that in times of severe credit restraint, a credit
union may face an emergency, such as a plant
closing, and be unable to acquire short-term funds
from the banking system. A totally-credit-unionfinanced “Emergency Fund” might be one method
to solve this problem.
Recommendation
A Central Discount Fund will be established for
insured (federal or state) credit unions solely to
provide funds to meet emergency, temporary
liquidity problems. Capital for the fund will be
obtained through subscriptions by credit unions
wishing to join. The Fund is to be administered by
the National Credit Union Administration.
Additionally, there will be some minor liberal
ization of existing credit union powers. Credit
unions will retain their tax-exempt status as long
as they remain within the bounds of the existing
tax law.
Credit unions that want to expand their services
and assume the burdens of full service mutual
thrift institutions will be permitted to do so. Proce
dures to facilitate an exchange of charters will be
available.
Issue 6
FHA AND VA INTEREST CEILINGS
Background
One of many federal attempts to keep the cost
of housing funds low is the administrative interest
ceiling placed upon Federal Housing Adminis
tration-insured and Veterans Administrationguaranteed mortgage loans. Those attempts have
by and large failed, as is evidenced by the wide
spread use of “points,” and the move by the Fed
eral National Mortgage Association in 1968 to a
“free market system” for buying and selling mort
gages. If administrative rates have kept costs
down, it has been at the expense of fewer funds
available for housing.
13
517-349 0 - 73 - 3
Recommendation
The F H A and V A interest ceiling will be re
moved.
,
Issue 7
TAXES
Background
In light of the expanded powers to be granted
thrift institutions and the overall goal of reducing
the degree of functional specialization among fi
nancial institutions, the basic objective of the tax
proposals is a uniform tax formula for all finan
cial institutions. A “tax neutrality” is sought, by
providing that a given investment or activity will
be subject to the same income tax provisions re
gardless of the functional type of financial insti
tution making the investment or engaging in the
activity.
However, differences in tax treatment, and thus
overall tax burden and effective rates of taxation
among financial institutions, will continue to
exist. Those differences will result from three
factors: (1) the form of the institution, i.e., m u
tual bank versus capital stock corporation; (2)
federal and state regulation which will grant cer
tain types of institutions the power to make cer
tain investments and engage in certain activities
that are denied to other institutions; and (3) the
extent to which an individual institution uses the
powers granted to it.
The principal difference between existing in
come tax provisions applicable to commercial
banks and savings institutions is in the area of de
ductions for additions to a reserve for losses on
loans (Internal Revenue Code sections 593 and
585). Those provisions must be changed if there
is to be a uniform tax formula. Furthermore, if
changes are made in that area, conforming amend
ments will have to be made to a number of other
provisions of the Internal Revenue Code which
currently reflect the differences of existing law.
Those other changes are technical in nature and
do not involve policy considerations. Therefore,
the recommendations which follow deal only with
the provisions affecting deductions for additions
to a reserve for losses on loans.
If the current subsidy being provided thrift
institutions through the special bad debt reserve
14
provisions is eliminated, a continued incentive to
insure a flow of capital into the residential mort
gage market may be provided through a mortgage
interest tax credit. Such a credit would be equal
to a percentage of the interest income earned on
residential mortgages and would operate as a di
rect incentive in place of the indirect incentive
currently being provided through provisions forj
loan losses. In addition, the mortgage tax credit
could be used to compensate thrift institutions
for the loss of tax benefit resulting from elimina
tion of the special bad debt reserve deduction.
Recommendation
The special reserve provisions applicable to
thrift institutions will be eliminated and allthrift
institutions will compute reserve additions under
an experience method similar to the one applicable|
to commercial banks.
Thrift institutions will be compensated for the
tax benefit being eliminated by means of a new
tax credit equal to a percentage of the interest
earned from residential mortgages and other
qualifying loans. The credit will be made avail
able to all taxpayers and will serve as an incentive
to attract capital into the residential mortgage
market.
The size of the credit has not yet been decided,
but it will be calculated so as to give thrift insti
tutions full compensation for the tax benefit they
would have received in the aggregate (based on
projections for a future year) through deduc
tions for additions to a reserve for losses on loans.
To induce thrift institutions to continue their
high level of investment in residential mortgages
(to be eligible for the special bad debt,reserve de
duction they currently must invest 60 percent of
their assets in qualifying real property loans
and must invest 82 percent of their assets in such
loans to receive the maximum tax benefit) and
provide an incentive to other lenders to increase
their level of investment in residential mortgages,
the credit will be multi-level. For example, one
rate might apply to those lenders who invest more
than 70 percent of their assets in residential mort
gages, a lower rate might apply to those lenders
investing more than 50 percent of their assets m
residential mortgages and still lower rates migOt
be set for all other lenders. The specific rates and
the investment levels have yet to be determined.
QUESTIONS AND ANSWERS
I
Payment of Interest on Deposit Accounts
(Regulation Q, etc.)
Q. What are the current regulations governing
the payment of interest on demand deposits?
A. Payment of interest on demand deposits by
any insured bank is prohibited by federal statute,
12U.S.C. 1828g.
Q. When and why was the payment of interest
on demand deposits barred ?
A. Payment of interest was prohibited in 1933
in the belief that deposit rate competition con
tributed to bank failures. Subsequent studies have
failedto support that belief.
Q. What is the legal basis for the current regu
lations governing the payment of interest on time
and savings accounts?
A. Federal law empowers the FEB, the FDIC,
and the F H L B B to limit by regulation the pay
ment of interest on time and savings deposits. Ceil
ingrates may be varied in accordance with deposit
size,maturity, location of institution and any other
basis deemed desirable in the public interest.
Q. When was that authority first granted those
regulatory bodies?
A. The current broad grant of authority was
firstenacted in September 1966 at the time of the
severe liquidity crisis.
Q. W h y was itenacted ?
A. It was believed at that time that ceilings on
deposit rates would hold down the costs of deposit
institutions (primarily S & L ’s) thereby alleviating
thesqueeze on their profits and maintaining them
asviable suppliers of funds for housing. However,
theceilings failed to provide a protective shield.
Q* What isKegulation Q?
A. Regulation Q is a regulation issued by the
nRB, under the authority mentioned above, gov-
eming the payment of interest by member banks
on time and savings deposits.
Q. Are other regulatory bodies empowered to
set interest ceilings for the depository institutions
they supervise ?
A. Yes. Under the legislation originally passed
in 1966, both the F H L B B and the F D I C may set
interest ceilings on the time and savings accounts
of the institutions they supervise. Extension of
that authority until December 31,1974, iscurrently
before Congress. Under current authority the
F D I C has promulgated 12 C F R 7829.6 and the
F H L B B 12 C F R 526.
Q. Are the same regulations applicable to com
mercial banks and thrift institutions?
A. Not entirely. The ceiling rate permitted
thrift institutions is now generally ¿5 basis points
higher than that permitted commercial banks.
There are no ceiling rates on certificates of deposit
of $100,000 or more, or on 4-year deposits of $1,000
or more (up to 5 percent of time and savings de
posits) .
Q. Has the differential between what commer
cial banks and thrift institutions can pay for time
and savings accounts been due to a law or to ad
ministrative action?
A. Administrative action.
Q. W h y are thrift institutions given an inter
est-rate advantage ?
A. Because of the prominent role they play in
funneling funds into housing markets.
Q. W h y is elimination of that differential now
being proposed ?
A. The total package of recommendations con
tains other and more efficient means of encour
aging financial support for housing, principally
through the mortgage tax credit.
Q. What is a “N.O.W.” account and how does it
differ from a demand deposit ?
15
A. A N.O.W. account is a negotiable order of
withdrawal offered by mutual savings banks in
Massachusetts and N e w Hampshire. In essence,
they are checks drawn on savings accounts in those
institutions. N.O.W. accounts differ from demand
deposits in that such accounts bear interest and
legally a bank does not have to honor iton demand.
Q. W h y are you recommending the payment of
interest on accounts that are essentially demand
deposits while continuing the ban on interest pay
ments for demand deposits ?
A. Given the long period in which banks have
not paid such interest they will need time to ex
periment with interest-bearing transaction ac
counts. Maintaining a distinction, however small,
between N.O.W. accounts and checking accounts
gives banks time for experimentation.
If interest could be paid immediately on demand
deposits, it is believed that banks with their exist
ing large balances of demand deposits would start
paying interest on them and S & L ’s would never
have a chance to attract such deposits. Also, many
banks would feel that they were being forced by
the government to pay such interest. A n d finally,
by allowing N.O.W. accounts rather than interest
on demand deposits we have introduced a degree of
gradualism into the new world of paying interest
on demand deposits.
Q. W h y do you want to phase out Regulation Q ?
A. W e want consumer/savers to have the full
benefit of market interests and thus to receive a fair
return on their savings.
Interest ceilings on time and savings accounts
have inhibited financial institutions from compet
ing with the rest of the capital market for funds,
particularly during periods of credit restraint.
Q. If you eliminate Regulation Q, won’t we have
the same type of cutthroat interest rate competi
tion that led to numerous bank failures in the
1930’s?
A. No. The statement that interest rate competi
tion led to bank failures has not been supported by
the evidence. There is little if any evidence that
pure interest rate competition led to bank failures.
The cause was, instead, poor investments.
If irresponsible deposit rates, inaugurated by
isolated banks, should lead them to invest unwise
ly, this can best be handled on a case-by-case basis
by the supervisory agencies. There is no point in
16
penalizing all savers and all institutions for po
tential abuses by a few.
Interest rate ceilings in the past have proved
to be discriminatory to the small unsophisticated
saver while not really protecting the individualin
stitutions.
Q. If you allow ceiling rates to increase, won’t
this mean higher rates on mortgages and bank
loans?
A. Not necessarily. A number of interrelated
factors have to be taken into account :
1. The interest rate for loans is determined by
a market that is separate from the one which de
termines the interest rate for deposits. Although
these two markets are indirectly related, they do
not necessarily move in unison.
2. The market for mortgage loans is a long-term
market, while the market for deposits is short and
medium term.
3. To argue that removing Regulation Q will
mean an increase in the average cost of funds for
institutions is to assert that the Regulation has
been effective in holding down the average cost
of funds to the institutions. This has not been the
case. What has happened has been a tiltin theyield
curve with the average remaining about what it
would have been otherwise— i.e.,short-term Regu
lation Q rates have been depressed (savings
accounts of small consumers) while the longer
maturity deposits (big C D ’s) have been dispropor
tionately bid up due to the intense competition by
institutions for these relatively scarce deposits.We
might expect this yield curve to “untilt” and thus
not necessarily increase the average cost of funds
to institutions.
4. However, the overall Regulation Q ratesmay
go up and loan rates may go up. But if this hap
pens, there will merely have been a redistribution
of income from borrowers to savers. W h o isto say
that the consumer savers should not receive a fair
return on their savings?
Q. W h y not remove Regulation Q immediately?
A. S & L ’s,due to their portfolios of substantially
all long-term mortgages frozen into fixed rates,do
not have the ability to immediately start paying
free competitive rates. They must be given a couple
of years to adjust their portfolios so as to shorten
the maturity of some of their assets (i.e.,consumer
loans) and improve their overall yield.
Il
thrifts to make consumer loans and business loans
related to real estate.
Expanded Deposit Liability Powers and Reserves
Q. What are the major differences in deposit
liability powers between commercial banks and
thrift institutions?
| A. All thrift institutions, both federal and state
chartered, offer a full range of savings account
servicesto all customers, individual and corporate.
However, thrift institutions may not offer demand
deposit services. A major exception is the N.O.W.
accountoffered by mutual savings banks in Massa
chusetts and N e w Hampshire. A m o n g commercial
banks only member banks of the Federal Reserve
System may not offer a full range of both demand
and savings account services to all customers.
Member banks may not offer savings account serv
icestotheir corporate customers. That prohibition
isa regulation promulgated by the FRB. State
chartered non-member banks are subject to state
law on the issue of corporate savings accounts.
Q. W h y have differing deposit liability powers
forcommercial banks and S & L ’s been established ?
A. It has been generally believed that the longer
maturity structure of thrift assets, vis-à-vis com
mercial banks, demands a longer maturity struc
ture of deposit liabilities. Hence the general pro
hibition against S & L ’s offering checking accounts.
Q. W h y the recommendation that the differ
ences in deposit liability powers between S & L ’s
andcommercial banks be eliminated?
A. It will be beneficial for consumers and small
businessesto be offered a full range of services by
allinstitutions which wish to do so. The elimina
tion of current differences is part of the overall
planto make thrifts more viable financial institu
tions.By possessing all the powers needed to com
pete for deposit funds, thrifts will no longer re
quirethe great rescue operations used in the pash
Q* Will changes in their liability powers re
quire changes in their asset powers?
A. Yes. Permitting thrifts to have shorter-term
liabilities requires that they possess shorter-term
assets. Recommendations put forward by the
President include proposals that would permit
Q. Will these changes in liability powers mean
changes in their deposit reserve responsibilities?
A. Not necessarily. If thrifts are members of the
F H L B B system, and membership will be volun
tary for state chartered institutions, reserves on
their transaction accounts (demand and N.O.W.
accounts, but not time and savings accounts) will
be imposed by the FRB, after consultation with
FHLBB.
Q. Will that be the same treatment accorded
commercial banks?
A. Members of the Federal Reserve system will
be subject to the same requirements on their trans
action accounts as members of the F H L B B system.
Again, membership will be voluntary for state
chartered institutions.
Q. Will there be any differences between the
reserve requirements for thrifts and commercial
hanks?
A. Yes. Current reserve (liquidity) require
ments on time and savings deposits of thrifts will
not he altered. Those on the time and savings ac
counts of commercial banks will be altered.
Q. Before we get into these changes what are
the current limits on reserves ?
A. Currently, the F R B is empowered to set re
serve requirements on demand deposits from 10
percent to 22 percent for so-called reserve city
hanks and from 7 percent to 14 percent for all
other banks.
Q. W hat are the requirements in effect today ?
A. As of M a y 31, 1973 reserve requirements on
demand deposits were
deposits
($ millions)
0-2
2-10
10-100
100-400
over 400
reserve requirements
(%)
8
10
12
13
17%
Q. W hat will the new reserve requirements be ?
A. They will range from 1 to 22 percent on
transaction accounts (including demand and
17
N.O.W. accounts), 1 percent to 5 percent on sav
ings accounts, and 1 percent to 10 percent on time
accounts.
