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Treas.
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10
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v.225

U. S. Dept. of the Treasury,

T; PRESS RELEASES. \

apartment of theJR[/[SURY
SH!NGT0N,D.C. 20220

TELEPHONE 566-2041

October 1, 1979

FOR IMMEDIATE RELEASE

RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $ 2,900 million of 13-week bills and for $3,000 million of
26-week bills, both to be issued on October 4, 1979,
were accepted today.
RANGE OF ACCEPTED
COMPETITIVE BIDS:

13-week bills
maturing January 3, 1980
Discount Investment
Price
Rate
Rate 1/

26-week bills
maturing April 3, 1980
Discount Investment
Price
Rate 1/
Rate

High 97.418-/ 10.215% 10.66%
Low
97.379
10.369% 10.83%
Average
97.393
10.313% 10.77%
a/ Excepting 1 tender of $100,000

94.806 10.274%
94.742 10.400%
94.779 10.327%

11.02%
11.16%
11.08%

Tenders at the low price for the 13-week bills were allotted 18%.
Tenders at the low price for the 26-week bills were allotted 22%.
TENDERS RECEIVED AND ACCEPTED
(In Thousands])
Received
Accepted
Received
:
$
42,270
$
37,270
$
39,455
3,499,490
2,439,185 :
3,379,000
20,020
20,020 :
13,725
38,470
28,470 :
24,655
29,630
29,630 :
28,525
35,310
35,310 :
34,090
255,150
152,850 «:
253,845
37,970
17,970 :
35,315
6,090
6,090 :
6,660
28,045
28,045
23,295
15,100
15,100 :
7,770
184,705
66,405
192,570
24,040
24,040
34,810

Accepted
$
19,455
2,450,300
13,725
24,655
28,525
34,090
178,845
17,755
6,660
23,295
7,770
160,270
34,810

$4,216,290

$2,900,385

$4,073,715

$3,000,155

$2,607,545
444,330

$1,291,640
444,330 ,

$2,259,365
336,250

$1,185,805
336,250

$3,051,875

$1,735,970

$2,595,615

$1,522,055

Federal Reserve
and Foreign Official
$1,164,415
Institutions

$1,164,415

$1,478,100

$4,216,290

$2,900,385

$4,073,715

$3,000,155

Location
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Treasury
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public

TOTALS

_1/Equivalent coupon-i ssue yield.
M-97

FOR IMMEDIATE RELEASE
October 2, 1979

Contact:

Alvin M. Hattal
202/566-8381

TREASURY TO START ANTIDUMPING
INVESTIGATION ON INDUSTRIAL
ELECTRIC MOTORS FROM JAPAN
The Treasury Department today said it will start an
antidumping investigation of imports of certain industrial
electric motors from Japan.
Treasury's announcement followed summary investigations
conducted by the U. S. Customs Service after receipt of a
petition filed by the National Electrical Manufacturers
Association alleging that firms in Japan are dumping this
merchandise in the United States.
The petition alleges that such imports are being sold
in the United States at "less than fair value." (Sales at
less than fair value generally occur when imported merchandise is sold in the United States for less than in the home
market.) The Customs Service will investigate the matter
and make a tentative determination by May 20, 1980. This
is 140 days after the effective date of the Trade Agreements
Act of 1979, which establishes the time limits of cases pending on January 1, 19 80, as well as those filed thereafter.
If sales at less than fair value are determined by
Treasury, the U. S. International Trade Commission will
subsequently decide whether they are injuring or likely to
injure a domestic industry. (Both sales at less than fair
value and injury must be determined before a dumping finding
is reached. If dumping is found, a special antidumping duty
is imposed equal to the difference between the price of the
merchandise at home or in third countries and the price to
the United States.)
Notice of the start of this investigation will appear
in the Federal Register of October 3, 1979.
Imports of this merchandise in 1978 were valued at
between $16- and $22-million.
o
M-98

D.C. 20220

TELEPHONE 566-2041

FOR IMMEDIATE RELEASE
October 3, 1979

Contact:

Alvin M. Hattal
202/566-8381

TREASURY FINDS SODIUM ACETATE FROM CANADA
IS SOLD HERE AT LESS THAN FAIR VALUE
The Treasury Department today said it has determined
that sodium acetate imported from Canada is being sold
in the United States at "less than fair value."
Sodium acetate is a chemical used as a dye intermediate, in kidney dialysis, in the production of
detergents, and in various other applications.
The case is being referred to the U. S. International
Trade Commission, which must decide within 90 days whether
a U. S. industry is being, or is likely to be, injured by
these sales.
If the decision of the Commission is affirmative,
dumping duties will be collected on sales found to be at
less than fair value.
Appraisement of this merchandise will be withheld
for no more than three months. The weighted average margin of sales at less than fair value in this case was
34.75 percent, computed on all sales.
Interested persons were offered the opportunity to
present oral and written views before this determination.
(Sales at less than fair value generally occur when
imported merchandise is sold in the United States for
less than in the home market.)
Imports of sodium acetate from Canada during 1978
were valued at about $0.4-million.
Notice of this determination will appear in the
Federal Register of October 4, 1979.
o
M-99

'partmentoftheTREASURY
5HINGT0N, D.C. 20220

TELEPHONE 566-2041

FOR IMMEDIATE RELEASE

October 3, 1979

RESULTS OF AUCTION OF 2-YEAR NOTES
The Department of the Treasury has accepted $3,254 million of
$5,595 million of tenders received from the public for the 2-year
notes, Series X-1981, auctioned today.
The range of accepted competitive bids was as follows:
Lowest yield- 10.20%
Highest yield
Average yield

10.22%
10.21%

The interest rate on the notes will be 10-1/8%. At the 10-1/8% rate,
the above yields result in the following prices:
Low-yield price 99.869
High-yield price
Average-yield price

99.834
99.851

The $3,254 million of accepted tenders includes $910 million of
noncompetitive tenders and $1,589 million of competitive tenders from
private investors, including 87% of the amount of notes bid for at
the high yield. It also includes $755
million of tenders at the
average price from Federal Reserve Banks as agents for foreign and
international monetary authorities.
In addition to the $3,254 million of tenders accepted in the
auction process, $400 million of tenders were accepted at the average
price from Federal Reserve Banks for their own account in exchange for
maturing short-term bills.
1/ Excepting 6 tenders totaling $70,000.

M-100

FOR RELEASE
October 3, 1979

ADDRESS BY
SECRETARY OF THE U.S. TREASURY
G. WILLIAM MILLER
BEFORE THE ANNUAL MEETING OF
THE INTERNATIONAL MONETARY FUND AND WORLD BANK
BELGRADE, YUGOSLAVIA
OCTOBER 3, 19 79
Mr. Chairman, Mr. McNamara, Mr. De Larosiere, fellow
governors, distinguished guests:
On behalf of the United States, I want to express our
appreciation to the Government of Yugoslavia for inviting us
here. Yugoslavia's energetic and independent spirit has long
attracted the world's admiration and respect. And Yugoslavia's
full participation in the work of the IMF and the World Bank
has shown how nations with different economic and political systems can cooperate to mutual advantage. We join the other
participants in thanking the Government of Yugoslavia for its
warm hospitality to us here in Belgrade. My remarks today are
addressed to one central theme. Restoring balanced growth to
the world economy will require purposeful domestic adjustment on
the part of all nations—large and small. The two international
institutions whose work we are reviewing at this meeting can
help us make these adjustments in effective and mutually reinforcing ways. We must make sure they are in a position to do
so. We must make sure they have our support to do so. In the
last analysis, however, the responsibility rests with each of
us. My country, as the largest economy in the system, is
determined to carry out that responsibility in full. Only when
balance is regained, will it be possible to resume the steady
economic advance we all desire.
Mr. Chairman, this is the final annual meeting of the Bank
and Fund during the decade of the 19 70's. It has been a decade
marked by troublesome strains in the world economy. The will
and ability of nations to cooperate internationally have been
severely tested.
M-101

The underlying strains might easily have led individual
countries to the pursuit of inward-looking policies—to selfdefeating efforts to protect their own limited interests at the
expense of the broader interests of the community of nations.
That this did not occur is convincing testimony to the vision
of the architects of the Bretton Woods Institutions, and the
maturity and wisdom of their successors—the representatives of
the governments gathered here today.
The difficulties of the 19 70's are all too familiar. The
gains that have been achieved despite those difficulties are
less widely appreciated. In the ^face of unprecendented payment
imbalances, severe inflation, and high and persistent unemployment, international cooperation has been strengthened in
important ways:
— Agreement was reached on far-reaching trade liberalization ;
— Flows of official development resources continued to
expand;
— Private financial markets successfully channeled huge
flows of funds from surplus to deficit countries, and
developing countries gained access to these private
capital markets on a substantial scale;
— Intergovernmental cooperation in exchange markets
became stronger and closer;
— The IMF Articles underwent comprehensive revision,
laying the basis for orderly evolution of the international monetary system.
This progress was not accidental. Nation's might have
responded to the problems of the 1970's by imposing trade and
capital controls, by cutting back aid, and by aggressive competition in exchange rate policies. If that had happened, the
world would have suffered staggering economic losses. Instead
we chose deliberately to seek cooperative solutions. Recognizing
that the pervasive links among our economies made cooperation
essential to our individual as well as our collective well-being.
We must not forget that lesson.