Q. In what form will reserves be held?
A. For Federal Reserve and F H L B B members,
reserves will be held in a form and amount to be
prescribed by the FRB.
Q. Are reserve requirements imposed on savings
accounts?
A. Yes. Currently, member banks of the Fed
eral Reserve system are subject to reserve require
ments on savings accounts. Such reserves may
range from 3 percent to 10 percent. At the moment
the requirement for all banks is 3 percent. Non
member banks are subject to state law.
Q. Are there any reserve requirements on time
deposits and certificates of deposit?
A. Members of the Federal Reserve system
must hold as reserves 3 percent of such deposits
for the first $5 million and 5 percent for deposits
over $5 million. Recently, the F R B imposed an 8
percent marginal reserve requirement (the regular
5 percent plus a supplemental 3 percent) on fur
ther increases in the total of (a) outstanding cer
tificates of deposit of $100,000 and over issued by
member banks, and on (b) outstanding funds ob
tained by a bank through issuance by an affiliate
of obligations subject to the existing reserve re
quirement on time deposits. The 8 percent mar
ginal reserve does not apply to banks whose obli
gations of those type aggregate less than $10
million.
Q. What proposals are being made for reserves
on time and savings accounts in commercial banks ?
A. For member banks reserve requirements on
savings accounts will range from 1 percent to 5
percent and those on time accounts will range
from 1 percent to 10 percent. State law will pre
vail for nonmember banks.
Q. What is the difference between savings ac
counts and time accounts ?
A. Generally, the two differ in terms of the
amount of time funds must remain on deposit and
the rules governing withdrawal of funds.
18
For savings accounts, the depositor is not re
quired by contract to leave funds on deposit for
any specified period of time nor to give noticein
writing of an intended withdrawal. However, the
depositor may at any time be required by the bank
to give at least 30 days notice.
For time accounts, the depositor agrees to leave
funds on deposit for a specified minimum period
of time and for many types of time deposits must
give prior notice of withdrawal.
Q. Will new reserve requirements be imposed on
time and savings accounts in thrift institutions?
A. No. The liquidity reserves imposed by the
state or the F H L B B , whichever is applicable,
will continue.
Q. Although the F R B imposes reserve require
ments only on member banks, are you recommend
ing that it set reserve requirements for all feder
ally insured banks ?
A. No, not all of them. The F R B will have au
thority to set, in consultation with the FHLBB,
reserve requirements on transaction accounts of
members of the F R and F H L B B systems.
Q. W o n ’t that recommendation bring some
thrift institutions under the control of the FRB?
A. Only with regard to reserve requirements on
transaction accounts. There is no way to estimate
at this time how many F H L B B thrifts will offer
transaction accounts.
Q. Are there any reasons for preserving the
dual banking system ?
A. Yes. The dual system creates 52 laboratories
for experimentation in bank regulation. Experi
mentation has taken place in areas of ancillary
bank services and capital adequacy to the ad
vantage of the banks and the public. In addition,
the availability of alternative chartering agencies
has resulted in increased competition and more
service for the public.
Q. W h y is it that state chartered banks which
are not members of the Federal Reserve System do
not have to hold the same reserves as the system
members ?
A. The history of our banking laws has been
one of dual regulation of state chartered banks
and federally chartered banks. W e do not wish to
damage this very healthy system of dual banking-
By providing a choice of chartering and super
visory agencies to banks and S & L ’s, we have
fostered an innovative and progressive banking
system.
We believe that states have the right to regulate
their own banks so long as such regulation does
not unduly interfere with the implementation of
monetary policy which is, of course, a federal re
sponsibility. From a practical point of view, most
state banks hold reserves roughly equivalent to
those of F R member banks. However, unlike the
member banks, they are frequently able to put
suchreserve balances to productive use.
Q. Summing up, how will this decision on re
serves affect financial institutions?
A. National banks— no change.
State Federal Reserve System member banks—
no change.
State non-member banks— no change.
Federal S & L ’s— must hold reserves against de
mand deposits and N.O.W. accounts; no change
on savings and time deposits.
State S&L’s— if member of F H L B B (which al
most all will remain), same as above. If not
FHLBB member, state banking authorities will
setreserve requirements. It is hoped they will be
thesame as for banks.
Mutual savings banks— same as for Federal and
State S&L’s.
The new ranges within which the Fed may set
thereserve level are:
demand deposits and N.O.W. accounts — 122 percent
savings — 1-5 percent
time — 1-10 percent
III
Expanded Lending and Investment Powers
Q. What is the general purpose of expanding
thelending and investment powers of thrift insti
tutions and banks ?
A. Generally, the expansion is part of the over
allplan to make thrifts more viable financial in
stitutions. More specifically, changes on the lia
bility side require compensating adjustments on
the asset side aimed at increasing income and en
hancingliquidity. Those objectives can be achieved
only through the acquisition of shorter term and
more diversified assets, such as consumer loans.
Opening up those areas to thrift institutions can
be expected to create downward pressures on the
cost of credit to consumers and governmental
bodies.
Q. What are the current limitations on lending
and investing by thrift institutions ?
A. This can be answered precisely only about
federally-chartered S & L ’s, since there are so many
laws covering state-chartered institutions.
Currently, federally-chartered S & L ’s are gen
erally restricted to making loans related to hous
ing and real estate.
There are two exceptions to that rule. First, they
may make passbook loans, that is loans to account
holders secured by the deposits in their accounts.
The size of loan is limited to the amount of funds
in the account. Second, thrifts may make loans to
individuals to pay for college, university or voca
tional expenses. Those loans are limited to 5 per
cent of assets.
Generally, S & L ’s are precluded by law and reg
ulation from acquiring private sector debt obliga
tions other than mortgages. They may, however,
acquire the stock of so-called service corpora
tions— corporations designed exclusively to pro
vide related services such as data processing.
Q. W hat expanded lending and investing
powers are being recommended for federal savings
and loan associations?
A. Federal S & L ’s will be authorized to make
consumer loans; make construction loans not tied
to permanent financing; make community reha
bilitation and development and mortgage loans on
residential and related properties, including a par
ticipation in rental income or a share of capital
gains on the sale of property ;acquire high quality
commercial paper and private investment grade
corporate debt securities; utilize for consumer
loans the unused portions of authorized invest
ments in commercial paper and securities, and in
community rehabilitation and development and
mortgage loans.
Q. What expanded lending and investing
powers are being recommended for national
banks?
A. National banks will be granted liberalized
powers with respect to real estate loans, and au19
thority to invest in community rehabilitation and
development and mortgage loans on residential
and related properties, including a participation
in rental income or a share of capital gains on the
sale of property.
Q. W h y should thrift institutions be given
expanded lending .authority ?
A. This will allow them to pay the market rate
for deposits by shortening the maturity and di
versifying the composition of their assets, and in
creasingthe yield thereon.
Q. W o n ’t this diversification divert money from
the home loan mortgage market ?
A. The C E A study referred to earlier in the
discussion of issue 3 concluded that such curtail
ment will not be significant in view of the other
powers being extended to thrift institutions. More
over, commercial banks can be expected to take
up some of whatever slack does occur if current
restrictions on their real estate lending are re
moved, particularly in light of the elimination of
interest ceilings on savings accounts.
Q. W h y are strict percentage-of-asset limita
tions being set on thrift institutions’expanded in
vestment powers ?
A. Since housing has a high social priority,
it seems advisable to place some restrictions on
the acquisition of non-mortgage assets and to in
crease the number of ways thrifts can participate
in financing construction activity.
IV
CHARTERS FOR THRIFT INSTITUTIONS
Q. W h y are there no existing provisions for
federally-chartered stock thrift institutions?
A. At the time the federal law was enacted sav
ings and loan associations were looked upon sim
ply as self-help cooperatives, and there was
thought to be no role for stock savings and loan
associations.
tory as that with mutuals; therefore there isno
good reason for the present statutory ban on fed
eral charters. It is also believed beneficial tohave
a dual option of chartering and supervisory agen
cies to avoid two problem areas which emerge
when a particular type of financial institutioncan
be chartered by only one agency:first, the agency
may become overzealous in protecting existing
firms;second, the agency may not be as innovative
and imaginative as it should be in exercising its
authority.
Q. Under the recommendations will there be
any difference in activities permitted stock S&L’s,
mutual S & L ’s, mutual savings banks, and thenew
savings banks?
A. Under the recommendations all federally-]
chartered thrift institutions will have essentially
the same asset and liability powers. “Savings
bank” will just be an alternative title availableto
newly empowered federally-chartered thrift in-j
stitutions. However, state-chartered M S B ’s which
convert to a federal charter will be able to retain
their life insurance, equity investments and corpo
rate bond investments. This will enable them to
maintain their customary investments which will
not be available to other existing or newly char
tered federal thrift institutions.
Q. W o n ’t allowing M S B ’s to convert and retain
their investments undermine a dual banking sys
tem?
A. No. Allowing mutual savings banks, which
can now be chartered in 18 states and Puerto Rico,
the option to convert to a federal charter and
maintain their customary investments will en
hance the dual banking system. Allowing them to
retain their investments upon conversion will give
them a real option between either remaining under
their present state supervisory agency or coming
under a federal supervisory agency.
V
CREDIT UNIONS
Q. W h y is it being recommended that Federal
charters now be granted to stock thrift institu
tions?
Q. WTiat is a credit union, and what
privileges does it enjoy ?
A. Presently 21 states charter stock savings and
loan associations. Experience with stock savings
and loan associations has been at least as satisfac
A. A credit union is a cooperative nonprofit
organization of individuals with a com m on bond
of occupation, association or residence. The credi
20
special
Lion’s objectives are to promote thrift among its
Lembers and to provide them with a source of
¡credit at reasonable rates of interest. Credit unions
Ljoy an income tax-free status since they are non
profit organizations.
Q. Are federal and state charters available to
[credit unions ?
A. Yes; credit unions may be incorporated
Lnder a federal law or under the laws of 44 states.
| Q. What resources are available to federal
credit unions now to meet temporary liquidity
problems?
A. Credit unions may use their investments or
increase their direct borrowing from other credit
unions and private sources such as commercial
banks. However, to qualify for federal insurance,
creditunions are limited by a ceiling on aggregate
borrowing from all sources.
velopment; those on loans guaranteed by the V A
are set by the Administrator of Veterans Affairs.
The ceiling on FHA-insured and VA-guaranteed
loans was recently raised from 7 to 7 % percent.
Q. What was the purpose of having interest ceil
ings on F H A - and VA-backed loans ?
A. F H A insurance is intended to enable persons
of modest incomes to more easily obtain residential
mortgages. Ceilings on F H A and V A loans were
imposed with the assumption that borrowers
under these programs would pay reasonable rates
of interest.
Q. W h y are you recommending the elimination
of those ceilings ?
A. The establishment of a Central Discount
Fund (CDF) to be administered by the National
Credit Union Administration is being recom
mended. It would provide funds to meet the tem
porary liquidity problems of its members.
A. Experience has shown that the administra
tively set ceilings lag behind market rates for con
ventional mortgages. This has meant that either
F H A - and VA-backed loans become unavailable
during periods of rapidly rising interest rates, or
the effective rate of interest on these loans is raised
above the ceilings by the practice of charging
“points,” in effect buying the loan at a discount.
Ending the ceilings will eliminate this practice
and enable persons who rely on F H A - or VAbacked financing to obtain mortgages during
periods of high interest rates.
Q. Will non-federally-chartered credit unions
haveaccessto the C D F ?
Q. W o n ’t elimination of the ceilings lead to a
rise in mortgage interest rates ?
Q. What is being recommended to meet emer
gency problems ?
insured
A. Yes. All
credit unions, either federal
orstate, may become members of the Fund.
Q.How will the C D F be funded ?
A. The capital for the Fund will be supplied
through subscriptions by member credit unions.
(Presumably additional funds could be provided
through the issue of debt obligations and from the
deposits of credit unions as recommended by the
Hunt Commission.)
VI
fha a n d v a
in t e r e s t
c e il in g s
Q- What are the current Federal Housing A d
ministration and Veterans Administration interestfilings on mortgages and who imposes them ?
M Interest ceilings on FHA-insured loans are
setby the Secretary of Housing and Urban De
A. At present, the interest rates on F H A - and
VA-backed mortgages rise with market rates on
conventional mortgages through the uise of
“points” (or mortgage money becomes unavail
able). Elimination of the ceilings is not expected
to increase the
rate of interest charged on
these mortgages but is expected to provide a stead
ier supply of funds for mortgages during tight
money periods.
effective
Q. W h y won’t there be a phase-out period for
these ceilings, as is planned for the interest ceil
ings on time and savings deposits ?
A. The removal of interest ceilings on F H A and VA-backed mortgages isnot expected to sharp
ly affect interest rates charged on mortgage loans
so their removal should not disrupt the mortgage
market. Some fear that the removal of ceilings on
time and savings deposits may lead to substantial
ly higher interest rates on those deposits. Rather
than expose financial institutions to perhaps dam-
21
aging and sudden competition for those funds,
a period of adjustment will be provided, during
which these institutions will be able to learn
through experience what rates are needed to at
tract necessary funds without damaging their vi
ability.
Q. Will removal of F H A and V A interest ceil
ings eliminate all usury-type barriers to mortgage
financing?
A. No. Currently, many states employ usury
ceilings in the mortgage area. It is the Adminis
tration’s hope that states which impose such ceil
ings will move toward eliminating them as soon
as possible. During periods of severe credit strin
gency, arbitrary ceilings below market rates can
keep funds from mortgage markets.
VII
TAXATION
Q. W h y are changes being recommended in the
taxation of banks and thrift institutions?
A. The purpose is threefold: (1) to assure a
steady flow of funds into housing; (2) to achieve
a tax neutrality by providing that the income
from a given asset will be subject to the same
tax provisions, regardless of the functional type
of financial institution holding the asset; and (3)
to place competing institutions on an equal
footing.
Q. What are the current special reserve provi
sions which apply to thrift institutions and how
do they differ from the reserve provisions apply
ing to commercial banks ?
A. The principal difference between existing in
come tax provisions applicable to commercial
banks and savings institutions involves deductions
for additions to a reserve for losses on loans. Cur
rently, thrift institutions are granted more favor
able terms than commercial banks.
Q. Will the recommendations completely elimi
nate all differences in taxation between thrift in
stitutions and commercial banks ?
A. Generally, yes. The special reserve provi
sions applicable to thrift institutions will be elim
inated, and all thrift institutions will compute re
serve additions under an experience basis rule of
the type currently applicable to commercial banks.
22
Q. H o w will thrift institutions be compensated
for his tax loss ?
A. Thrift institutions will be compensated for
loss of the tax benefit by means of a new tax credit!
equal to a percentage of the interest earned from
residential mortgages and other qualifying loans!
Q. Would the proposed mortgage interest tax
credit be available to all lenders?
A. Yes.
Q. What are the current provisions of tax law
with regard to the treatment of loan losses of
thrift institutions ?
A. In computing taxable income, all depositin
stitutions may deduct from gross income an ex
pense item called additions to reserves for bad
debts.
Currently, thrift institutions may, in calculat
ing that expense item, use the same methods avail
able to commercial banks or, in the case of quali
fying real property loans, a special method de
signed to increase the after-tax profitability of
their mortgage holdings.
Under the second alternative, thrift institutions
may deduct, for the year 1973, up to 49 percentof
taxable income. Between 1973 and 1979 that maxi
m u m figure will be reduced gradually to 40 perj
cent.
To obtain the maximum deduction permitted
by law, at least 82 percent of a thrift institution’sj
assets must be in so-called eligible assets. As the
amount of eligible assets declines so does the per
cent of gross income which may be deducted asa
business expense. If the percentage of eligible
assets falls below 60 percent of total assets, the
special method isnot available.
With regard to non-qualifying loans, bad debt!
reserve deductions are made under the samel
ground rules as are applicable to commercial!
banks.
Q. What changes in the tax treatment of “addi
tions to reserves” are being recommended?
A. As of the effective date of the legislation, alll
deposit institutions would operate under the pro
visions now available to commercial banks.
Q. What are those provisions ?
A . Banks may deduct amounts in accordance
with an “experience method” or a “percentage o
eligible loan method.”
j Under the “percentage of eligible loan method,”
the amount to be deducted is the amount necessary
to brin g the level of the reserve for bad debts up
to a sp e cifie d percentage of eligible loans. That
percentage is currently 1.8 percent but will be
reduced to 1.2 percent in 1976 and to 0.6 percent
in 1982. This method will cease to be available
after 1988.
Under the experience method, the amount to be
isthe amount necessary to bring the level
of the reserve up to an amount reflecting the actual
|loss experience for the current year and preceding
5years.
deducted
Q. When thrifts convert to the provisions avail
able to banks, will the level of their reserves be low
enough to permit them to deduct loan losses as a
business expense ?
A. Generally, no.
Q. Will thrifts be given any special treatment
asaresult?
Highly technical changes in the tax law
made so that thrifts will continue to be able
to deduct additions to reserves for bad debts as a
business expense. However, the amount of the
deduction will be substantially lower than that
which is available under current law. Thrift in
stitutions will always be able to receive a deduc
tion fo r actual loan losses.
A. Under current law a thrift institution is en
titled to the special bad debt reserve deduction
with respect to all
(defined to include all loans secured by an interest
in improved real property or secured by an inter
est in real property which will be improved from
the proceeds of the loan). Improved real property
includes residential property such as a single fam
ily home or apartment house as well as office build
ings, shopping centers, warehouses, hospitals or
other health, welfare, or educational facilities.
Based on 1971 figures, approximately eight per
cent of loans made by S & L ’s were not secured by
an interest in
property. In the case of
M S B ’s virtually all of their mortgage loans were
secured by an interest in residential real property.
The proposed mortgage interest tax credit is
qualifying real property loans
residential
limited to interest income from residential mort
gages,,but is designed to compensate thrift institu
tions for the tax benefit they presently enjoy with
respect to all real property loans.
A. Y e s.
will be
the proposed changes in tax law de
to equalize the effective tax rates or tax
Q. A re
signed
burden ?
No. The object of the recommendations is to
create a tax neutrality with regard to the lending
and investment activities of deposit institutions.
Under the proposal, differences in effective tax
rates and burden will continue to exist. Such dif
ferences will result from a combination of three
factors: (1) the form of the institution (i.e.
mutual vs. capital stock corporation); (2) differ
ences in federal and state regulation governing
the permissibility of certain investments and an
cillary activities; and (8) the extent to which the
individual institution utilizes the powers granted
A.
to it.
Q- What is the background of the bad debt re
serve deduction?
Q. If the credit is limited to residential mort
gages, what loans would be excluded?
A. All mortgages secured by an interest in com
mercial and industrial property, and loans secured
by an interest in educational, health or welfare in
stitutions or facilities including facilities used to
house students, residents, patients, employees or
staff members of such institutions or facilities.
Q. What effect will the proposal regarding bad
debt deductions have on student loans ?
A. Under current law, student loans are one of
the types of investments that a thrift institution
may make in order to meet the 82 percent test
which will entitle it to the maximum bad debt
deduction. However, the percentage of taxable in
come method is available only with respect to
qualifying real property loans and does not in
clude student loans.
Under the proposed change, the bad debt reserve
deduction with respect to student loans will be un
affected. However, since thrift institutions will no
longer be required to maintain a specified percent
age of assets in eligible assets, student loans will
be classified as consumer loans, for which there
will be ample lending authority.
23
VIII
MORTGAGE AND HOUSING MARKETS
Q. Is the mortgage lending industry viable with
its existing structure and regulations ?
A. W e take “viability” to mean the ability to
withstand the effects of cyclical changes in credit
market conditions without the need for massive
Federal supportive intervention.
A conclusive case that the industry is not viable
cannot be made on the basis of available evidence,
but there appears to be a high enough probability
to warrant attention. The instructive value of 1966
and 1969-70, the last two complete occasions when
mortgage markets were under severe pressure, is
not easily assessed, since many structural and
regulatory changes have taken place over the last
few years.
The chance of severe harm to thrift institutions
has to some extent been moderated since 1969 by
the improvement of the secondary market for both
conventional and insured mortgages and by im
provements in government sources of emergency
liquidity. Moreover, thrifts and banks are now able
to offer a “no-ceiling” deposit (minimum $1000
and 4 years) to the small consumer. O n the other
hand, there seems to be a general awakening of
savers to the various forms of holding wealth
alternative to deposits at thrift institutions. In
addition, new alternatives to savings accounts have
emerged in the last two years.
O n balance, it appears that if present institu
tional arrangements were to continue, there would
be good cause for concern about large-scale reduc
tions in deposit inflows when market rates climb
appreciably.
Q. H o w can we make the mortgage lending in
dustry more viable without increased Federal
support ?
A. B y implementing the balanced program of
broadened asset and liability powers for financial
institutions and restructuring tax support for res
idential mortgage lending.
Q. What are the present forms of government
activities relating to housing and mortgage mar
kets, including taxation ?
A. Federal assistance to housing now takes two
forms: (1) direct assistance to low-income persons
building, buying or occupying dwellings and (2)
24
a number of general tax incentives, some with ac
companying restrictions, designed to encourage
those same activities. T w o major incentives are!
the deductibility of mortgage interest paid from
homeowner’s taxable income and the favorable
manner in which savings institutions can add to
bad debt reserves (beyond the levels warranted by
losses) in return for the restriction that a high
portion of their assets be held in residential real
estate mortgage loans.
Q. H o w will Federal expenditures and tax pref
erences change if the President’s recommenda
tions are implemented ?
A . The President’s recommendations would not
affect the structure of any direct program, butj
would substitute a tax credit for the bad debt pro
vision for thrift institutions, and would make the
residential mortgage tax credit available to alltax
payers. The amount of existing bad debt prefer
ences for thrift institutions was estimated to be
$545 million in fiscal 1971. If the tax credit isset
at a level which does not alter the taxes paid by
thrift institutions, the overall tax subsidy to hous
ing will be larger since other investors will utilize
the tax credit. If the overall subsidy is maintained
at the current level, thrift institutions would re
ceive less of the tax subsidy, with other holders of
residential mortgages receiving the remainder.
Since the outlays in some Federal direct pro
grams are positively related to mortgage rate lev
els, these would rise if rates increased and decline
if rates decreased. If a mortgage tax credit ises
tablished in such a way as to compensate for the
loss of subsidy through the bad debt reserve treat
ment, residential mortgage interest rates should
not be higher as a result of this package. Indeed if
anything they should be lower, as the tax credit
would benefit all holders of mortgages. This would
reduce direct Federal outlays on housing support
programs.
Q. H o w would adoption of the President’s rec
ommendations on expanded powers affect mort
gage markets both in the long run and cyclically?
A . The overall impact of the proposed changes
on the mortgage market depends upon the relative
magnitudes of twTç>opposing effects.
First, expanded asset powers for thrifts, in and
of themselves, might reduce the supply o f mort
gage funds from those institutions. However, the
reduction w^ould be small.
Elimination of interest rate ceilings for com
mercial banks would increase competition for sav
ings and loan associations and mutual savings
banks and thus contribute to the negative effect.
| On the other hand since thrift institutions will
¡beable to provide a broad range of consumer serv
ices,they would be in a stronger position to attract
(savings deposits. Since a good portion of these
(deposits would go into mortgages, the mortgage
market would benefit.
Finally, the rate of personal savings in the econ
omy might well increase, providing more funds
forallfinancial intermediaries.
It is believed that the
effect on mortgage
flows of all these nontax factors is approximately
neutral. With an appropriate tax credit, the effect
willbe positive.
Additionally, an element of cyclical stability
will be introduced. The new powers to be granted
to thrift institutions would improve their ability
to compete for funds, strengthen their cash flows,
and thereby alleviate tendencies toward disinter
mediation (loss of deposits) during periods of fi
nancial restraint.
net
Q. Ignoring for the moment the mortgage tax
credit, if the recommendations reduce the supply
of mortgage funds, won’t there be a correspond
ingdecline in the supply of housing ?
A. Not necessarily. Mortgage credit and hous
ing finance are not identical. The former is only
one constituent of the latter. Other constituents
include personal wealth (e.g. savings accounts;
funds from sale of current house) for home buyers
and equity markets for the development and con
struction of housing projects and apartment
houses.
The popular view is, however, that the rate of
housing production is a captive of the amount of
mortgage funds in both the short and long run.
Those who believe this point to the data which
show mortgage funds and housing moving to
gether in the short run. However, that relation
ship is open to another interpretation:both hous
ing and mortgages are simultaneously influenced
hy other factors. According to tnis view, high in
terestrates reduce housing production by reducing
demand for housing and high interest rates chan
nel funds away from thrifts (because of interest
ceilings) which are legally required to invest in
mortgages. Choosing between the two explanations
is not easy. However, the most recent studies tend
to support the second idea; credit conditions in
general, not the availability of mortgage funds,
influence housing over the long run. Over the short
run the availability of credit is, however, a sig
nificant factor.
Under a contract to the Department of Housing
and Urban Development, two Princeton Univer
sity economists, Professors Ray C. Fair and
Dwight M. Jaffee, prepared a report which at
tacks the problem directly. Using the Federal Reserve-MIT-Penn Model of the economy, the au
thors ran a number of tests simulating the impact
of the Hunt Commission’s recommendations dur
ing the 1960’s. O n the expanded powers, the Presi
dent’s recommendations are similar to those in the
Hunt Report. The authors summarized the re
sults of their tests as follows :
“Our results indicate that the housing
market would probably, on net, gain
under the Hunt Report, while the mort
gage stock may gain or lose depending on
the specific assumptions. In any case, the
magnitudes involved are small relative
to the current outstanding stocks of
these assets.” *
Q. What implications would the recommended
changes have for the conduct and effect of mone
tary policy?
A. The expanded deposit and asset powers for
thrift institutions and banks, the abolition of in
terest ceilings, and the tax credit should make
mortgage and housing markets less sensitive to
changes in credit conditions.
Removing restrictions on interest paid on de
posits would greatly moderate the shifts between
deposits and other assets as market rates fluctuate.
This would reduce the disorder in financial mar
kets which has accompanied restrictive fiscal and
monetary policies.
Q. What are “points.”
A. A point is one percentage point of the total
value of a mortgage loan. One or more points may
be added to the homebuyer’s closing costs to com* Ray F a ir and Dwight Jaffee, “An Empirical Study of
the Implications of the Hunt Commission Report for the
Mortgage and Housing Markets,” HUD Contract H1781,
April 1972, second page of Abstract.
25
pensate lenders when market rates on loans are
above usury ceilings.
Q. W hat are Government National Mortgage
Association tandem plans?
A. Tandem plans were employed by G N M A to
add support to housing markets. Under those plans
G N M A would buy mortgages typically at above
market prices and sell them later at market prices
to private buyers (often pension funds). G N M A
would absorb any losses that might result.
Tandem plans were suspended June 28,1973.
Q. What is the Federal National Mortgage As
sociation’s role in mortgage markets ?
A. F N M A , a private corporation since 1968, has
as its primary responsibility providing secondary
market services by buying and selling F H A insured, VA-guaranteed, and conventional mort
gages. The great bulk of current holdings is com
posed of FHA-insured and VA-guaranteed mort
gages.
F N M A was permitted to begin secondary mar
ket operations by the Emergency H o m e Finance
Act of 1970. However, it did not begin actual op
erations until February 14, 1972. At the end of
April 1973, F N M A held $133 million of conven
tional mortgages and its rate of activity has in
creased substantially in 1973 over 1972.
IX
UNIFORM RESERVES
Q. Is it true that the President’s recommenda
tions do not call for uniform reserves on all thirdparty or transaction accounts such as checking
accounts or N.O.W. accounts ?
A. Yes. Under the President’s recommendations
only members of the Federal Reserve and F H L B B
systems will be subject to federally-set reserves
on their transaction accounts. Membership in those
two systems will remain optional for state char
tered institutions. State non-member institutions
will continue to have their reserves set by the indi
vidual states.
Q. W h y do the President’s recommendations
exclude the request for uniform reserves?
A. The question of uniform reserves has been
26
discussed at great length over the years, by formal
commissions and congressional committees. Al
though not critical at this point, should the lack
of uniform reserves impede the implementation of
monetary policy, the question must rightfully be
opened.