Once again the world economy has been destabilized by a
large oil price shock, almost equal in dollar amount to that of
1973-74. On an annual basis, the jump in oil prices will increase the import bill of the developed countries by almost
$75-billion and of the developing countries by $15-billion.
This action is disrupting international payments balances and
adding greatly to the problems of containing inflation and
reducing unemployment. Furthermore, uncertainty about the
availability and price of energy seems likely to persist.
Inflationary pressures, building up over a period of years, have
become so virulent as clearly to require resolute, sustained,
countermeasures. In this uncertain international economic
environment, the prospects for world economic progress are less
promising. And that is a particularly harsh prospect for the
one-fifth of the world's population facing absolute poverty.

These problems are world wide. They are shared in
common, to varying degrees, by all our societies. They
can be successfully overcome only through persistent
national action, augmented by intensified international
collaboration. And that means relinquishing; a degree
of autonomy in national action.
It is in this context that we must examine the present
and future work of the IMF and the World Bank group. These
two institutions provide the infrastructure for world
cooperation in economic policy, in finance, and in development. The degree to which we support them represents
the central measure of our willingness to support more
effective global economic management.
Intensified collaboration is the course we must choose
for the 1980's. It is therefore essential that the IMF
and the World Bank group be strong enough to do the j o b —
strong enough in authority, operations effectiveness, and
resources. I proposed, therefore, to outline my views on
the future direction of policy in these two institutions and on the tools they will need to do the job.
International Monetary Fund
Financially, the Fund is in a strong position to face
the new testing period that lies ahead. The supplementary
financing facility has been activated and remains almost
fully available. The quota increase scheduled to take
effect next year will add a large and timely infusion of
resources. The compensatory financing facility, which
proved so valuable during the cyclical downturn of the
mid-70's has recently been substantially liberalized and
will provide an important element of security to primary
producing nations. Furthermore, the IMF has revised its
guidelines on conditionality so that it can foster orderly
balance of payments adjustment in ways that meet the needs
and circumstances of members.
Nonetheless, there is more to be done to assure the
adequate utilization of the IMF's financial resources and
to strengthen the Fund's capacity to manage the monetary
system. Three areas deserve early attention.
First is surveillance. Under the amended articles,
Fund surveillance—surveillance over members' general economic
policies as well as exchange rate policies--is the centerpiece

of international monetary cooperation. Without effective
surveillance, there is no system. The Fund has moved
cautiously and prudently in implementing its surveillance
procedures. Bolder action is now required.
One possibility would be for the Fund to assess the
performance of individual countries against an agreed
global strategy for growth, adjustment and price stability.
Another possibilityywould be to provide that any
nation I with an exceptionally large payments imbalance—
deficit or surplus—must submit for IMF review an analysis
showing how it proposed to deal with that imbalance. Now,
only those countries borrowing from the Fund have their
adjustment programs subjected to such IMF scrutiny.
Greater symmetry is needed.
We should also consider inviting the managing director
to take the initiative more often in consulting members
directly where he has concerns about the appropriateness
of policy. Any such approaches must, of course, be fully
in accordance with the fundamental principle of uniform
treatment for all members. For its part, the United States
welcomes and values the Fund's views and advice, and would
see merit in a more active role on the part of the managing
director in initiating consultations with members.
As a further step, we might now give serious consideration
to the establishment of the council, as successor to the
Interim Committee, and give it a more specific and direct
role in the surveillance process. There would be value in
such a move, both substantively and symbolically, and I
urge that each of us give fresh consideration to this idea.
The second area for improvement is that of international
liquidity. There has been solid progress over the past
twelve months in enlarging the role of the SDR in the
monetary system. A more fundamental move, the establishment
of a substitution account is now under consideration. If,
working together, we can resolve the problems involved in
setting up that account— and I am hopeful that with good
will it will be possible to resolve them in due course—the
result would represent an important new approach toward
greater reliance on an international reserve asset and a
more centrally managed international monetary system.
The third area in which it may be possible to strengthen
the system and make the IMF more useful and influential
is in the field of cooperation with the private financial

6
markets. This is not a new idea. But the arguments in
favor of it have become more compelling.
We all recognize that the private markets will, in
the future as in the past, have to play by far the major
role in channeling financing from surplus to deficit nations.
Official institutions, including the IMF, play a vital
role in this process, but it is essentially catalytic in
nature.

We must ensure that the IMF is doing all it appropriately
can and should do in order to ensure that private financing
flows smoothly and efficiently. We should reexamine ways in
which the fund can encourage the availability of better
information on international bank lending, with greater
uniformity with respect to potential borrowers. This could
facilitate the process without jeopardizing the IMF's close
and confidential relationships with members. We should also
explore ways of encouraging earlier recourse to the IMF by
countries facing difficulty, in the interests of maintaining
overall financial stability and avoiding the need for more
severe adjustment measures at a later stage if problems are
left unaddressed.
World Bank
The successful contribution by the fund to the smooth
operation of the world economy will help the World Bank to
encourage longer-term economic improvement in the developing
world. Over the past ten years we have called for a stekdy
expansion in the scope of the bank's activities and it has
never failed to respond effectively. The bank is now the
largest single source of external finance and technical
assistance for economic development and the primary exemplification of international cooperation to achieve social and
economic advance.
It must continue to be so. As President McNamara
pointedly reminded us, the goals we set and the choices we
make today in this difficult area of economic policy will
have a critical bearing on whether conditions in the world
will be tolerable a generation from now. This is a weighty
responsibility: it is one we cannot avoid addressing.
The size of the problem is graphically described in the
second world development report, for which I offer my
appreciation and congratulations. Over the next two decades,
750 million new job opportunities will have to be created in
the developing world. The extent of success in this endeavor
will determine how many people in the world are able to
enjoy economic wellbeing, and any shortfall will determine
how many are left to face conditions of absolute poverty at
the beginning of the 21st century.
In this situation, capital will always be extremely
scarce in relations to needs. It will be essential, therefore, that bank loans, IDA credits, and IFC investments
should stimulate, to the maximum degree, mobilization of
domestic savings in the developing countries and the flow

of private capital from abroad.

Specifically this means:

— Greater emphasis on creating productive job
opportunities in the rural areas, where poverty and
underemployment are pervasive. Without more progress
here, the food problem could become worse, population
pressure will become more severe, and the flow of
people to cities could become overwhelming.
— New approaches to job creation in cities and the
provision of low-cost basic services to the urban
poor.
— Investments in human capital through programs in
education, health and family planning.
-- In all areas, a conscious and more effective program
to reduce capital investment per job created, and to
insure that in a fundamental economic sense investments pay for themselves. Only then will capital
used today be recovered tomorrow to be invested for
the benefit of others.
— New initiatives to encourage co-financing.
— More ambitious efforts to expand production of energy
fuels, including new applications for renewable energy
technology. The quantum jump in the price of oil is
exerting a sharply constraining effect on economic
growth everywhere, with particularly harsh effects
in the oil importing developing countries. An increase
in the availability of domestic energy supplies is
necessary to increase the productivity of domestic
labor and capital.
To move in this direction requires that the bank be able
to expand the scope of its activities. We believe that the
capital of the bank must be increased substantially, and for
this reason, supported the resolution of the executive
directors to that effect.
We also support a sixth replenishment of IDA, and look
to the completion of the negotiations before the end of this
year. In accordance with our legislative procedures, our
action in both respects will involve the close cooperation
of the United States Congress.