Q. What has been the practical effect of volun
tary F R system membership for state chartered
banks ?
A. Voluntary Federal affiliation has been healthy
for the system and spurred creative regulations,!
At the moment, about 40 percent of all commercial)
banks holding about 80 percent of all com
mercial bank demand deposits belong to the Fed
eral Reserve system. Most newly chartered banks1
obtain state charters but few of them elect to be
come members of the Federal Reserve system. Of
the 509 state chartered banks opened for business |
between end-1969 and end-1972, only 3 0 joined the
Federal Reserve system. Small banks used the cor
respondent banking services of large banks and!
most large banks belong to the Federal Reserve
system.
Q. W h y
reserves ?
is it important to have uniform
A. The F R B maintains that uniform reserves
are essential for the efficient conduct of monetary
policy.
The reasoning underlying that argument seems
to fall into two parts. First, the fact that allbanks
are not subject to uniform reserves limits the effec
tiveness of changes in required reserves as an in
strument of monetary management. Second, there
is the fact that demand deposits in non-member
banks do not respond directly to other techniques
such as open market operations.
As a result of those two factors some contend
that member banks bear a heavier burden during
periods of credit restraint than do non-m em ber
banks.
Q. What has been the practical effect of the
existence of non-member banks on the conduct of
monetary policy ?
A. There is no easy way to answer that ques
tion. However, as of June 1973 non-member banks
held about 22 percent of all commercial bank de-
L sits and about the same amount of demand de
posits o f individuals, partnerships, and corpora
tions (IPC deposits).
I Some argue that under existing conditions non
inember b a n k deposits need not affect the efficiency
Lf m onetary management. So long as the demand
¡for deposit reserves by those banks is stable and
predictable and so long as the F E B can control the
bpply o f those reserves the efficiency of monetary
Management should not suffer.
H owever, over the longer run, changing circum
stancesmay warrant a reexamination of this issue.
Q. Since the absence of uniform reserves has
the dual banking system, what advan
tages have accrued to the American public?
preserved
A. Generally, it has permitted an element of
competition among supervisory authorities which
¡hasbeen conducive to innovation and experimen
tation by financial institutions. It has restrained
supervisory authorities from over-zealously pro
tecting existing firms by restricting entry.
Non-member bank deposits need not affect the
type experiments on such issues as capital ade
quacy, capital debentures, and the extension of
ancillary services such as data processing services,
insurance services, messenger services and the like.
State law and federal law are not the same on
those issues and thus some banks have more free
dom on the issues than others. They have used that
freedom to experiment. A n d supervisors have
learned from those experiments. In some cases the
freedoms have been extended to those who had
not previously enjoyed them.
If preserved, the dual banking system can con
tinue to serve the public interest and keep the
federal system alert.
27
EFFECTS
ON
H O U S IN G
OF
CHANGES
The effect on housing of the recommended
ianges in financial structure can usefully be exLined in two parts. F irst, the overall effect of
11the changes except the tax changes can be estiated. Then the tax recommendations can be
faluated. Since the mortgage interest tax credit
|(janin principle be set at any level, it can be estabid in such a way as to ensure that the overall
Inpact on housing is not adverse.
However, the overall impact o f the nontax recmmendations together is not likely to be adverse,
lor that reason, the mortgage tax credit can be
lablished on the basis of subsidies lost when exping tax treatments are changed,
j Important to the issue concerning the effects of
fie Administration recommendations on housing
what effect, if any, the specialized system of
iortgage finance has had on housing in the United
jtates. Yet, as the Interagency Task Force Study
b Housing chaired by the Council o f Economic
Idvisers makes clear, it is important to realize
this is not the only consideration. There are
froimportant central issues here. The first is what
, if any, the recommendations will have on
supply of mortgage credit. The second is what
a change in mortgage credit w ill have on
pusing. Even if the recommendations would de
fease the supply o f mortgage credit, as seems un
ply, it does not follow that anything like a
^responding effect must be transmitted to housp The last point is not widely understood and
I nerits elaboration.
As a matter of definition, a mortgage is secured
| an existing (or potentially existing) house, but
i creation of a new mortgage does not imply
new construction will necessarily take place.
j°r does the construction o f a new house in all
[ses squire a mortgage.
First of all, “ mortgage money’’ is widely used to
Nnce existing housing in addition to newly con
ducted housing. Indeed, a homeowner may mort' his house in order to pay for his children’s
^ expenses, or to finance the expansion of
usmess. A larger mortgage may be sought to
IN
F IN A N C IA L
STRU CTU RE
enable the home buyer to purchase furniture.* A
fam ily may choose a larger or a smaller mortgage,
depending on its savings and other sources o f po
tential borrowing. In general, mortgage credit
(like any other kind of credit) is “ fungible.” That
is, it can be used for any purpose the borrower
chooses.**
Moreover, a mortgage is only one among a vari
ety of sources of funds available to the borrower,
whether he seeks money to acquire a house or for
any other purpose.*** A fam ily which owns its
home outright may finance a new house simply by
selling the old one. W hen outside financing is
chosen, it can come either from a mortgage or from
several other sources.
Furthermore, the financing o f new housing in
volves not only homeowners but many other cate
gories o f investors. The following is a partial list
o f the types o f financing which play a role in the
production o f housing:
(i) equity investment
— the accumulated savings o f homeowners;
— equity for the development and construction
o f large housing projects, and
— equity investments in apartment houses.
* In 1971, 35.1 percent of new S&L mortgage loans were
classified as for purposes other than housing. Only 17.3
percent were classified as for the purpose of home con
struction.
** A typical household has a variety of outstanding lia
bilities (a mortgage, an auto loan, unsecured borrowing,
credit card debt, and so on) which have been used to
finance its assets. Fundamentally, there is no way to tell
which specific asset is financed by which specific liability
even though (in certain cases) one can specify which as
set is used as collateral to back a specific loan.
*** The technical question is the size of the crosselasticity of demand between mortgage borrowing and
other forms of financing (such as the use of accumulated
savings) for the purpose of residential construction. If
this elasticity is very high, then, at the margin, funds
from other sources are close substitutes for mortgage
funds, and the demand for housing is determined inde
pendently of the supply of funds.
29
(ii) construction financing
— short-term debt money for developers and
builders during the development and construc
tion phases o f housing.
(iii) other debt financing
— long-term mortgage funds for consumers;
— long-term mortgage funds for investors for
the purpose o f buying and renting housing
units, and
— short-term loans for consumers and inves
tors for repair and rehabilitation o f housing.
These other sources o f financing can (and some
times do) act as substitutes for mortgage credit.
I n sum, mortgage credit and housing finance are
not identical: the former is only one constituent of
the latter.
Frequently, however, the distinction between
them has been blurred. The popular view, which is
held by many mortgage practitioners and home
builders, as well as by some economists, regards
the rate o f housing production to be a captive of
the amount of mortgage funds available— in both
the short and long run. This view, which may be
called the “ bottleneck” hypothesis, is held so wide
ly and firmly that few writers, at least until re
cently, have felt that it is open to question.*
Proponents of this view believe that specialized
financial institutions provide additional funds for
some borrowers to which they would not otherwise
have access. They argue that savings and loan as
sociations and mutual savings banks have pro
duced higher mortgage flows and lower mortgage
rates than would otherwise occur because they are
forced to invest in mortgages. Thus, they contend
that i f the financial institutions which funnel
funds to the mortgage markets are allowed to re
duce their specialization because of the adminis
tration’s recommendations, the flow o f money for
mortgages will be reduced and mortgage interest
rates will rise.**
♦A paper by Arcelus and Meltzer contains a critique of
the “bottleneck” hypothesis and some empirical evidence
against it. See Francisco Arcelus and Allan Meltzer, “The
Markets for Housing and for Housing Services,” forth
coming in J o u r n a l of M o n e y , Credit a n d Banicing. Criti
cisms of the popular view began to appear in the litera
ture many years ago, but have been largely ignored by
the dominant school of thought. Other critics include
Brunner, Hester, Jacobs, Mayer, and more recently Geisel
and Jaffee.
♦♦This argument would, of course, apply to only one
part of the recommendations, i.e., that part pertaining to
the investment powers of savings institutions. As de-
30
I f this “long-run bottleneck” view is correct!
then policy measures which subsidize or support
the mortgage market (holding general credit con
ditions constant) will also increase the rate oj
housing production in the long run. Measure!
which support the mortgage as such will be effecj
tive without subsidizing housing directly.
Proponents o f this view have supported thei
case by noting that mortgage flows and housing
move together in the short run. Actually, severa
different interpretations of this numerical relaj
tionship are possible, including :
(a) the rate o f housing construction is influ
enced by the supply of mortgage credit;
(b) the demand for mortgage credit is influj
enced by the rate o f housing construction ;
(c) mortgage credit flows and the rate oj
housing construction are influenced simultané
ously by outside variables.
Although the first o f these views is the popula
one, it is the third which follows most naturalh
from received economic theory. According to thii
view, the mortgage and housing markets ar
stimulated or contracted simultaneously by out
side influences— in the short run notably by fluctu
ations in general credit conditions.
The reasons are straightforward and combin
two effects. First, when market interest rates ris^
households defer long-term borrowing and pul
chases o f long-lived assets, such as housing. Set
ond, higher open market rates induce the public 1
move out of deposits at th rift institutions inti
marketable securities since these institutions call
not increase their interest rates on deposits by 1
much as the rise in open market rates. When til
latter fa ll, funds shift back to institutions.
I
Thus, high interest rates (i) reduce housia
production by decreasing the demand, and (ijj
reduce mortgage flows by channeling savings aw*
from the financial institutions that are legally rl
quired to invest heavily in mortgages. S uch!
mechanism would explain why the mortgage ail
housing markets have often moved closely togethl
in the past. This view places little stress on t l
structure o f financial institutions as a déterminai
of long-run mortgage flows, housing producticl
and mortgage interest rates.
scribed subsequently other changes proposed for the s ^
ings institutions would provide them with the poten I
attract more funds.
Crec
numbe
earn tl
tax sta
in g g r
such a
straint
provid
poses s
This
tion, f
other :
saving
S&Ls
funds
return
kets, £
pete f<
there a
provid
increai
yields
it to re
This
ply oi
condit
housin
measu:
mortgi
in the'
displai
a year
ment ]
impacl
this fa
It is
empiri
respor
best a
group
also vi
countr
havioi
interes
variet;
housin
leaned
on hoi
genera
specifi
Housi]
Credit can and does flow to ultimate users via a
number of routes. A dollar flows to where it can
earn the best return, given risk, term to maturity,
tax status, and so on. Thus, no one type o f borrow
ing group can enjoy special rates, independent of
such attributes, that arise from institutional con
straints. Sim ilarly, specialized institutions do not
provide increased access to capital for special pur
poses such as housing.
This view says that a savings and loan associa
tion, for example, must be able to compete with
other investment opportunities i f it is to attract
savings from the consumer. I f the operation of
S&Ls increased the aggregate flow of mortgage
funds and lowered mortgage rates below rates of
return in the other sectors o f the financial mar
kets, S& Ls would be in a weak position to com
pete for deposits and capital. A t the same time,
there are other types o f financial institutions which
provide funds to mortgage borrowers. I f S& L s
increased their investment in mortgages, mortgage
yields would fall, inducing other suppliers of cred
it to reduce their mortgage investments.
This approach implies that changes in the sup
ply of mortgage funds, holding general credit
conditions constant, will not materially affect
housing construction. In this case, indirect policy
measures such as the government purchase of
mortgages will not succeed in stimulating housing
mthe long run because government lending simply
displaces other lenders. In the short run (up to
a year), a stronger case can be made that govern
ment purchases o f mortgages will have a positive
impact on the mortgage and housing markets, and
this fact should not be lost sight of.
It is difficult to design and conduct a definitive
empirical test of whether housing demand is more
responsive to mortgage flows or interest rates. The
best available work found by the housing study
group supports the interest rate hypothesis. I t is
also very significant that a number of European
countries have experienced the same type o f be
havior of mortgage flows, housing production and
interest rates. This has occurred despite wide
variety in the institutional structure by which
housing is financed. Accordingly, the Task Force
leaned toward the view that the financial effects
°n housing production operate primarily through
general credit conditions and not through the
specific characteristics o f the mortgage market.
Housing production is also presumably affected
by economic variables specific to the housing in
dustry itself. The Task Force accepted that credit
rationing may occur in the very short run, but was
persuaded that over any significant period o f time
it is the general level of interest rates, rather than
the flow o f mortgage credit, which acts as the
rationing instrument for housing and other
durable assets.
There remains the question of how the A d m in
istration’s recommendations will affect the flow of
funds into the mortgage market. This is still a rele
vant question for two reasons. F irst, nearly all
economists agree that in the short run (about a
year or less) changes in the availability and flows
o f mortgage credit importantly influence housing
production. Second, it is o f interest to note how
the housing stock will be financed in the future.
The impacts can be separated into cyclical and
long-range.
I t is hard to imagine how these recommenda
tions could increase the cyclical variability of
housing compared with recent years. The Task
Force believes they will decrease it substantially
by decreasing short-run disruptions of mortgage
flows. This will result from two important sets of
changes. F irst, traditional mortgage lenders will
have their cyclical viability strengthened by
broadened powers to hold assets and issue liabili
ties. Second, mortgages themselves will be made
more attractive to nontraditional lenders as a re
sult o f the mortgage interest tax credit and im
provements in the secondary market for mortgages.
Asset restrictions on th rift institutions and the
poor development o f a secondary market have
made it very difficult for thrifts to weather periods
o f credit restraint for these reasons :
1: The absence o f a secondary market in mort
gages means that the institutions may not be able
to sell their mortgages even with the appropriate
capital loss, in order to meet the outflow o f de
posits.
2. The long-term maturity of mortgages and the
resulting low rate of repayment and turnover im
plies that considerable time may be required be
fore savings institutions can adapt to higher or
rising interest rates.
3. The legal prohibitions on investment alterna
tives and portfolio composition that are placed on
savings institutions lim it the pool of alternative
31
assets that they could otherwise sell as an aid in
their adjustment problem.