9
Private Financial Markets
Strengthening the capacity and effectiveness of the IMF
and the World Bank is also necessary to enable private markets
to function smoothly and effectively. The latest increase
in oil prices will place new demands on these markets to
move funds from surplus to deficit countries. The actions of
the two Bretton Woods Institutions serve to strengthen the
adjustment process, economic prospects and credit positions
of borrowing countries—all of which is a necessary foundation
on which private lending can take place on a sustainable basis.
This process also emphasizes how the work of the two institutions
reinforce each other.
More generally, a strengthened cooperative approach,
looking toward a more orderly management of the world economy,
provides a framework within which each nation can address
common problems in a mutually supportive way. The United
States recognizes its role in this system and will continue to
act to carry out its national and international responsibilities.
United States Progress and Policies
Economic growth in the United States during the past four
years has been strong, and has made a major contribution to
world economic recovery. Output has increased by 22 percent
in real terms. Thirteen million new jobs have been created.
At the same time, our rapidly growing market has provided a
major economic stimulus for other countries recovering from
world recession. Most notably, this has benefitted the
developing countries, which have increased their exports of
manufactured goods to the United States much more rapidly than
to other countries.
The United States is well aware of the important role of
the dollar in the international monetary system. We are
determined to maintain reasonable balance in our external
accounts and to assure that the dollar is sound and stable.
We have acted vigorously to meet that obligation, with policies
to strengthen underlying economic conditions, and with forceful exchange market operations to counter market disruption.
The U.S. balance of payments has improved markedly. Our
current account deficit will be reduced from $14 billion in
1978 to a few billion in 1979, despite an increase of $16
billion in the cost of oil imports.
Next year, 1980, we expect a substantial current account
surplus. Continued strong export performance, a rising surplus on services, slower import growth, and U.S. determination to respond forcefully to unwarranted exchange market
pressures, all provide a firm basis for dollar stability
strength in the period ahead.
We have already achieved important progress in strengthening the dollar exchange rate. The dollar has declined in terms
of some currencies, moved higher in terms of others and remained
stable relative to most. Measured against the average of OECD
currencies, the dollar is now about 5 percent above level
prevailing last fall. From the viewpoint of the OPEC nations,

10
in relation to the other currencies they use to purchase their
imports, the dollar has increased about 8 percent on average
from a year ago.
Notwithstanding the favorable changes in the value of the
dollar measured in terms of these averages, the United States is
determined to maintain exchange market stability for the dollar
in terms of individual major currencies, such as the Deutsche
Mark.
The United States also recognizes the necessity of solving
its energy problem. We are making substantial progress.
Since 1973 the amount of energy required to produce a unit of
real output in the United States has dropped by 7-1/2 percent,
and in the industrial sector, it has dropped by 20 percent.
The ratio of the increase in energy consumption to the increase
in GNP has fallen by one-third since 1973. That performance
compares favorably with other industrial countries. Household
energy consumption has leveled off. Our transportation fleet
is rapidly becoming more fuel efficient—the average miles per
gallon for new cars rose from 13 in 1973 to 19 in 1979, and
will rise to 27.5 by 1985.
More must, and will, be done. President Carter has
announced a series of measures, both administrative and legislative, which will sharply improve the overall U.S. energy
position. Phased decontrol of domestic crude oil prices by
September 30, 1981 will reduce oil imports by an estimated 1.5
million barrels per day by 1990. In addition, immediate
decontrol of heavy crude oil prices will stimulate increase in
production estimated at 0.5 million barrels per day. Creation
of an Energy Security Corporation will provide the resources
to help finance private sector development of synthetic fuel.
Major emphasis also being placed on developing renewable
sources of energy. When fully in place, our energy program
will cut oil import requirements by 4 to 5 million barrels per
day.
At the recent Tokyo Summit, the United States agreed that
from now through 1985, we would import no more than 8.5 million
barrels per day of oil, the level that prevailed in 1977. The
President established a lower goal 8.2 million barrels per
day, for 1979. We are firmly committed to meeting the import
targets.
Inflation continues to be our country's more serious
problem. It threatens our ability to achieve full employment,
it impedes investment, and it impairs productivity. We are
determined to bring inflation under control and regain price
stability.
Our recent record is not satisfactory to us. Food and
energy prices have temporarily driven U.S. price indices into
the double digit range. Energy alone accounted for more than
one-half the total rise in finished goods prices at the
producer level in the latest three-month period. In coming

11
months this pressure will recede as the effects of recent OPEC
price actions work their way fully through the economy. Food
prices have moderated in the wake of good harvests.
Special factors aside, the inflation rate is still much
too high and must be brought under control. This cannot be
done quickly or easily. It can only be accomplished by a firm
application of sound policies which deal with the economic
fundamentals.

All major instruments of U. S. economic policy are being
directed toward this task. Fiscal policy is directed toward
restraint.
•••.•*>
We have arrested the increase in government outlays in real
terms and tax receipts are rising. The federal deficit has been
reduced from 3 percent to 1 percent of GNP. The Federal Reserve
is exercising monetary discipline and will continue to keep firm
limits on the growth of money supply. Despite rapid increases in
recent months, the increase in Ml over the past year was held to
4.9 percent—less than half the increase in consumer prices.
The Federal Reserve is committed to meeting its targets for
limiting the rate of growth of money and credit.
These fiscal and monetary policies are supported by price
and pay policies that will help moderate inflationary forces.
On September 28, President Carter announced a national accord
with U. S. trade union leadership that provides for labor's
involvement and cooperation on important national issues. The
national accord confirms that top priority will be given to the
war against inflation. It recognizes that the discipline essential to wring out inflation will mean a period of national
austerity., As part of the accord, labor leadership agreed to
participate in the voluntary program of wage and price restraint.
The involvement and cooperation of labor—and of management—
in developing and implementing policies to control inflation is
critical for success, and this cooperation has now been
strengthened. The national accord will add momentum to our
comprehensive attack on inflation.
The United States intends to reinforce the foundation on
which to achieve sustained growth with price stability. We are
headed in the right direction and are determined to stay the
course. We are also determined to work with the nations gathered
here to strengthen the international economic system, both
through our own actions and through support of the IMF and the
World Bank.
Mr. Chairman, let me add a personal postscript. The curtain
will soon fall on the decade of the '70's. It has been a turbulent period for the world's economy. Progress has fallen far
short of our great hopes.
Facing, as we do, another period of major adjustment, we
have heard few words of encouragement at these sessions. it ^ s
right that we should be realistic about our difficulties. i t
is right that we should not delude ourselves with false expectations. It is possible, however, as we begin to prepare the
we
agenda
have for
notthe
given
'80's,
in to
tothe
seetemptation
some cause to
for
become
hope.self-centered.
In particular,

The institutions for international economic cooperation are
alive and well. The IMF and World Bank are proving their
resilience, rising to meet the challenges.
For its part, the United States is unequivocally dedicated to dealing effectively with its own inflation and energy
problems. This is the single most important contribution we
can make to our own economic health and that of the world
community.
I assure you that we have the will, determination and
preserverance to succeed in this endeavor. You can count on
it.

—

t-H

D CM

::ederal financing bank

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to

WASHINGTON, D.C. 20220

FOR IMMEDIATE RELEASE

October 2, 1979

FEDERAL FINANCING BANK ACTIVITY
Roland H. Cook, Secretary, Federal Financing Bank ("FFB"),
announced the following activity for August 1-31, 1979.
Guarantee Programs
During August, FFB entered into foreign military sales loan
agreements with the following governments:
Date signed

Government

Amount

8/6/79
$2,000,000
Cameroon
8/8/79
500,000
Dominican Republic
8/14/79
2,000,000
Honduras
8/6/79
32,000,000
Indonesia
Repayment of advances made under these loan agreements are
guaranteed by the Department of Defense under the Arms Export
Control Act. Also during August, FFB made 30 advances totalling
$96,680,566.05 to 12 governments under existing DOD-guaranteed
foreign military sales loan agreements.
Under notes guaranteed by the Rural Electrification Administration, FFB advanced a total of $115,672,000 to 30 rural
electric and telephone systems.
On August 22, FFB purchased a total of $6,160,000 in
debentures issued by 10 small business investment companies. These debentures are guaranteed by the Small Business Administration, mature in 5, 7, and 10 years, and carry interest rates
of 9.22 5% for the 5 year maturity, and 9.205% for the 7 and
10 year maturities.
FFB provided Western Union Space Communications, Inc.,
with $9,750,000 on August 1 and $7,050,000 on August 20. These
amounts mature October 1, 1989, and carry interest rates of
9.426% and 9.45%, respectively. Interest is payable on an
annual basis. This loan will be repaid by NASA under a satellite
procurement contract with Western Union.

M-102

IT)
^

- 2FFB purchased the following General Services Administration
public buildings ihterim certificates:
Interest
Date
Series
Amount
Maturity
Rate
9.073%
7/31/03
8/9
M-•049
$5 ,549:,230.,52
9.151%
8/14
L-•057
403,,227.,22
11/15/04
K-•023
720.,265.,85
8/30
9.211%
7/15/04
Under the Department of Housing and Urban Development
Section 108 Block Grant Program, FFB advanced funds to the
following cities:

Kansas City, Missouri
Tacoma, Washington
Toledo, Ohio

Date

Amount

Maturity

Interest
Rate

8/20
8/29
8/31

$500,000.00
992,630.00
600,000.00

7/31/03
9/30/81
7/15/80

10.245%
10.119% an,
10.717% an.

Department of Transportation (DOT) Guarantees
FFB provided the following amounts to the National Railroad
Passenger Corporation (Amtrak) under line of credit Note #20,
which matures September 6, 1979.
Interest
Date
Amount
Rate
5,000,000
8/1
10,000,000
8/16
11,000,000
8/17
3,000,000
8/20
7,000,000
8/27
6,000,000
8/29
4,000,000
8/31
FFB advanced $5 million to the Trustee of
Milwaukee, St. Paul and Pacific Railroad under
guaranteed by DOT pursuant to Section 3 of the
Services Act. The advance carries an interest
and matures September 12, 1994.

9 658%
9 989%
10 018%
10 129%
10 214%
10 256%
10 264%
the Chicago,
a certificate
Emergency Rail
rate of 9.165

Under notes guaranteed by DOT pursuant to Section 511 of
the Railroad Revitalization and Regulatory Reform Act of 1976,
FFB lent funds to the following railroads:
Interest
Maturity __ Rate
Amount
Date
Trustee of Chicago, Rock Island 8/10
12/10/93 9.372% an.
$1,474,818
Trustee of The Milwaukee Road
11/15/91
546,625
8/13
9.388% an.
Trustee of Chicago, Rock Island 8/31
12/10/93
1,644,732
9.669% an.

- 3Agency Issuers
On August 8, FFB purchased a $1,180 million Certificate
of Beneficial Ownership from the Farmers Home Administration.
This certificate matures August 8, 1984 and carries an interest
rate of 9.281%, payable annually.
FFB advanced $50 million in new cash to the Student Loan
Marketing Association, a federally-chartered private corporation.
The Tennessee Valley Authority (TVA) sold FFB a $15 million,
10.01% note on August 15, and a $70 million, 10.267% note on
August 31. Both notes mature November 30, 19 79. Also on
August 31, TVA issued a $500 million Series C Power Bond to
FFB. This bond matures August 31, 2004 and carries an interest
rate of 9.195%. Of the total $585 million borrowed, $425
million retired maturing securities, and $160 million raised
new cash.
FFB Holdings
As of August 31, 1979, FFB holdings totalled $62.9 billion.
FFB Holdings and Activity Tables are attached.
# 0#

FEDERAL FINANCING BANK HOLDINGS
(in millions of dollars)
Program

August 31. 1979

July 31, 1979

Net Change
(8/1/79-8/31/79)

On-Budget Agency Debt
$ 6,930.0
7,846.3

$ 6,770.0
7,846.3

1,952.0
443.7

30,445.0
77.3
160.1
35.8
921.0
95.7

32.4
DOT-Emergency Rail Services Act
91.0
DOT-Title V, RRRR Act
5,126.5
DOD-Foreign Military Sales
354 ".4
General Services Administration
36.0
Guam Power Authority
38.5
DHUD-New Communities Admin.
4.7
DHUD-Community Block Grant
X)
368.8
Nat • 1. Ra Llroad Passenger Corp, (AMTRAK)
411.9
NASA
5,754.0
Rural Electrification Administration
325.8
1,230.0
Small Business Investment Companies
21.6
Student Loan Marketing Association
177.0
Virgin Islands
VWATA
$62,879.5
TOTALS

Tennessee Valley Authority
Export-Import Bank

160.0

-0-

Net Change-FY 1979

(10/1/78-3/31/75)
$ 1,710.0
1,278.0

Off-Budget Agency Debt
U.S. Postal Service
U.S. Railway Association

-0-0-

-162.0
86.9

29,765.0
77.3
160.1
35.8
921.0
97.3

680.0

8,170.0
20.3
-3.6
-4.3
283.3
-16.5

27.4
85.5
5,031.9
347.7
36.0
38.5

5.0
5.5

Agency Assets
Farmers Home Administration
DHEW-Health Maintenance Org. Loans
DHEW-Medical Facility Loans
Overseas Private Investment Corp.
Rural Electrification Admin.-CBO
Small Business Administration
Government Guaranteed Loans

Federal Financing Bank

2.6
427.8
395.1
5,638.8
319.7
1,180.0
21.6
177.0
$61, 797.5*

-0-0-0-0-1.5

94.6

6.7
-0-02.1
-59.0
16.8
115.7

6.2
50.0

-0-0$1,,082.0*

14.9
55.3
1,148.6
84.2

-0-04.7
-165.6
175.4
1,562.4
75.2
485.0
-0.2

-0$14,801.9*

September 27, 1979
*totals do not add due to rounding

FEDERAL FINANCING

BANK

September 1979 Activity

BORROWER

AMOUNT
OF ADVANCE

DATE

rINTEREST:
: MATURITY : RATE

INTEREST
PAYABLE
(other than s/a)

Department of Defense
Jordan #4
Thailand #2
Colombia #2
Turkey #7
Jordan #2
Jordan #3
Colombia #2
Colombia #3
Jordan #3
Israel #7
Jordan #2
Philippines #4
Jordan #3
Israel #7
Colombia #2
Peru #4
Jordan #4
Philippines #4
Spain #2
Sudan #1
Turkey #7
Israel #7
Jordan #2
Spain #2
Jordan #3
Spain #1
Thailand #6
Tunisia #5
GabonHome
#1 Administration
Farmers
Gabon #2
Certificate of Beneficial Ownership

8/3

8/3
8/6
8/6
8/7
8/7
8/10
8/10
8/10
8/13
8/14
8/14
8/15
8/20
8/21
8/21
8/22
8/22
8/22
8/22
8/22
8/23
8/23
8/23
8/24 .
8/24
8/24
8/29
8/31
8/31

8/8

3,174 ,304.00
34 ,092.00
647 ,742.82
9,605 ,002.00
137 ,166.12
150
1,948 ,483.60
174 ,617.50
2,891 ,767.50
36,200 ,891.00
878 ,647.69
320 ,643.00
1,317 ,000.00
15,360 ,620.15
26
1,640 ,166.52
629 ,816.25
218 ,841.78
58 ,529.50
1,768 ,379.60
1,273 ,100.00
10,996 ,705.00
86 ,989.00
200 ,583.83
472
106 ,799.60
65 ,405.00
4,095 ,277.00
200 ,901.59
2,000 ,076.00
,018.00
,000.00
,000.00
1,180,000,000.00

3/15/88
6/30/83
9/20/84
6/3/91
11/26/85
12/31/86
9/20/84
9/20/85
12/31/86
12/15/08
11/26/85
9/12/83
12/31/86
12/15/08
9/20/84
4/10/85
3/15/88
9/12/83
9/15/88
5/15/89
6/3/91
12/15/08
11/26/85
9/15/88
12/31/86
6/10/87
9/20/85
6/1/86
8/25/83
8/25/84

9.131%
9.2671
9.213%
9.111%
9.161%
9.145%
9.244%
9.216%
9.201%
9.152%
9.268%
9.373%
9.224%
9.134%
9.381%
9.351%
9.316%
9.505%
9.30%
9.27%
9.225%
9.165%
9.397%
9.314%
9.376%
9.277%
9.417%
9.515%
9.779%
9.689%
8/8/84 9.075%