F o r all o f those reasons, the ability o f institu
tions to withstand loss o f deposits is hampered
by enforced specialization o f investments. I f their
assets were diversified, savings institutions would
be able to retain deposits more easily, and thus
would not have to restrict new lending so severely.
Consequently, the relaxation o f portfolio restric
tions is expected to help stabilize the short-run
cycles in mortgage financing o f residential
building.
Liab ility restrictions have similarly made it
hard for th rift institutions to maintain their mort
gage lending when rates rise :
1. Interest rate ceilings lim it their ability to
compete with securities markets for funds.
2. Savings institutions are not entirely free to
offer new types o f deposits and other obligations
that may increase their flow o f funds.
3. They cannot issue demand deposits, which
(a) M ay have the advantage of being less
interest sensitive than savings deposits; and
(b) W ill allow them to provide to the cus
tomer services which he formerly had to obtain
from a commercial bank.
A g a in , relaxation o f these restrictions w ill help
stabilize the capacity o f institutions to provide
housing finance in times of tight money. H o w
ever, while deposit rate freedom should assist
th rift institutions to maintain mortgage flows, it
w ill not necessarily reduce the cyclical instability
o f housing construction. Given relatively elastic
housing demand, a significant increase in the in
terest rates would still im ply a significant con
traction of residential construction.
Removal of state usury laws and Federal ceil
ings on insured mortgages should help mortgages
attract funds. U se o f variable rate mortgages may
also do this and may help institutions raise their
deposit rates to retain funds when market rates
rise. The Task Force is not convinced that varia
ble rate mortgages will be as beneficial as their
proponents assert, but sees no reason to impede
their use in the private market.
A ll these changes will stabilize the flow o f funds
into the mortgage market during periods o f high
interest rates. Accordingly, they w ill help elimi
nate pressures on the housing market caused in
the past by the virtual withdrawal o f th rift insti
tutions from mortgage lending at these times due
32
to their own precarious positions. Housing pro
duction will not be made constant over the cycle,
nor should it be, since the demand of housing is
highly sensitive to interest costs.
The long-run prospects for funds flowing into
mortgages are harder to evaluate. The relevant
changes recommended are: (1) relaxed restric
tions in investment powers, (2) broadened powers
to offer financial services, (3) relaxed restrictions
on borrowing powers, (4) equal tax treatment,
and (5) removal of obstacles to mortgage lend
ing. Changes (2), (3), (4), and (5) should help
mortgage and housing markets, while (1) tends
to remove funds from the mortgage market.
Relaxed Restrictions on Investment Powers
The potential mortgage market impact of the
proposals expanding lending powers is not simple
to analyze.* A t first blush, the ability of thrift
institutions to invest in assets other than mort
gages implies that mortgage flows would be lower.
There are important qualifications to this view,
however. B y investing some of their money in
nonmortgage assets, savings institutions will earn
a higher rate of return and thus be able to offer
higher deposit rates. A s a consequence, savings
flows could be higher. In addition, allowing sav
ings institutions the opportunity to provide con
sumer loans will enable them to compete more ef
fectively for consumer savings. When other fac
tors are equal, convenience and familiarity lead
people to borrow and to lend with the same insti
tution. Thus, while competitive responses from
commercial banks should not be excluded, one ef
fect of allowing savings institutions to offer con
sumer loans could be larger savings flows to these
institutions in the long run. To the extent that
there is a greater flow of savings arising from
both of these effects, the mortgage and housing
markets will benefit.
Broadened Powers To Offer Financial Services
I t is proposed that savings institutions b e al
lowed to extend their service functions to con
sumers. The most important function would be
the third-party payment services (primarily t e
issue o f demand deposits). I f savings institutions
*See Dwight Jaffee, “The Entry of Savings Institu
tions into the Consumer Loan Market,” Princeton nl
versity, February 1972.
could do so, their competitive position vis-a-vis
other financial institutions, primarily banks,
would be improved substantially. Savings insti
tutions would be better able to compete for the
funds of those savers who prefer one-stop bank
ing. As a consequence o f this recommendation,
savings institutions will thus be in a better posi
tion to provide more funds to housing. A t the
same time, when commercial banks are faced with
demand deposit competition, they will need to be
more responsive in meeting consumer mortgage
demands. In the past, a bank could send a con
sumer to a savings bank when a mortgage was
needed and be relatively confident that that con
sumer’s other business would remain with the
bank.
Relaxed Restrictions on Borrowing Powers
Insofar as deposit rate ceilings faced by com
mercial banks are more severely constraining than
those of savings institutions, their elimination
would enable commercial banks to compete more
vigorously for deposits. I f deposits were drawn
away from savings institutions, the net effect on
aggregate mortgage flows would be negative. This
effect could be blunted, however, by higher overall
deposit flows to depository institutions induced by
higher deposit rates. This would mean that funds
were being bid away from other segments o f the
financial markets or that aggregate saving in the
economy was increasing.
Equal Tax Treatment
The Task Force recommends two basic tax
principles which, i f jointly put into law, could
have a positive impact on mortgage flows. First,
Congress should enact a uniform tax formula for
all depository institutions. Second, a mortgage in
terest tax credit should be allowed on mortgage
investments. This credit would be based on gross
interest income from residential mortgages. The
credit would be allowed to all investors in such
i°ans, and not solely financial institutions. Such a
credit could completely replace the hidden tax
subsidy implicit in the tax laws which allow savlngs and loan associations tax advantages. O f
course, the impact o f these tax proposals on the
mortgage market will depend on how the tax laws
are Written and the size o f the mortgage invest
ment tax credit.
M utual savings banks and savings and loan as
sociations currently enjoy a tax advantage because
their bad debt reserve deduction on qualifying
real property loans exceeds actual default experi
ence. The deduction allowed is dependent on an
organization having a stipulated percentage o f its
total assets invested in a prescribed list o f assets,
the most important o f which is mortgages. Thus,
current tax laws for these savings institutions pro
vide an incentive for investments in mortgages
and supposedly an incentive for investment in
housing. The mortgage investment incentive is
limited, however, since it is not available to other
types o f institutions.
One approach in implementing a uniform tax
structure for all depository financial institutions
would be to base the bad debt reserve on actual
default experience. This is currently the direction
in which commercial bank taxation is moving. I f
this route were followed, and there were no off
setting tax credit on mortgage investments, mort
gage flows from these institutions could decline.
However, any such decline could be offset by im
plementing the mortgage tax credit proposal,
which would act as a subsidy to mortgage flows.
Removal of Obstacles to Mortgage Lending
The H u n t Commission also proposed a number
of ways in which the mortgage market could be
made a more flexible instrument for financing
housing. Since some of these require state action,
while others simply exhort existing institutions to
continue and expand what they are already doing,
these recommendations -were not included in the
Task Force’s overall judgment about the impact of
the recommendations on mortgage flows.
The question here is how all these effects add up.
The answer to this question will come primarily
from judgment, but there is some empirical evi
dence which can contribute to judgment. Under a
contract to the Department o f H ousing and Urban
Development, two Princeton University econo
mists, Professors R a y C . F a ir and D w ight M .
Jaffee, have prepared a report which attacks the
problem directly. U sin g the Federal Reserve-M ITPenn Model o f the economy, the authors ran a
number of tests simulating the impact o f the
recommendations during the 1960s. The authors
summarized the results of their tests as follows:
“ O ur results indicate that the housing mar
ket would probably, on net, gain under the
33
H u n t Report, while the mortgage stock may
gain or lose depending on the specific assump
tions. In any case, the magnitudes involved
are small relative to the current outstanding
stocks o f these assets.” *
*Ray Fair and Dwight Jaffee, “An Empirical Study of
the Implications of the Hunt Commission Report for the
Mortgage and Housing Markets,” HUD contract H1781,
April 1972, second page of Abstract.
34
To date, the Ja ffe e-Fair study has been the only
direct empirical analysis of the recommendations,
although there is a large empirical literature on
the mortgage and housing markets. Other studies,
using different econometric techniques, would be
desirable. The interagency study group finds that
the impact of the H u n t Commission proposals on
the long-range flow of mortgage credit cannot be
determined with any degree of precision, but may
well be approximately neutral.
DEPARTM ENT
OF
THE
TREASU RY
G eorge P. S h u l t z
Secretary o f the Treasury
J oseph A . L o f t u s , Special Assistant to the Secretary (Public Affairs)
15th and Pennsylvania Avenues, N .W .
Washington, D .C . 20220
U .S.
REG ULATO RY
A G E N C IE S
FOR
F IN A N C IA L
IN S T IT U T IO N S
FEDERAL RESERVE BOARD
A r t h u r F . B u r n s , Chairman
Joseph R . Coyne
Assistant for Public Affairs
20th Street & Constitution A v e., N .W .
W ashington, D .C . 20551
Tel. 737-1100, ext. 206
FEDERAL DEPOSIT INSURANCE CORPORATION
F r a n k W i l l e , Chairmam,
Mrs. H arriett Scholl, Public Inform ation Officer
550-l7th Street, N .W .
W ashington, D .C . 20429
Tel. 389-4221
OFFICE OF COMPTROLLER OF THE CURRENCY
J a m e s E . S m i t h , Comptroller
W illiam B . Foster, J r ., Special Assistant for P u b
lic A ffairs
Treasury Department, 15th & Pennsylvania A v e.,
N .W ., D .C . 20220
Tel. W O 4-2186
FEDERAL HOME LOAN BANK BOARD
T h o m a s R . B om ar , Chairman
Jo e R . Reppert, Director, Office o f Communi
cations
101 Indiana A v e ., N .W ., W ashington, D .C . 20552
Tel. 386-5724
NATIONAL CREDIT UNION ADMINISTRATION
H e r m a n N ic k e r s o n , J
r
.,
Adm inistrator
M iss Elizabeth Fieldin g
Assistant Administrator for Public Affairs
2025 M Street, N .W ., W ashington, D .C . 20456
Tel. 254-9823
U .S . GOVERNMENT PRINTING OFFICE. 1973 0 -5 1 7 -3 4 9
D ep artm ent o f the Treasury
Washington, D.C. 20220
P ostage and Fees Paid
Official Business
Penalty for Private Use, $300
D e p a rtm e n t of the Treasury
T R E A S -5 5 1
FOR IMMEDIATE RELEASE
August 3, 1973
SENATOR CASE GIFTS U.S. TREASURY
WITH SURPLUS CAMPAIGN FUNDS
Washington, D.C. -- Secretary of the Treasury George P. Shultz
today announced acceptance, in behalf of the Treasury, of
surplus campaign funds from Senator Clifford P. Case of
New Jersey, as a gift to the United States of America.
Acknowledging receipt of a check for $18,203.74 from
the Committee for Senator Case to be deposited in the
general fund of the U.S. Treasury, the Treasury Department’s
General Counsel, Edward C. Sehmults stated:
’’This generous donation is a tribute not only to
Senator Case, but also to the members of the Committee,
including former Secretary of the Treasury, C. Douglas
Dillon.”
Upon offering the gift of unspent campaign funds
in behalf of Senator Case, the attorneys for the Committee
wrote to Secretary Shultz in part:
’’The motivation for this payment arises primarily
from the fact that contributions were received by the
Committee from people in all walks of life and of all
political faiths around the country who wished to support
the Senator in his bid for reelection. It is felt,
therefore, that the unexpended balance of the funds
collected in his behalf should be used for the benefit
of the people of this country generally, rather than
Republicans and the State of New Jersey only.”
There is no Federal law or regulations that would tax
or forbid acceptance of this type of gift. That includes
the Federal Elections Campaign Act of 1971. As a gift
to the United States, the donation qualifies as a
charitable contribution under both the Federal income
tax and gift tax laws. Additionally, the donation has
no New Jersey tax consequences and does not violate
S261
(OVER)
~21
the New Jersey election laws.
The Committee for Senator Case raised a total of
$159,574.39 and expended $141,370.65 during 1971 and
1972 to finance the reelection campaign in 1972. The
gift from the Committee of the surplus campaign funds
will be available for general expenses of the United
States Government as directed by the Congress in
appropriation laws.
The Committee of six members, in addition to
Mr. Dillon, included The Honorable Millicent H.
Femlrick, and Messrs. Leslie L. Blau, Charles Brower,
J. Gardner Crowell, and Reeve Schley, Jr.
oOo
Department of th e T R E A S U R Y
« T O N . D C. 20220
T E L E P H O N E W04-2041
FOR IMMEDIATE RELEASE
August 6, 1973
UNITED STATES AND ROMANIA TO DISCUSS
INCOME TAX TREATY
The Treasury Department announced today that
representatives of the United States and the Socialist
Republic of Romania will meet in Bucharest during October
for discussions of a proposed income tax treaty between the
two countries.
The proposed treaty is expected to cover such issues
as the tax treatment of joint ventures and other business
activities in one country by a firm of the other country,
and of individuals from one country temporarily present
in the other country for business, educational and
cultural purposes. The taxation of dividends, interest
and royalty remittances will also be considered.
Persons wishing to offer comments or suggestions on
matters relating to the discussions are requested to
submit their views in writing by September 15, 1973, to
Mr. Frederic Hickman, Assistant Secretary for Tax Policy,
U.S. Treasury, Washington, D.C. 20220.
oOo
S-262
radio
TV REPORTS. INC.
4435 WISCONSIN AVE. N.W.. WASHINGTON, D. C. 20016, 244-3540
U. S. TREASURY DEPAR*
fo r
program
Iss yos
La t e
August 5, 1973
&
A0S t?l€SIPS
1 ; 30 PM
S T A T IO N
HI1AL 1 V
c it y
Washington, D.C.
FULL TEXT
ANNOUCER: G&orge P. Shultz, Secretary of the Treasury,
here are the Issues»
DAVID SCHGUMACHER:
before September 12th?
HERBERT KAPLQW:
SCHGUMACKER:
Should beef price controls be l i f t e d
Are we headed for a recession?
What 1s Watergate doing to the economy?
ANNOUNCER: From Washington, D . C . , the American Broadcasting
Company presents the award-winning Interview program Issues & Answers,
Secretary of the Treasury George P. Shultz, Assistant to the President,
and one of the chief architects ©f Phase IV, will be Interviewed
by ABC News correspondent David Schoumacher and ABC Mews correspondent
Herbert Kaplow.
KAPLGW: Mr. Secretary, some people have started to express
fears about a recession. Are you worried about that?