9.281% annually

6/15/80 10.245%
9/30/81
9.875%
7/15/80 10.465%

10.119% annually
10.717% annually

Department of Housing and Urban Development
Section 108 Block Grant
Kansas City, Missouri
Tacoma, Washington
Toledo, Ohio

8/20
8/29
8/31

500,000.00
992,630.00
600,000.00

General Services Administration
Series M-049
Series L-057
Series K-023

8/9
8/14
8/30

5,549,230.52
403,227.22
720,265.85

7/31/03 9.073%
11/15/04 9.151%
7/15/04 9.211%

Rural Electrification Administration
Arkansas Electric #77
Arkansas Electric #97
Empire Telephone #43
Westco Telephone #112
Basin Electric Power #137
Alabama Electric #26
Sierra Telephone #59
Continental Telephone #68
Colorado-Ute Electric #78
Cooperative Power #130
Pacific Northwest Gen. #118
Tri-State Gen. $ Trans. #79
Wolverine Electric #100
Western Illinois #99
San Miguel Electric #110

8/1
8/1
8/1
8/2
8/2
8/6
8/6
8/7
8/8
8/8
8/8
8/9
8/13
8/13
8/13

471,000.00
4,464,000.00
323,000.00
1,000,000.00
18,034,000.00
2,000,000.00
91,000.00
2,466,000.00
1,205,000.00
10,000,000.00
2,274,000.00
888,000.00
2,254,000.00
2,003,000.00
12,000,000.00

12/31/13
12/31/13
12/31/13
8/2/81
8/2/81
8/6/81
8/31/81
12/31/81
8/8/81
8/8/81
12/31/13
7/31/86
8/10/81
8/10/81
8/10/81

9.164
9.164
9.164
9.405
9.405
9.445
9.425
9.295
9.395
9.395
9.077
9.115
9.445
9.445
9.445

9.061 quarterly
9.061
9.061
9.297
9.297
9.336
9.317
9.189
9.287
9.287
8.976
9.013
9.336
9.336
9.336

FEDERAL FINANCING

Pace 2

.
.
'. DATE :

BORROWER

BANK

••»•'•

AMOUNT
OF ADVANCE

:INTEREST:
INTEREST
PAYABLE
: RATE :
: MATURITY
1
*
(other than s/a)

Rural Electrification Administration
Allegheny Electric #93
Northern Michigan Elect. #101
Wabash Valley Power #104
Gulf Telephone #50
Brazos Electric Power #108
Big ftivers Electric #58
Big Rivers Electric #65
Big Rivers Electric #91
Big Rivers Electric #136
Tennessee Tele. Co. #80
Associated Electric #132
Tri-State Gen. § Trans. #79
South Mississippi Electric #3
South Mississippi Electric #90
St. Joseph Tele. § Telegraph #13
East Kentucky Power #73
Brookville Telephone #53
M § A Electric #111
Sugar Land Telephone #69
Eastern Iowa Light #61
Tri-State Gen. § Trans. #89
Central Electric Power #131
Arkansas Electric #97

8/13
8/13
8/13
8/13
8/13
8/20
8/20
8/20
8/20
8/20
8/21
8/22
8/23
8/23
8/24
8/24
8/27
8/28
8/29
8/31
8/31
8/31
8/31

3,199,000.00
2,878,000.00
3,007,000.00
192,000.00
3,000,000.00
2,464,000.00
50,000.00
2,532,000.00
364,000.00
1,000,000.00
7,100,000.00
997,000.00
410,000.00
435,000.00
463,000.00
6,586,000.00
1,639,000.00
200,000.00
500,000.00
960,000.00
7,323,000.00
100,000.00
4,950,000.00

8/31/81
8/10/82
12/31/13
12/31/13
8/13/81
8/20/81
8/20/81
8/20/81
8/20/81
12/31/13
8/21/81
7/31/86
8/27/81
8/27/81
8/24/81
8/24/81
12/31/13
8/28/81
12/31/13
8/31/81
7/31/86
8/31/86
12/31/13

9.415
9.175
9.126
9.126
9.505
9.615
9.615
9.615
9.615
9.127
9.625
9.245
9.725
9.725
9.805
9.805
9.223
9.855
9.21
9.945
9.445
9.435
9.256

Benson Investment Co., Inc.
8/22
Intergroup Venture Capital Corp. 8/22
IntergToup Venture Capital Corp. 8/22
Builders Capital Corp.
8/22
Coastal Capital Company
8/22
Dewey Investment Corp.
8/22
First Texas Investment Co.
8/22
Fourth Street Capital Corp.
8/22
Lloyd Capital Corp.
8/22
San Jose Capital Corp.
8/22
Trans-Am Bancorp, Inc.
8/22

500,000.00
300,000.00
200,000.00
1,500,000.00
500,000.00
360,000.00
650,000.00
300,000.00
1,000,000.00
400,000.00
450,000.00

8/1/84
8/1/84
8/1/86
8/1/89
8/1/89
8/1/89
8/1/89
8/1/89
8/1/89
8/1/89
8/1/89

9.225
9.225
9.205
9.205
9.205
9.205
9.205
9.205
9.205
9.205
9.205

Small Business Investment Companies

Student Loan Marketing Association
Note
Note
Note
Note

#208
#209
#210
#211

8/7
8/14
8/21
8/28

1,180,000,000.00
1,200,000,000.00
1,210,000,000.00
1,220,000,000.00

8/15
8/31
8/31

15,000,000.00
70,000,000.00
500,000,000.00

11/30/79
11/30/79
8/31/04

10.01
10.267
9.195

5,000,000.00

9/12/94

9.165

5,000,000.00
10,000,000.00
11,000,000.00
3,000,000.00
7,000,000.00
6,000,000.00
4,000,000.00

9/6/79
9/6/79
9/6/79
9/6/79
9/6/79
9/6/79
9/6/79

9.658
9.989
10.018
10.129
10.214
10.256
10.264

8/14/79
9.829
8/21/79 10.015
8/28/79 10.129
9/4/79 10.214

Tennessee Valley Authority
Note #104
Note #105
Series C Power Bond
Department of Transportation
Emergency Rail Svcs. Act
Trustee of The Milwaukee
Road #2

8/2

National Railroad Passenger Corp. (Amtrak)
Note
Note
Note
Note
Note
Note
Note

#20
#20
#20
#20
#20
#20
#20

8/1
8/16
8/17
8/20
8/27
8/29
8/31

9.307 quarterly
9.072
9.024
"
9.024
9.395
9.502
9.502
9.502
9.502
9.025
9.512
9.141
9.61
9.61
9.688
9.688
9.119
9.737
9.106
9.669
9.336
9.326
9.151

FEDERAL FINANCING BANK

BORROWER
Section 511
Trustee of the Chicago,
Rock Island

Page 3
AMOUNT
: DATE : OF ADVANCE

i
: INTEREST:
INTEREST
: MATURITY : RATE :
PAYABLE
(other than s/a)

8/10

1,474,818.00

12/10/93

9.162

9.372 annually

8/13

546,625.00

11/15/91

9.176

9.388

8/31

1,644,732.00

12/10/93

9.446

9.669

10/1/89 9.214
10/1/89 9.237

9.426
9.45

Trustee of the Milwaukee
Road

Trustee of the Chicago,
Rock Island

Western Union Space Communications, Inc.
8/1
8/20

(NASA)
9,750,000.00
7,050,000.00

FOR RELEASE AT 4:00 P.M.

Octolf §!»*«, 1979

'<^.' -..t OLfARTMEHT
TREASURY'S 52-WEEK BILL OFFERING
The Department of the Treasury, by this public notice,
invites tenders for approximately $3,470 million, of 364-day
Treasury bills to be dated October 16, 1979, and to mature
October 14, 1980
(CUSIP No. 912793 4Q 6 ) . This issue will not
provide new cash for the Treasury as the maturing issue is
outstanding in the amount of $3,474 million.
The bills will be issued for cash and in exchange for
Treasury bills maturing October 16, 1979.
The public holds
$1,441 million of the maturing issue and $2,033 million is held
by Federal Reserve Banks for themselves and as agents of foreign
and international monetary authorities. Tenders from Federal
Reserve Banks for themselves and as agents of foreign and international monetary authorities will be accepted at the weighted
average price of accepted competitive tenders. Additional amounts
of the bills may be issued to Federal Reserve Banks, as agents of"
foreign and international monetary authorities, to the extent
that the aggregate amount of tenders for such accounts exceeds
the aggregate amount of maturing bills held by them.
The bills will be issued on a discount basis under
competitive and noncompetitive bidding, and at maturity their par
amount will be payable without interest. This series of bills
will be issued entirely in book-entry form in a minimum amount of
$10,000 and in any higher $5,000 multiple, on the records either
of the Federal Reserve Banks and Branches, or of the Department
of the Treasury.
Tenders will be received at Federal Reserve Banks and
Branches and at the Bureau of the Public Debt, Washington,
D. C. 20226, up to 1:30 p.m., Eastern Daylight Saving time,
Wednesday, October 10, 1979. Form PD 4632-1 should be used to
submit tenders for bills to be maintained on the book-entry
records of the Department of the Treasury.
Each tender must be for a minimum of $10,000. Tenders over
$10,000 must be in multiples of $5,000. In the case of
competitive tenders, the price offered must be expressed on the
basis of 100, with not more than three decimals, e.g., 99.925.
Fractions may not be used.

M-103

-2Banking institutions and dealers who make primary markets in
Government securities and report daily to the Federal Reserve
Bank of New York their positions in and borrowings on such
securities may submit tenders for account of customers, if the
names of the customers and the amount for each customer are
furnished. Others are only permitted to submit tenders for their
own account. Each tender must state the amount of any net long
position in the bills being offered if such position is in excess
of $200 million. This information should reflect positions held
at the close of business on the day prior to the auction. Such
positions would include bills acquired through "when issued"
trading, and futures and forward transactions. Dealers, who make
primary markets in Government securities and report daily to the
Federal Reserve Bank of New York their positions in and borrowings
on such securities, when submitting tenders for customers, must
submit a separate tender for each customer whose net long
position in the bill being offered exceeds $200 million.
Payment for the full par amount of the bills applied for
must accompany all tenders submitted for bills to be maintained
on the book-entry records of the Department of the Treasury. A
cash adjustment will be made on all accepted tenders for the
difference between the par payment submitted and the actual issue
price as determined in the auction.
No deposit need accompany tenders from incorporated banks
and trust companies and from responsible and recognized dealers
in investment securities for bills to be maintained on the bookentry records of Federal Reserve Banks and Branches. A deposit
of 2 percent of the par amount of the bills applied for must
accompany tenders for such bills from others, unless an express
guaranty of payment by an incorporated bank or trust company
accompanies the tenders.
Public announcement will be made by the Department of the
Treasury of the amount and price range of accepted bids.
Competitive bidders will be advised of the acceptance or
rejection of their tenders. The Secretary of the Treasury
expressly reserves the right to accept or reject any or all
tenders, in whole or in part, and the Secretary's action 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 weighted average price (in three decimals)
of accepted competitive bids.
Settlement for accepted tenders for bills to be maintained
on the book-entry records of Federal Reserve Banks and Branches
must be made or completed at the Federal Reserve Bank or Branch
on October 16, 1979,
in cash or other immediately available
funds or in Treasury bills maturing October 16, 1979. 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.

-3Under Sections 454(b) and 1221(5) of the Internal Revenue
Code of 1954 the amount of discount at which these bills 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 these
bills (other than life insurance companies) must include in his
or her Federal 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.
Department of the Treasury Circulars, Public Debt Series Nos. 26-76 and 27-76, and this notice, prescribe the terms of
these Treasury bills and govern the conditions of their issue.
Copies of the circulars and tender forms may be obtained from any
Federal Reserve Bank or Branch, or from the Bureau of the Public
Debt.

FOR IMMEDIATE RELEASE
October 4, 1979

Contact at DOE: Ed Vilade
202/252-5806

DOE AND TREASURY SET HEARINGS ON IMPORT QUOTA OPTIONS
The Departments of Energy and Treasury today released
a notice seeking public comment on mechanisms to enforce
the oil import quota announced by President Carter on July
15, 1979 and set public hearings in five cities.
Information gained at the hearings and written
comments received will assist the Departments in making
recommendations to the President.
The hearings will be held in San Francisco on October
29, in Dallas on October 31, in Chicago on November 2, in
Boston on November 6 and in Washington, D.C. on November
7.
In his July 15 speech, the President announced that
he would set a quota to ensure that oil imports remain
below 1977 levels, as a backstop to the energy initiatives
comprising his import reduction program. The President
directed the Secretaries of Energy and Treasury to recommend
mechanisms for enforcing the quota. Preliminary study has
led to the development of three approaches which exemplify
alternative methods of implementing a quota. However, ideas
on other approaches and combinations of approaches will be
welcomed and other possibilities that are capable of achieving
the goals set by the President will be considered.
The three alternative quota systems described in the
hearing notice are:
1. An auction system, under which a fixed quantity
of oil import rights would be sold to the highest
bidders. Auctions would occur periodically, with
a seasonally weighted percentage of the annual quota
available at each sale. Bids would be filled until
the quota was exhausted. Rights would be transferable, and licenses would be valid for a specific
four-month period.
(MORE)

M-104

- 2 2.

A license fee system with imports limited by
imposing a fee to reduce demand to the quota levelThe government would calculate the fee. If requests
for import licenses approached the quota "limits,
the fee would be increased in later periods."
3. A no-charge allocation system, under which
imports would be limited by distributing, without
charge, licenses to import crude oil and products
up to the quota limit. Under a previous, similar
system, licenses were distributed to refiners and
importers of record. Import licenses would be
freely tradeable.
The Federal Register Notice announcing the hearings
contains a listing of specific questions on which comments
are requested, along with several general questions.
Written comments are due by November 9. Requests to
speak at the regional hearings must be received by October
22, and at the Washington, D.C. hearing by October 24. All
hearings will begin at 9:30 a.m., local time.
A list of hearing locations and contacts is attached.
- DOE News Media Contact: Ed Vilade, 202/252-5806
Attachment
R-79-446

HEARING LOCATIONS AND CONTACTS
HEARING LOCATIONS
1*

Boston

San Francisco

Dallas

Chicago

Washington, D.C.

John W. McCormick Post
Office & Court House Bldg.
2nd. Floor Conference Room
No. 208
No. 5 Post Office Square
Boston, Massachusetts
Holiday Inn
Gold Rush Room No. B
1500 Van Ness Avenue
San Francisco, California
Dallas Dunfey Hotel
Texas One Room
3800 West Northwest Highway
Dallas, Texas
E. M. Dirksen Federal Bldg.
Room 204 A
219 South Dearborn
Chicago, Illinois
James Porrestal Building
Auditorium, Room GE-086
1000 Independence Avenue, S.W.
Washington, D.C.

REQUESTS TO SPEAK
Boston Hearing
Department of Energy
ATTN: Kathy Healy
Room 700
150 Causeway Street
Boston, MA
02114
San Francisco Hearing
Department of Energy
ATTN: Terry Osborne
3rd Floor
111 Pine Street
San Francisco, CA
94111
- MORE -

REQUESTS TO SPEAK (cont.)
Dallas Hearing
Department of Energy
ATTN: Mac L. Lacefield
2626 West Mockingbird Lane
P.O. Box 35228
Dallas, TX
75235
Chicago Hearing
Department of Energy
ATTN: Lou Brownlee
175 West Jackson Boulevard
Chicago, IL
60604
Washington, D.C. Hearing
ERA Docket No. ERA-R-79-44
Department of Energy
Room 2312
2000 M Street, N.W.
Washington, D.C.
20461
WRITTEN COMMENTS
All written comments should be addressed to:
ERA Docket No. ERA-R-79-44
Department of Energy
Room 2312
2000 M Street, N.W.
Washington, D.C.
20461

FOR IMMEDIATE RELEASE

October 4, 1979

RESULTS OF AUCTION OF 4-YEAR NOTES
The Department of the Treasury has accepted $2,502 million of
$4,457 million of tenders received from the public for the 4-year
notes, Series F-1983, auctioned today.
The range of accepted competitive bids was as follows:
Lowest yield 9.75%Highest yield
Average yield

9.81%
9.79%

The interest rate on the notes will be 9-3/4 %. At the 9-3/4% rate,
the above yields result in the following prices:
Low-yield price 100.000
High-yield price
Average-yield price

99.806
99.871

The $2,502 million of accepted tenders includes $534 million of
noncompetitive tenders and $1,678 million of competitive tenders from
private investors, including 83% of the amount of notes bid for at
the high yield. It also includes $290 million of tenders at the
average price from Federal Reserve Banks as agents for foreign and
international monetary authorities.
In addition to the $2,502 million of tenders accepted in the
auction process, $268 million of tenders were accepted at the average
price from Federal Reserve Banks for their own account in exchange for
maturing short-term bills.
1/ Excepting 2 tenders totaling $11,000

M-105

Departmental IheTREASURY

IFFICE OF REVENUE SHARING

TELEPH0NE

^2W

WASHINGTON, DC. 20226

CONTACT:

ROBERT W. CHILDERS
(202) 634-5248

October 11, 1979

FOR IMMEDIATE RELEASE

REVENUE SHARING FUNDS DISTRIBUTED

The Department of Treasury's Office of Revenue
Sharing (ORS) distributed more than $1.7 billion in
general revenue sharing payments today to 37,704
State and local governments.