SECRETARY GEORGE P. SHULTZ: Me always must be concerned
sbout the pace ©f toe economy, but I don’ t see any evidence that
a recession Is looming ahead ©f us.
KAPLQW:
What d© these Increased interest rates mean?
SECRETARY SHULTZ: Well, they mean that there is an extra
ordinary economic boom going on In the United S ta te s , and the counterpart
ot that Is a great demand for credit on the part of business and
consumers, and t h a t ’ s what’ s bidding up the Interest rates.
SCHGUMACHER: One of the factors that pointed to was
the high Interest ra te s, by AFL'-CIO President George
said these high Interest rates are going to dry up housing
construction and that that will Inevitably Impact on the rest of
•©nomy* and before the end of 1974 there’ l l be a recess lor?
*oy]d you agree with that?
¿y§t
Mean
@
¡5 r» e \
m
»»..
js
i
¡wig
*.
f-
SECRETARY SHULTZ: Well , the e ff o r t to control the budget
and to control the rate of expansion in our money supply9 which
results 1n higher Interest rates , Is an e ffo r t to cool o f f the
economy, 1n the sens© that I t has been rising In the fourth quarter
of last year, In the f i r s t quarter of this year, at a rate that
can't be sustained. Our economy tends to grow at a roughly 4%9
or a l i t t l e better, rat® of real growth. That's what we can do,
and we have been rising at a rate over 88. So we have to get back
iom to that 4% rate* and you get there by tightening up on the
f l o w of demand for goods and services.
SCHOUNACHER: Hr. Schiilis, don't misunderstand the questlor
but would you really t e l l us there was going to be a recession
If you thought there was going to be one? By that I mean, don't
all administration economists have to- give us a balanced look?
SECRETARY SHULTZ: y e l l , I think you have to sta r t with
a proposition that any administration, certainly this administration,
does not want a recession. Me want to have policies that will
§iv® ys a growing economy with reasonably stable prices. That's
the objective that we have and that any administration would have.
And we think that the policies that we have are the best designed
to get us there. Me think we are on the track of supporting an
expanding economy, but not a wildly expanding economy, and we have
policies that are designed to avoid f a l l i n g into a recession.
SCHOUMACHER: But what
thñt attaches itself to economic
you have a responsibility to say
or they're m t going to get that
I mean 1s there is some professional
forecasts«, and yet p o l i t i c a l l y ,
that things are going to get better,
bad.
SECRETARY SHULTZ: Mali, I f I f e l t d l f f rentl
1 wouldn't
to say so, but more Important than th a t. 1 would
doing
best to help construct economic policies that would avoid 11
poll cl as
-------- Are you s a t i s f ie d with the present Federal Reserv
ssofar as the monetary supply is concerned?
SECRETARY SHULTZ: Well, l think the record shows that
:"e money supply has been Increasing, particularly In the i H
3
j?® @r four monthss at a rate higher than the Federal Reserve's
P°nc1es suggest they want, so they are struggling to gat better
JRtrol of the money supply. So I am in accord with the policy
mo l!*?n*s * an<*, ss you know, they publish those with about a thre
j
lap, so you can Took back and see what they were trying to
c:j aJd I think we have some appreciation of the d i f f i c u l t i e s of
, rylng those policies forward, but the policy of restraint on
side* as well as on the
s
now, we think
th budoet
budget side«
s id e , rlaht
r1
l l th e right policy.
9
3
being cooled at an optimum pace.
SECRETARY SHULTZ: As best i t can be don®. Now, this
is a gigantic economy, very diverse, with all sorts of things going
on. Government policy 1s Important and we're trying to contribute
to orderly» sustainable eeorsomlc growth, and whether we are ju s t
exactly right or not 1s very hard to say, but as best vie can, we're
trying t© operate that kind of a p o lic y, ce r ta in ly .
fCARIQM: Well, l e t ' s look at the related matter, the
direct problem of I n f la t io n . You have come out against a tax increase
as a means of trying to curb i n f l a t i o n . There are some prominent
economists who feel that maybe a tax restraint at this moment might
be helpful 1n curbing I n f l a t i o n .
SECRETARY SHULTZ: H e ll, what I think there Is general
agreement on - - 1 don't say everybody agrees with this - - but the
President’ s policy /is, and I agree with i t , that what we need right
now is a balanced budget. And we believe that we can get that
balanced budget by controlling outlays and keeping those outlays
within the revenues that the present tax system w ill produce.
And so, In order to attain the f is c a l policy we want, we don't
need a tax Increase, What we need 1s discipline on federal spending,
and we see every prospect that that discipline can be exercised.
^
SCHOUMACHER: While you feel that you're at that sort
of knife-edge ©f a finely balanced program, there’ s been a good
d@a] of criticism recently from ...
SECRETARY SHULTZ:
SCHOUNACHER:
Could 1 ju s t interrupt you a second?
C ertaln ly.
SECRETARY SHULTZ: I don't think that this sort of knifesage image 1s really the appropriate one because I don't think
anyone can calculate I t that f i n e l y . I mean, a knife-edge Implies
something that Is really sharp and precisely r ig h t , and/as I said
8 minute ago, 1 think you hope to be broadly r ig h t , and you can’ t
os quite that precis© about i t .
SCHOUNACHER: H e ll, the AFL-CIO Executive Council said
decently y o u weren't even broadly r ig h t, that you ware doing such
j®b that the country had lo st confidence in the administration Ss
ability to handle the economy. Do you see sig n s, especially from
e»ne stock market, that that may be true?
problem to obscure the fact that there are many extremely good
things about' the economy. Me have about three million more jobs
than we had at this time la st year. We have rising per capita
real Income In the economy. We have rising production. We have
a lot ©f investment 1n new plant and equipment* which 1s a sign
of confidence In the future, and so on. $© there are many good
things about this economy.
&APL0M: Hr. Secretary,* on the matter of real income
increasing over a long haul, which you folks maintain is so. I
believe Senator Proxml re says that's not so. I don't think X! m
misquoting him.
SECRETARY SHULTZ: There are various figures that you
can gat up, one of which shows that what 1s called real spendable
earnings of production workers, which didn't rise at a il from about
1965 to 1970, then rose sharply until early 1973, has stabilized
and fallen a l i t t l e since then as a result o f , f i r s t , a large Increase
in Social Security taxes and, of course, the rate of I n f l a t i o n .
That's one measure.
KAPLOH:
How, many people f i t Into that category?
SECRETARY SHULTZ: A broader measure - - a broad measure,
the broadest measure we have, 1s to take a l l personal Income and
divide I t Into our population, and you get a par capita personal
Income figu re. That has been rising and f t has been rising at
about, 1n the most recent year, about a 3% rate.
&AP10H: Could that not conceivably mean that some very
wealthy people are doing a lot b e tte r, and meanwhile, the average
guy Isn 't?
SECRETARY SHULTZ: I t could, but b a s i c a l l y , i t doesn't.
I think probably the most powerful thing i t represents is this
figure 1 mentioned e a r l i e r , namely, that there are three million
nore people working this year than last year, and they are getting
3CH0UMACHER: But Hr. Shultz, you're certainly aware
©f the grumbling of a good number of people, the individual citizen
says, ” 1 can't get meat, and I f I could get I t , I can't afford
H . My cost ©f liv in g 1s skyrocketing. I'm not making any more
loney this y e a r . ”
SECRETARY SHULTZ: I'm certainly aware - - I'm aware of
it because my wife points i t out to me a ll the time.
SCHOUHACHER: H e ll, given this sort of a landscape, how
would you 11k© to be a Republican congressman up for reelection
acknowledge the problem end to be working to try to solve the problem»
as m are» but at the same time» and I don't think this is ju st
a matter of p o litics» but i t ' s a matter of perspective* for everyone
to see the good things that we have about the economy. And in
terms ©f policy» not to get so uptight about the problem of In fla tio n
that we do things» that 1$» wa pile on a big heavy tax Increase
and extraordinarily tight money and so on» that would create a
recession, We don't want to do that. We want to keep our perspective»
and that's what we're trying to do in the administration.
SCHOUNACBER: tie8]] return t© the problem of perspective
and more Issues and answers In ju s t a moment.
KAPLOW: Hr. Secretary» more and more people seein to
fe@ calling for an e a r lie r end for' the deep freeze than the presently
SECRETARY SHULTZ: Hell*
Well» that remains to be seen. The
last I talked to the President» tha was the date that had hem
set» and» as far as 1 know» he hasn't shifted his view on that.
That remains-to-be-seen-phrase" Is sort of
Intriguing. Is that rollin g back a l i t t l e b it from the hard-andfast, Irrevocable September 12th pledge?
»5
SECRETARY SHULTZ: Ho. I t is ju st a recognition of the
fast that lots of questions bai*e bean raised- and lots of pressure
has been put on. The Senate voted» what» 85-to-4, or something
like that» for removing the freeze on beef prices. I think i t
is instructive to note that at least the Democrats 1n the Senate
voted unanimously to have a 30-day freeze not long ago» and now
they've voted» p rac tic ally unanimously» I suppose; I haven't examine
that vote» to l i f t i t . So I don't know quite what they have in
mind.
SCHOUMACHER: When you were t e s tify in g before the Joint
hconomlc Committee of Congress» you said you'd certainly like to'
know what the Congress f e l t on this issue. Congress told you f a i r l y
emphatically with that 85-t©~4 vote.
SECRETARY SHULTZ:
The Senate.
SCBOUHÂCHER: I ' m sorry. The Senate did» yes. What
®®£® evidence san p ile Into the computar before you decide to l i f t
SECRETARY SHULTZ:
Mell» I think the evidence, of course»
that we have to evaluate 1s evidence about, p a r t ic u la r ly , any longtersa e f f e c t ©n the production of cattle» That's the c r i t i c a l thing,
and so far as I ears determ!na, know at this point, and I don’ t
pretend to be an expert on t h i s , we do not have any long-term advers
effect there. The c a t t le that are being held o f f the market today
are going to have to come on the market at some point In the future,
and there I s n ' t any tendency for the volume of new production,
so to speak, of c a t t le to decrease any.
SCBOUMACHER: Do you accept the ca ttle Industry’ s -the beef Industry's predictions that beef prices will go up as
much as 20% on September 12th?
SECRETARY SHULTZ: I think that that Is quite on the
high side. And, of course, the more they hold back now, the more
will come onto the market on September 12th and thereafter, and
that will tend to hold the prices down in the future.
RAPLGW: Nr. Secretary, what are the merits and demerits
of keeping the freeze on until September 12th?
SECRETARY SHULTZ:
Well, the merits are 9 and the reason
for doing 1t 1n the f i r s t pllace i s , that we wanted to spread out
the Inevitable Increase in the various food areas over a l i t t l e
period of time so I t didn't all sort of burst on the consumer at
©net, and so the prices of pork and the prices of poultry and a
number of other food products were allowed to Increase at retail
In the sense of passing through the increased cost of the raw agrlcu
tura] product. And the price of beef was kept frozen at retail
s© that while some of these prices would go up, there would be
one that was frozen. How, w@ knew when wa did that that there
would be some holding back of c a t t le from the market and that there
would be an adverse short-term e f f e c t on supply, not a long-term,
but short-term. And the judgment was that In the area of hogs
and poultry, that the long-term consequences were serious, and
those ceilings should be l i f t e d immediately. That was the general
Idea of I t , arid 1 think on the whole that is right.
SCHOUNACHER: But as you pursue this September 12th date,
don't pork and poultry prices become even Riore aggravated?
SECRETARY SHULTZ:
They do.
SCHOUMACHER: You're talking about a period © five weeks.
That seems to be f a i r l y arbitrary, that knife-edge.
SECRETARY SHULTZ: Well
so that date becomes a knife-edge
you have to pick a data, an
1t is a point In t*
?
And 1 think you have given the other side of 1t, namely, that when
you hold down these p rices, a l l the demand flows to the other prices
and those prises tend to rise more than they otherwise would, and
you get some sort of equilibrating force there, and t h a t ’ s kind
of the other side of the argument.
SCHOUMACHER: You mentioned your feedback that you were
getting from your wife, What do you do In your house today when
't find beef, ©r can you s t i l l afford I t , ara you hoarding
It,
[Confusion ©f voices]
SCHOUMACHER: You can’ t go to the White House any longer
to get s i r l o i n , apparently.
SECRETARY SHULTZ: Well, I ’ l l t e l l you, one thing that
m haven’ t done 1s to f i l l up our freezer with beef, and I think
an awful lo t of people have done th a t , and t h a t ’ s one reason why
we see some shortages. There’ s been a tendency of people to buy
more than they need currently, and that has aggravated"the situation
But what w@ have done — as you can see, I have probably eaten
more than I should in recent months and years -- Is to examine
our diet and to see I f we wouldn’ t a ll be a l i t t l e better o f f I f
we didn’ t eat quite so much of various things and have a l i t t l e
bit more balanced d ie t. And I think that wouldn’ t be a bad Idea
for lots of people. I know I t ’ s a good Idea for me.
SCHOUMACHER: I asked you before about Imagine yourself
being a Republican congressman. I s n ’ t this really almost untenable
for a p o liticia n to go before the people next year and say, “ Don.'t
eat so much. Eating 1s bad for you«**
SECRETARY SHULTZ: Well, I didn’ t propose that they should
say that, but I'm ju st t e l l i n g you what my viewpoint i s .
KAPL0H: Mr. Secretary, I ’ ve asked you this a couple
of times today. I ju s t want to make s u r e . . .
SECRETARY SHULTZ: I didn’ t say you shouldn’ t eat so
ra“ch- I said you should have a balanced diet and that for many
J : . us* s l i t t l e different dietary habit would probably be a aood
thing, I know i t would be for me.
&AP10W:
With or without meat?
SECRETARY SHULTZ:
H e ll, l expect to continue to eat
l
KAPLOWi Again» I'm going to ask you thè question again
secause I don’ t know whether I'm being hypersensltlve to t h i s .
ave you changed your position, the r ela tively rigid stand on the
September 12th l i f t i n g of the beef freeze?
SECRETARY SHULTZ: That date stands and that Is the posture
that the administration Is In.
KAPLOW: Mow» l e t ' s move Into the broader area of controls.
August 12th Is Phase I¥*s Inauguration. Are you geared up for
It?