Current legislation authorizes the Office of
Revenue Sharing to provide quarterly revenue sharing
payments to State and local governments through the
end of Federal fiscal year 1980.

M-106

partmentoftheTREASURY
HINGTON, D.C. 20220 TELEPHONE 566-2041

RELEASE FOR MONDAY AMs
October 8, 1979

Contact:

Robert E. Nipp
202/566-5328 "

STATEMENT BY
THE HONORABLE G. WILLIAM MILLER
SECRETARY OF THE TREASURY
The House of Representatives voted last month to condition U.S. funding for the World Bank and the regional
development banks on their refraining from extending loans
to certain countries. Under their charters, the banks cannot accept funds from any country encumbered by such restrictions. The result of such legislation would be to
eliminate all U.S. contributions to the banks. Since contributions from other countries are linked to our own in
most of the banks, most of their funds would be lost as
well.
The World Bank and related regional institutions, which
were created largely at U.S. initiative, have been the centerpiece of global development efforts for over thirty years.
They are now channeling essential assistance to the developing countries annually.
The action taken by the House, if it were to become
law, would thus have a serious adverse effect on U.S.
relations with the developing countries. It would also
seriously affect our relations with our major allies, with
whom these financial arrangements have been carefully developed. Indeed, such a U.S. withdrawal from its international responsibilities would raise doubts around the world
about our willingness or ability to participate constructively
across the range of international arrangements.
The President has indicated that elimination of these
restrictions must be accorded the highest priority. The
Senate Committee on Appropriations has recommended their
elimination in the bill which it has just reported. We
urge the Senate to eliminate the restrictions when the bill
comes to the floor.
(Note: The bill is expected to reach the Senate floor on
Tuesday, October 9.)
o 0 o

M-107

FOR RELEASE ON DELIVERY
EXPECTED 10:30 am CDT
OCTOBER 8, 1979
ADDRESS BY
SECRETARY OF THE U.S. TREASURY
G. WILLIAM MILLER
BEFORE THE AMERICAN BANKERS ASSOCIATION
NEW ORLEANS, LOUISIANA
IT IS A SPECIAL PLEASURE FOR ME TO BE WITH YOU
THIS MORNING.

YOUR INVITATION WAS EXTENDED TO ME IN MY

ROLE AS CHAIRMAN OF THE FEDERAL RESERVE BOARD.

APPRECIATE THE OPPORTUNITY TO PARTICIPATE IN MY NEW
CAPACITY.

AND IT IS A PARTICULAR PRIVILEGE FOR ME TO

BE HERE IN THE DISTINGUISHED COMPANY OF THE GREAT
SENATOR RUSSELL LONG OF LOUISIANA AND THE GREAT
STATESMAN HENRY KISSINGER.

CHALLENGE OF CHANGE
YOUR MEETING HERE IN NEW ORLEANS IS BEING HELD AS
THE DECADE OF THE 1970'S DRAWS RAPIDLY TO A CLOSE.
HAS BEEN A DECADE MARKED BY TURBULENT FORCES.

POLITICAL

AND ECONOMIC EVENTS OF FAR-REAGFLING CONSEQUENCES HAVE
CASCADED ONE UPON ANOTHER, LEAVING AN OFTEN BREATHLESS
WORLD TO NAVIGATE UNCHARTED WATERS.
IN AN ERA WHEN CHANGE HAS BEEN THE NORM, THE PACE
OF CHANGE HAS QUICKENED.

PEOPLE AND INSTITUTIONS,

PRIVATE AND PUBLIC, HAVE BEEN CHALLENGED TO ADAPT
RAPIDLY OR RISK BEING LEFT BEHIND IN THE BACK-EDDIES
OF PROGRESS.
M-108

-2-

YOUR OWN BANKING INDUSTRY HAS NOT BEEN IMMUNE
FROM. THESE FORCES.

ON THE CONTRARY, YOU HAVE FACED A

HIGH ORDER OF MAGNITUDE OF CHANGE, BOTH DOMESTIC AND
INTERNATIONAL.

THE NEW REGIME OF FLOATING EXCHANGE

RATES, THE MAJOR SHIFTS IN INTERNATIONAL BALANCES
FOLLOWING OIL PRICE SHOCKS, THE EMERGENCE OF NEW
CREDIT AND FINANCIAL INSTRUMENTS BOTH WITHIN AND
WITHOUT THE BANKING SYSTEM, THE AVAILABILITY OF ADVANCED
TECHNOLOGY IN COMMUNICATIONS AND DATA PROCESSING, THE
INCREASED VOLATILITY OF MARKETS, THE INTENSIFICATION
OF COMPETITION, THE INADEQUACY OF SAVINGS AND
CAPITAL FORMATION ~

THESE, AND OTHER DEVELOPMENTS,

HAVE PRESENTED A GREAT CHALLENGE. TO THE AMERICAN
BANKING SYSTEM.
IN THE FACE OF SUCH DYNAMICS, THE BANKING INDUSTRY
HAS DEMONSTRATED REMARKABLE RESILIENCE, FLEXIBILITY,
INNOVATION AND VIGOR.

THE BANKER HAS BEEN A PERSON ON

THE MOVE, STILL PRUDENT, BUT MODERN AND KEEPING UP WITH
THE TIMES.
THE CHALLENGES CONTINUE, AND YOUR AGENDA FOR
ACTION IS LONG.

AMONG OTHERS ITEMS, THE TIME IS

RIPE TO PHASE OUT INTEREST RATE CEILINGS UNDER
REGULATION Q AND TO AUTHORIZE MOW ACCOUNTS NATIONWIDE.
THE ADMINISTRATION IS EAGER TO WORK WITH YOU TO GAIN THE
NECESSARY CONGRESSIONAL APPROVALS.

-3-

IN PARTICULAR, I WANT TO TAKE THIS OPPORTUNITY
TO COMMEND YOU OF THE AMERICAN BANKERS ASSOCIATION FOR
YOUR LEADERSHIP IN PROMOTING MONETARY IMPROVEMENT
LEGISLATION IN THIS SESSION OF THE CONGRESS.

THE DUAL

OBJECTIVES OF REDUCING BURDENS ON MEMBER BANKS AND
PROVIDING GREATER COMPETITIVE EQUALITY AMONG FINANCIAL
INSTITUTIONS WILL HELP STRENGTHEN OUR BANKING SYSTEM.
THE RECENT ACTION OF YOUR BANKING LEADERSHIP CONFERENCE
IN REAFFIRMING ENDORSEMENT FOR THE CONCEPT OF RESERVE
REQUIREMENTS ON TRANSACTIONS ACCOUNTS OF ALL FINANCIAL
INTERMEDIARIES, WITH A LOWER RESERVE RATIO BELOW A
CERTAIN DEPOSIT LEVEL, SHOULD PROVIDE MOMENTUM FOR
FAVORABLE CONGRESSIONAL ACTION.

" *

IN THESE DIFFICULT TIMES, I AM ESPECIALLY ENCOURAGED
BY YOUR DEMONSTRATION OF COMMITMENT TO A STRONG, INDEPENDENT AND EFFECTIVE FEDERAL RESERVE SYSTEM.
IN LIKE VEIN, WE. IN THE ADMINISTRATION ARE COMMITTED
TO A STRONG AND EFFECTIVE DUAL BANKING SYSTEM.