SECRETARY SHULTZ: Yes» we are, and we 8v@ worked very
hard to get geared up. As you may know» we put out the regulations
that Implement the policy decisions that were made for comment.
And those comments were due on July 31st. He had some 671 formal
statements, and we've had^a lot of questions and meetings that
®efve held. Those have a ll been carefully reviewed by the s t a f f
©f the Cost of Living Council and the Director» and regulations
til 11 be Issued tomorrow for the general Industrial area. Regulations
will be Issued probably Thursday for petroleum products. Me have
reviewed the administrative practices carefully» and we think we
have a set of rules that are adnlnfstrabl.e, enforceable» and a
system for going about that that is better than anything that we've
had before.
KAPLOtf:
And you claim they're tough.
SECRETARY SHULTZ: They're tough» but more than that»
they are being organized 1n the admlnistratlve process with the
internal Revenue Service and the Cost of Living Council s t a f f so
that I t will be possible to implement them» I think» more e ffe c t iv e ly
than we've ever been able to d© before.
SCHOUMACHER: Secretary Shultz» we'll pausa there for
a moments ®nd return In ju st a minute with more Issues and answers.
KAPLOW:
Hr. Secretary» has Watergate affected the economy?
SECRETARY SHULTZ: Of course i t ' s affected the economy.
on people's minds» and I think probably is reflected somewhat
behavior of the stock market. But» o v e r a ll,. 1n terms of
the economy» the volume of employment» production, income» as we
said earlier» that Is a l l going forward at a healthy pace. But
* ® sure I t does have a psychological e ff e c t on people's a ttitud es.
J*
KAPIOM: You have a couple of agencies under the broad
covering of the Department of the Treasury -* the Secret Service»
internal Revenue Service. They have been mentioned in connection
'^tb the whole Watergate...
SECRETARY SHULTZ:
They're both great o u tfits and they've
tA
bath dorse a grast job.
they have been named and
allegations ruade. Have you been concerned to the
you would try to write ¡ew regulations concerning
these sub-agendas * in any way* to keep them from
compromised?
KAPLOW:
Wall
•
HPiers
have been
extent where
these agendas 8
possibly being
SECRETARY SHULTZ : Well we lave bee
ng two things.
F ir s t e whenever a charge Is made* m Investigate I t and we try
to find out I f there-1s anything to I t , and, second* of course,
have been reviewing our own procedures to he sure that we are
conducting our business I n a proper and f a i r way and do everything
m can to learn from any experience that we have. The Internal
Revenue Service 1s being looked Into* a ll the charges, by the Joint
House-Sen&ta Committee that works on tax matters» and as soon as
they started that Investigation, the President instructed that
we be f u lly cooperative with that Investigation. Me are being,
and our only sense of d iss atisfa ctio n with the Investigation Is
that I t I s n ' t going fast enough. Me'd like to see this matter
cleared up* and whatever there Is to be found out, find I t out.
think what
ng to come out of that
“ « ^ g a tlo n Is
that everyone will be very Impres
good way 1n which
w1 th
Internal Revenu® Service has conducted Its business
KAPLOM: There 1s no évidence, as far as you know, to
stigge&i th-at the Internai Revenue Service oiay hâve been used for
tax audits agalnst p o lit !c a l anémiés?
of that.
SECRETARY SHULTZ: There h&v® baen lots of allégations
It 1s ail belng g©ne infc© ve'ry carefully by this joint
Of course, we are to©. Mherever a il of thés® l i s t s
that presumably - - where accusations have been made,S Gail
!I «
Os4t those
income tax returns are being looked at to see, as best one can
determine, whether there's anything special about them. All that
1s being done in this Investigation. And I w ill wait until the
Investigation is over, but I believe, from what I know of I t , that
the IRS 1s going to look very good when 1 t es over.
coamjitt.ee.
SCHOUHACHER: On the Secret Service, do yoy feel that
perhaps th® Secret Service was Improperly used when i t was Instructed
to make those tape recordings and bug those phones?
SECRETARY SHULTZ: Well, I think a President has a right
to arrange his o ff ic e as he wants. I don't think the Secret Service
$a§ improperly used In In s t a llin g the electronic devices there.
don1t think the Sseret Service as such s In question in that.
SCHOUMACHER: 0ver the past year or so» Mr, Shultz, did
the President ever express to you any Impatience that he was asking
questions and not getting answers on this whole area iif Watergate?
SECRETARY SHULTZ
that kind of thing anyway.
Wo.
He wouldn't talk
me about
SCHOUMACHER: Old you — have you ever had discussions
«1th him about what the Watergate a f f a i r was doing» l e t ' s say,
to the dollar overseas. I mean» have you talked about the Impact
with him on this?
SECRETARY SHULTZ: I've talked with him ones about my
views» very
quite sometime ago» and particularly emphasizing
what seems to me to be the central point» and 1 think the President
agrees with t h i s . In f a c t . I'm sure he does. First» le t the investí
gatlon go forward and go forward as rapidly as possible and find
whatever there Is and deal with 1t. And, second» and most Important
and I think this Is something we ju s t have to coma to with greater
and greater fore® — to concentrate on doing the job that needs
is be done In the government» in the country» the things that people
are really concerned about» not that they aren't concerned about
the Watergate business» but they're concerned about inflation»
they're concerned about many things. We have lots of problems»
snd l e t's get on with the business of solving those problems.
And that's what I emphasize and what I know the President continually
emphasizes to me.
fCAPLQH: Hr. Secretary» on one f these problems» the
©na] I n s t a b i l i t y of the dollar» io you have any- new moves
yoy re going to recommend in that area?
SECRETARY SHULTZ: Well, our position has been getting
stronger and healthier. Oui 6 position in I international trade ha«
We or less righted i t s e l f 1n the sense that where we were running
pig deficits la s t year each quarter» t he most recent quarter» we've
a balance in our trade so we are getting somewhere on that
score.
KAPLGW:
Are you going t© do anything more?
h
SECRETARY SHULTZ: And the exchange value ©f the dollar
nas been rising with respect to the European currencies where I t
I®11course» i t i s n ' t realized that with respect to Japan,
^nada» Britain , I t a l y , most of the developing countries, which
i09ether account for something like 75% of our trade, the dollar
sain* laSt spr1?199 has m t deteriorated. I t ' s remained about the
SCHÛUMACHER:
And I believe that that would be
II
point at which to end. Thank you very much» Secretary Shul
being our guest today on Issues I Answers.
SECRETARY SHULTZ:
It's a pleasure to be here.
\
Q J
’
to
7
Department
Of The TreQSUfy
Treasury Officials
room___________ Hntp 8/6/73
O ffice of
P u b lic Affairs
F.Y.I. :
Attached is the transcript of an
interview with Secretary Shultz, pub
lished today in the NIHON KEIZAI
SHIMBUN, Japan's leading financial
daily.
Jen**•
'”
r
Special
Consultant to
the Secretary
(Public Affairs)
Joseph A. Loftus
room 2324
ext. 5252
i
I
>
t
4
;
Q.
How do you evaluate the results of the C-20 ministerial
meeting? Do you think the meeting increased the possibility
of reaching an agreement on principles of monetary reforms
in Nairobi?
A.
The meeting was very constructive in its spirit and tone.
As to its content, there was progress on a nuifiber of points.
There was exhibited at the meeting a sense of determination
on the part of the people present to work together to
try to resolve problems.
So I thought, on the whole, it was
quite an encouraging meeting.
•
Q.
Do you think that the timetable to reach an outline
agreement in Nairobi and final, decision next spring is
realistic?
A,
I think that there is a possibility.
I would regard
the Nairobi meeting as a kind of collection point where the
results of this present meeting and the meeting of the Deputies
that will take place shortly, will consolidate.
meeting will reveal this.
The Nairobi
I presume we will have a ministerial
meeting sometime late this fall to try to make further progress.
We have to do this if we are to agree on basic principles by
spring.
Everyone recognizes that the situation cannot go on
forever as it is.
Q.
Another Ministerial Meeting late this fall before the
one next spring?
A.
What the schedule actually will be I don't know, and I
don't want to overstructure.
We had a meeting here that was
constructive, and we will have a Deputies Meeting in Paris
-
2-
before long at»which Deputies will try to consolidate the
ground that was gained here.
In Nairobi, we will have only
a day for C-20 on Sunday before the IMF Meeting and that
isn’t a lot of time.
The meeting will be a review of what
the Deputies will have accomplished to see if'the results
can be the basis of an agreement.
If we are to have a final
agreement and a full set of principles in the spring as
Giscard d ’Estaing has said, we are certainly going to need
another meeting of C-20 that is a lot longer than the
Nairobi meeting.
That would be a meeting after Nairobi and
before the spring meeting, but I don’t want to overdo the
business of what meetings are scheduled.
The question is
how the work will go and I would rather let the flow of
work determine the flow of meetings rather than the other
way around.
Q.
How do you evaluate the recent developments in the
world money markets and their impacts on monetary reform?
In some quarters it has been noted that the United States
is quite satisfied with the status quo, the system of float
and is not very motivated to speed up negotiations.
Could
yo* comment on this?
A.
We are not satisfied with the current status of the
monetary system.
We think that floating arrangements are a
good system to use for the time being, but we think that a
better understood system is desirable.
been working hard for a year now.
We, of course, have
We made an extensive pro
posal at the last IMF Meeting and we have given support to
these proposals with technical papers in the Committee of 20.
-3-
We have workedthard and consistently for the objective of
long-term monetary reform.
We have done so this week and
will continue to do so.
i
Q,
What would you think was the real reason for significant
progress at this meeting?
A,
I think the reasons were, first of all, that the ground
had been well laid and the issues well set up by the Deputies
so that the discussions could focus on the substantive issues.
Consequently, we were able to have a meeting without the
necessity for having a communique.
It is amazing the diffi
culties a communique poses with respect to having a good
discussion in the meeting.
Everyone concentrates on the
communique and the nuances of this word or that word, instead
of trying to reach a meeting of the minds on the substance*;
of the issues.
So, by not having to worry about writing a
communique, we were able to spend our time on the issues.
It helped.
two senses.
Beyond that, I think the environment helped, in
First, there was no immediate crisis in the
exchange market, and the floating system was basically handling
a fairly difficult situation rather well.
On the whole,
there was no immediate crisis that consumed our time as in
some past meetings.
At the same time, there was a sense
that we can do better than the present situation and that it
is important to do just that.
In other words, there was a
widespread lack of satisfaction with the existing situation,
and this led people to feel that we really ought to try to
get the reform job done.
Q.
Do you think Europeans were fearful of another crisis
and did this fear help to move negotiations?
A.
No.
Of course, they have a so-called snake that they
are trying to maintain, and the snake was placed under
pressure by the difficulties that everyone was having in
working out the problem of inflation.
There has been a
great dispersion in interest rates among European countries
that caused the exchange rate shift that put pressure on the
snake, but I donft think there was any feeling of crisis.
Q.
It seems that a general consensus has been reached to
eventually demonetize gold and to emphasize the role of SDRs
as a reserve asset. Is it possible that the sales of offi
cial gold in the private market will be agreed upon in the
near future?
A,
The question of gold and its role, and the conditions
under which it can be bought and sold, is related to the
agreement among central bankers.
The subject has come up for
discussion from time to time as a part of the long-term
reform.
This will certainly be dealt with as part of the
agreement.
Whether or not there will be some action before
then remains to be seen.
Q.
Would these countries agree to do away with the official
price of gold?
A.
There are varieties of options as to how to handle this
and you can think of five or six very easily, but there has
-5-
not been any decision on that.
Q.
Any specific proposals on this issue?
A.
Proposals were made as a part of a set of issues that
were discussed at the 0 2 0 meeting this week.. There is a
problem of the adjustment mechanism; the problem of discipline;
the problem of convertibility; and the problem of numeraire,
SDR or gold.
Th one way or another, we have to come to an agree
ment on how to handle gold.
discussed.
There were various possibilities
I might, say Mr. Aichi got the biggest hand of anybody
at the meeting when he suggested we think of a better name for SDR.
I think that made an impression on everybody although no one came
up with a good name.
Q.
Any idea for a new name?
A.
No.
There are various possibilities but no good name
came immediately to the fore.
Q.
What is the U.S. position on the question of gold?
A.
We have taken a position that the role of gold in the
moretary system should diminish and that is what we think the
objective should be.
As to specific ways to attain the ob
jective, we are ready to talk about any of the suggestions.
Q. Some have argued that the system of float has aggravated
the world inflationary pressure in recent months. What is
your view on the relationship between inflation and the ex
change rate system?
-
A.
6-
I do not fhink the float has aggravated the inflation
problem.
The float has turned out to be a pretty good device
for letting the pressures in the System dissipate themselves
without causing crises.
My understanding is, for example,
that in Japan the float has not caused any particular prob
lems, and on the whole is regarded as a reasonable operation.
We regard it as such with respect to the yen, looking at it
from the other side of the yen-dollar problem.
So I think
the problem of inflation is related to the imbalance of
supply and demand in many basic commodities especially in
food commodities.
in price.
All over the world they are rising rapidly
The fundamental imbalance of supply and demand is
what is causing the problem.
All the economies of the world
are rising strongly at the same time.
Q.
Minister Giscard d'Estaing of France recently implied
that France would not participate in trade discussions unless
some visible progress is made on monetary reforms. What is
the U.S. view on the relationship between trade and monetary
reform negotiations?
A.
We have consistently held the view that trade arrange
ments and monetary arrangements are related to each other.
We had a hard time persuading others.
So I welcome the state
ment that there is a relationship between these two matters.
I think that monetary reform in terms of its timetable is
well ahead of trade reform, at least to the extent that GATT
negotiations start in Tokyo in September and no one is ex
pecting that they will be completed before two or three years.
However, we have made a lot of headway in monetary reform;
and certainly by the end of next year we expect to see that
work essentially completed.
Q.
Could we take your statement as the softening of the
U.S. position to link the two negotiations?
A.
The U.S. view has been that trade matters and monetary
matters are related to each other.
on that.
We had quite an argument
People resisted that idea.
d ’Estaing now insisted that it is so.
is what we thought all along.
You mentioned Mr. Giscard
We welcome that.
That
What the content of these
negotiations would be remains *to be seen, but we believe that
they are related.
As one thinks about IMF and its structure,
somehow or other there should be a way worked out for the IMF
to have stronger ties with the GATT.
Q.
Do you still consider surcharge as an instrument to
sanction surplus countries?
A.
We believe there needs to be symmetry in the system of
adjustment in the exchange rate, in other words, when there
is an out-of-balance situation, there needs to be symmetry in
pressures to bring about a balance.
point is well accepted by everyone.
I believe that this
The question then arises
as to how you get symmetry of pressures.
A way to get
pressure on a deficit country is to insist on convertibility,
but that does not create any pressures on the surplus country.
So we have suggested various means of doing that.
One is the
use of indicators in terms of reserve levels that give some
strength to the views that the adjustment is necessary.
The possibility, and we have listed this as a last resort
possibility, of imposing a surcharge on a surplus country
may be a necessary sanction.
We do not think.it is desirable
but in some situations it would be useful even if it were
never used.
Mr. Giscard d fEstaing suggested another one,
which I thought was an interesting idea, namely that if a
country accumulated reserves as a result of surplus, above
a certain point, then those reserves should carry a negative
rate of interest.
to hold.
In other words, they would be undesirable
And that is a kind of automatic sanction, a little
bit like the convertibility sanction on the other side.
That was one of the outstanding things about this meeting.
There was greater agreement on the need for symmetry and on
the importance of putting backbone into the adjustment
process.
A number of ideas were put forward about that.
Q.
What is the U.S. position on the negative interest rate?
A,
I think it is an interesting idea.
that.
We should explore
This is one of the things we are working on.
Q.
What is your prospect on the Phase IV programs and
anti-inflationary policies in general? Is there a possibility
of overkill?
A,
Our policy, first of all, is the disciplined budget, and
we have been getting the budget under better and better control
We are determined to get to a balance within this fiscal
year.
Second are_policies designed to increase the supply
of scarce things.
We are producing much larger crops this
year than last year.
The crop that both of us are interested
in is soybeans, and we expect the soybean crop to be a fourth
larger than last year’s.
We are going all out to produce
the supply of needed goods.
of this whole process.
That is a very important part
We recognize, as others do, that we
are a part of the world economy and the inflation we have is
connected with the inflation that everybody else has* because
it stems importantly from increases in price in commodities
in international trade.
We try to work at this problem
cooperatively with our trading partners.
wage and price controls.
Then we have the
We are trying to get as much use
fulness as we can from them, recognizing that they really
don’t do much for you in so far as the prices of internationally
traded commodities are concerned.
that problem.
They are not addressed to
We are trying to use them responsibly and also
to avoid using them in such a way as to reduce supply.
That
is a big problem with price controls.
Q.
Do you then foresee no export controls in the future?
A.
We expect and hope that there will not be any further
export controls.
We are trying to avoid that by increasing
supplies and by working with our trading partners to get a
better idea about their needs and the crop production around
the world.
can be done.
We believe there is a reasonable prospect that this
Department of th e fR E A S U R Y
WASHINGTON, D C 20220
ENTION:
TELEPHONE W04 2041
FINANCIAL EDITOR
August 6 , 1973
RELEASE 6:30 P.M.
RESULTS OF TREASURY'S
WEEKLY BILL OFFERING
The Treasury Department announced that the tenders for two series of Treasury
one series to be an additional issue of the bills dated
May *10, 1973
. and
which were invited on July 31, 1973,
le other series to be dated August 9, 1973
fe opened at the Federal Reserve Banks today. Tenders were invited for $2,500,000,000,
¡thereabouts, of 91-day bills and for $1,800,000,000, or thereabouts, of
182-day
|ls. The details of the two series are as follows:
ls,
OF ACCEPTED
PETITIVE BIDS:
High
Low
Average
91-day Treasury bills
maturing November 8 , 1973
Approx. Equiv.
Annual Rate
Price
97.890
97.830
97.855
a/
8.347$
8*585$
8.486$
1/
182-day Treasury bills
maturing February 7. 1974
Approx. Equiv.
Annual Rate
Price
8.537$
8.687$
8.650$
95.684 b/
95.608
95.627
1/
j
a Excepting one tender of $10,000; b/ Excepting five tenders totaling $85,000
49% of the amount of 91-day bills bid for at the low price was accepted
41% of the amount of 182-day bills bid for at the low price was accepted
CAL TENDERS APPLIED FOR AND ACCEPTED BY FEDERAL RESERVE DISTRICTS:
District
Boston
HewYork
Philadelphia
Cleveland
Richmond
ftlanta
phicago
ft. Louis’
Minneapolis
tansas C itv
alias
jan Francisco
TOTALS
Applied For
$
33,580,000
2,810,150,000
23.900.000
34.645.000
35.565.000
20.900.000
185.115.000
40.705.000
30.985.000
37.290.000
43.340.000
124.965.000
Accepted______
I
23,580,000
1,966,600,000
23.900.000
34.645.000
35.565.000
20.900.000
122.075.000
39.195.000
30.985.000
36,2'90,000
42.830.000
125.455.000
Applied For
$
22,825,000
2,505,410,000
11.445.000
54.600.000
21.890.000
21.500.000
156.545.000
73.300.000
23.045.000
34.320.000
39.920.000
144.560.000
Accepted
12,825,000
1,384,510,000
11.445.000
34.600.000
21.890.000
21.300.000
73.645.000
60.800.000
19.045.000
29.320.000
31.420.000
99.560.000
$3,421,140,000
$2,500,020,000 c/
$3,109,160,000
$1,800,160,000 d/
W
includes $325,685,000 noncompetitive tenders accepted at the average price1of 97.855
eludes $247,135,000 noncompetitive tenders accepted at the average price of 95.627
nese rates are on a bank discount basis. The equivalent coupon issue yields are
,y9% for the 91-day bills, and 9.17$ for the 182-day bills.
K
DeportmentoftheTRUSURY
‘HINGTON,
m s a à nD.C.
r o20220
fmn
S m
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jB
TlLEPHQNEW04-2O4V
FOR IMMEDIATE RELEASE
August 7, 1973
TREASURY'S WEEKLY BILL OFFERING
The Treasury Department, by this public notice, invites tenders for two series
bf Treasury bills to the aggregate amount of $4,300,000,000, or thereabouts, for
bash and in exchange for Treasury bills maturing
pf $4,303,570,000
August 16, 1973,
in the amount
as follows:
91-day bills (to maturity date) to be issued
August 16, 1973,
in the amount
|of $2,500,000,000, or thereabouts, representing an additional amount of bills
Idated
May 17, 1973,
and to mature November 15, 1973
¡originally issued in the amount of $1,692,665,000,
(CUSIP No. 912793 SD9),
the additional and original
pills to be freely interchangeable.
182-day bills, for $1,800,000,000, or thereabouts, to be dated August 16, 1973,
and. to mature
February 14, 1974 (CUSIP No. .912793
SY3).
The bills of both series will be issued on a discount basis under competitive
¡and noncompetitive bidding as hereinafter provided, and at maturity their face
amount will be payable without interest.
They will be issued in bearer form only,
and in denominations of $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 clospg hour, one-thirty p.m., Eastern Daylight Saving time, Monday, August 13, 1973.
Tenders will not be received at the Treasury Department, Washington.
Nst be for a minimum of $10,000.
P>000.
Each tender
Tenders over $10,000 must be in multiples of
In the case of competitive tenders the price offered must be expressed
i°n the basis of 100, with not more than three decimals, e.g., 99.925.
pay not be used.
Fractions
It is urged that tenders be made on the printed forms and for
warded in the special envelopes which will be supplied by Federal Reserve Banks
F inches on application therefor.
Banking institutions generally may submit tenders for account of customers
Fovided the names of the customers are set forth in such tenders.
Others than
pnking institutions will not be permitted to submit tenders except for their own
(OVER)
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
U
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 $2 0 0 ,0 0 0 or less without stated price from any one bidder will be acceptej
in full at the average price (in three decimals) of accepted competitive bids for I
the respective issues.
Settlement for accepted tenders in accordance with the
bids must be made or completed at the Federal Reserve Bank on August 16, 1973,
in cash or other immediately available funds or in a like face amount of Treasury
bills maturing August 16, 1973.
treatment.
Cash and exchange tenders will receive equal
Cash adjustments will be made for differences between the par value of I
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 accru*
when the bills are sold, redeemed or otherwise disposed of, and the bills are ex- I
eluded 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.
UNITED STATES SAVINGS BONDS ISSUED AND REDEEMED THROUGH Ju ly 31, 1973 'S
(Dollar amounts in m illions — rounded and will not necessarily add to totals)
D E S C R IP T IO N
MATURED
S e r ie s A - 1 9 3 5 t h r u D - 1 9 4 1
S eries F a n d G - 1 9 4 1 th r u 1 9 5 2
S eries J a n d K - 1 9 5 2 t h r u 1 9 5 7
AMOUNT
AMOUNT
vV
.
outstanding!/
% O U T S T A N D IN G
O F A M O U N T IS S U E D
A M O U N T I S S U E D i/
redeemed!/
5,003
29,521
3,754-
4,999
29,499
3,746
1,925
8,493
13,650
15,933
12,54-7
5,722
5,456
5,657
5,615
4-,928
4.^263
4-, 4-68
5,119
5,219
5,4-39
5,259
4-, 961
4^856
4,558
4,586
4-,677
4,552
5,118
4,987
4^881
5,261
5,183
4,923
4,632
4,849
5,581
6,140
2,736
390
1,739
7,662
12,340
14,330
11^142
4,928
4,568
4,661
4^548
3,939
3,407
3^549
3,986
4,010
4,141
3,971
3,699
3,526
3,273
3,201
3,145
2,977
3,149
3,077
2,973
3,069
3,013
2,809
2,538
2,345
2,252
1,839
320
. . . . 411 .
i
192,563
140,539
52,024
27.02
5,485
9,174
3,983
3,049
1,502
6,126
27.38
66.78
14,659
7,032
7,628
52.04
207,223
147,571
59,652
28.79
38,278
207,223
245,501
38,244
147,571
185,815
33
59,652
59.685
.09
28 7Q
24.31 ..........
4
22
7,
.08
.07
.19
UNMATURED
S eries E - ^ :
1941
1942
1 943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1 953
1954
1955
1 956
1957
1958
1959
1960
1961
1 962
1 963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1
U n c la s s ifie d
T o ta l S e r ie s E
Series
H (1952 thru May, 19591^
H ( J u n e , 1 9 5 9 th r u 1 9 7 3 )
T o ta l S e r ie s H
T o ta l S e r ie s E
(
A ll S e r i e s <
and H
Tntal m a tu r e d
Total unmatured
( G ran d T o ta l
186
831
1,310
1,603
1,405
794
888
997
989
855
920
1,133
1,208
1,298
1,288
1,262
1,330
1,285
1,384
1,532
1,574
1,969
1.910
1,908
2,193
2,170
2,114
2,094
2,504
3,329
4,301
2,417
(21) ,
12 / ,7 U{*e s a c c 'u e d d is c o u n t .
u , “ ( ' w i r e d e m p t i o n v a lu e .
°Ption o f owner b on d s m a y be h e ld a n d w i l l earn in te r e s t for a d d it io n a l p e r io d s a fte r o r ig in a l m a tu rity d a te s .
Form PD 3812 (Rev. Jan. 1973; - Dept, of the Treasury —Bureau of the Public Debt
9.78
9.60
10.06
11.20
13.88
16.28
17.62
18 98
20.07
20.06
20.59
22.13
23.15
23.86
24.49
25.44
27.39
28.19
30.18
32.76
34.58
38.47
38. 30
39.09
41.68
41.87
42.94
45.21
51.64
59.65
70.05
88.34
(5.38)
-
FOR RELEASE 6:30 P. M.
August 8 , 1973
RESULTS OF TREASURY’S OFFER OF $2 BILLION OF SEPTEMBER TAX BILLS
The Treasury Department announced that the tenders for $2,000,000,000, or
thereabouts, of 35-day Treasury Tax Anticipation bills to be dated August 15,
1973, and to mature September 19, 1973, which were offered on July 25, 1973, were
opened at the Federal Reserve Banks today.
The details of this issue are as follows:
Total applied for - $3,879,675,000
Total accepted
- $2,000,225,000
(includes $142,075,000 entered on a
noncompetitive basis and accepted in
full at the average price shown below)
Range of accepted competitive bids:
High
Low
Average
-
99.091
99.022
99.047
Equivalent rate of discount approx. 9.350$ per annum
Equivalent rate of discount approx.10.059$ per annum
Equivalent rate of discount approx. 9.802$ per annum 1/
(^7$ of the amount bid for at the low price was accepted)
[Federal Reserve
___D is tr ic t
Boston
New York
Total
Applied For
$
Philadelphia,
Cleveland
Richmond
Atlanta
Chicago
St. Louis
[Minneapolis
Kansas City
Dal Ion
Total
181,545,000
2,078,900,000
132.700.000
160.100.000
20.745.000
44.770.000
588.310.000
19.900.000
209.950.000
68.640.000
2,655,000
371,460,000
$3,879,675,000
*his is on a bank discount basis.
Total
Accepted
$
116,045,000
627.400.000
92.400.000
75.100.000
20.745.000
19.270.000
482.810.000
15.250.000
209.950.000
67.140.000
2,655,000
271.460.000
$2,000,225,000
The equivalent coupon issue yield is 10.03$.
Departmental th e fR EA S U R Y
SHINGTON. D.C. 20220
TELEPHONE WG4-204I
FOR IMMEDIATE RELEASE
August 9, 1973
TREASURY ANNOUNCES ACTIONS ON
TWO INVESTIGATIONS UNDER THE ANTIDUMPING ACT
Assistant Secretary of the Treasury Edward L. Morgan
announced today actions on two investigations under the
Antidumping Act of 1921, as amended.
In the first case, there is a withholding of appraise
ment pending completion of the antidumping investigation, and
in the second case there is a tentative discontinuance.
These
decisions will appear in the Federal Register of August 10, 1973.
In the first case, Assistant Secretary Morgan announced
that the Treasury is withholding appraisement on metal punching
machines from Japan.
These machines are used primarily for
punching round and shaped holes in metals of various thick
nesses and producing duplication of sizes. 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
@FedFRASER