OUR

NATIONS'S ECONOMIC PROGRESS DEPENDS UPON MAINTAINING
YOUR STRENGTH AND YOUR VITALITY.

THF THRFAT OF INFLATION
LET ME TURN NOW TO A BROADER LOOK AT OUR ECONOMY,
OVERSHADOWING ALL ELSE IS THE HIGH AND PERSISTENT
RATE OF INFLATION.

-4-

THE CAUSES OF INFLATION ARE MANY AND WELL KNOWN
TO YOU.

YEARS.

INFLATION HAS BUILT UP OVER THE PAST FIFTEEN

IT IS NOW DEEPLY EMBEDDED IN OUR ECONOMIC

STRUCTURE.

IT IS A CLEAR

AND

PRESENT

DANGER

TO OUR

NATIONAL WELL-BEING.
INFLATION REDUCES REAL INCOMES AND VALUES; IT
THREATENS OUR ABILITY TO PROVIDE EMPLOYMENT OPPORTUNITIES;
IT DRIES UP JOB CREATING INVESTMENTS; IT IMPEDES
PRODUCTIVITY; IT BREEDS RECESSION; AND IT FALLS MOST
HEAVILY ON THOSE LEAST ABLE TO BEAR THE BURDEN.
THE WAR AGAINST INFLATION MUST BE OUR TOP PRIORITY.
THERE IS NO QUICK OR SIMPLE SOLUTION.

THE WAR MUST

BE WAGED THROUGH A COMPREHENSIVE STRATEGY ON ALL FRONTS
ON A CONTINUOUS BASIS.

WE DO HAVE AN INTEGRATED STRATEGY.
ALL RESOURCES.

WE ARE MARSHALLING

WE ARE DIRECTING ALL ECONOMIC POLICIES

TOWARD A TOTAL WAR AGAINST INFLATION.
AND MOST OF ALL, WE ARE DIRECTING OUR EFFORTS AT
THE FUNDAMENTAL CAUSES OF INFLATION RATHER THAN JUST
THE SYMPTONS.
I WOULD LIKE TO OUTLINE THE PRINCIPAL POLICIES WHICH
TOGETHER MUST FORM THE MAIN FORCES FOR OUR ASSAULT.

FT.Sr.AI POLICY
FIRST, IS A DISCIPLINED FISCAL POLICY.

THE

CUMULATIVE EFFECT OF LARGE FEDERAL DEFICITS YEAR AFTER

-5YEAR HAS BEEN TO FUEL THE FIRES OF INFLATION.

WE ARE

DETERMINED TO APPLY FISCAL RESTRAINT AND MOVE AS QUICKLY
AS POSSIBLE TOWARD A BALANCED BUDGET.
SOME PROGRESS CAN ALREADY BE REPORTED.

IN 1976,

THE FEDERAL DEFICIT WAS THREE PERCENT OF GROSS NATIONAL
PRODUCT.

THIS YEAR, IT WILL BE DOWN TO ONLY ONE PERCENT.

UNLESS THE CURRENT RECESSION DEEPENS, WE SHOULD MAKE
FURTHER PROGRESS NEXT YEAR.
EVEN MORE IMPORTANT IS TO GAIN BETTER CONTROL OVER
FEDERAL SPENDING AND TO REDUCE THE RELATIVE ROLE OF
FEDERAL EXPENDITURES IN OUR NATIONAL ECONLMY.
FEDERAL SPENDING WAS 22.6 PERCENT OF.GNP.
WILL BE DOWN TO ABOUT 21.5 PERCENT.'

IN 1976,

THIS YEAR IT

AND WE INTEND TO

REDUCE IT FURTHER.
THE NET RESULT, OVER TIME, OF REDUCED DEFICITS AND
REDUCED EXPENDITURES AS A PERCENT OF GNP WILL BE TO
RELEASE SUBSTANTIAL RESOURCES IFOR THE PRIVATE SECTOR.
THE SPENDING AND INVESTING DECISIONS OF INDIVIDUALS AND
BUSINESSES WITH RESPECT TO THESE RESOURCES WILL BE FAR
MORE BENEFICIAL TO OUR ECONOMY THAN CHANNELING THE SAME
AMOUNTS THROUGH GOVERNMENT.

fmWFTARY POLICY
A SECOND WEAPON IN THE WAR AGAINST INFLATION IS A
DISCIPLINED MONETARY POLICY.

THE FEDERAL RESERVE HAS

BEEN PURSUING A COURSE TO KEEP FIRM CONTROL OVER THE

-6GROWTH OF THE MONEY SUPPLY.

THE OBJECT HAS BEEN TO

REDUCE PROGRESSIVELY THE RATE OF GROWTH OF MONEY AND
CREDIT IN ORDER TO STARVE OUT INFLATION.
AGAIN, THERE HAS BEEN SOME PROGRESS, AND GROWTH
RATES HAVE SLOWED.

FOR INSTANCE, THE INCREASE IN M-L

OVER THE PAST TWELVE MONTHS HAS BEEN HELD TO 4.9
PERCENT —
PRICES.

LESS THAN HALF THE INCREASE IN CONSUMER

BUT IN RECENT MONTHS, FOLLOWING THE LARGE

INCREASE IN OIL PRICES IN THE SECOND QUARTER, THE GROWTH
HAS BEEN MUCH MORE RAPID.
THE FEDERAL RESERVE HAS RESPONDED PROMPTLY TO
COUNTER THE TREND AND TO DEAL WITH RECENT EVIDENCE
OF RENEWED INFLATIONARY PRESSURES.

ON SATURDAY EVENING,

THE FEDERAL RESERVE ANNOUNCED UNANIMOUS APPROVAL FOR
A SERIES OF COMPLEMENTARY ACTIONS.

THE DISCOUNT RATE

WAS INCREASED A FULL PERCENT, FROM 11 TO 12 PERCENT;
A MARGINAL RESERVE REQUIREMENT OF 8 PERCENT WAS
ESTABLISHED FOR "MANAGED LIABILITIES"; AND THE METHOD OF
CONDUCTING MONETARY POLICY WAS REVISED TO SUPPORT THE
OBJECTIVE OF CONTAINING GROWTH IN THE MONETARY AGGREGATES
OVER THE REMAINDER OF THIS YEAR WITHIN THE PREVIOUSLY
ADOPTED RANGES.

IN ADDITION, THE FEDERAL RESERVE BOARD

CALLED UPON BANKS TO AVOID MAKING LOANS THAT SUPPORT
SPECULATIVE ACTIVITY IN GOLD, COMMODITIES AND FOREIGN
EXCHANGE MARKETS.

-7-

THESE ACTIONS SHOULD SERVE TO DAMPEN INFLATIONARY
FORCES AND CONTRIBUTE TO GREATER STABILITY IN FOREIGN
EXCHANGE MARKETS.

PAY-PR I CEJgQLICC
FISCAL AND MONETARY RESTRAINT REPRESENT POWERFUL
WEAPONS TO ATTACK THE FUNDAMENTAL CAUSES OF INFLATION.
BUT THEY TAKE EFFECT WITH SOME LAG.

THEREFORE, ANOTHER

IMPORTANT POLICY IS THE VOLUNTARY PROGRAM TO MODERATE
PAY AND PRICE INCREASES AND THUS PROVIDE TIME FOR THE
OTHER BASIC POLICIES TO TAKE HOLD.
BECAUSE OF WIDESPREAD COOPERATION, MOST MAJOR
CORPORATIONS AND MOST LABOR CONTRACTS HAVE BEEN IN
COMPLIANCE WITH THE VOLUNTARY STANDARDS DURING THE
FIRST YEAR.

AS A RESULT, OVERALL PRICE AND PAY

INCREASES HAVE BEEN SMALLER THAN OTHERWISE WOULD HAVE
BEEN EXPERIENCED.
FOR THE SECOND YEAR OF THE PROGRAM, IT WAS
FELT DESIRABLE TO PROVIDE FOR GREATER PARTICIPATION BY
MANAGEMENT AND LABOR IN THE PROCESS OF ESTABLISHING AND
APPLYING PAY STANDARDS.

THIS SHOULD HELP AVOID

INEQUITIES WHICH OTHERWISE MAY DEVELOP OVER TIME.

TRIPARTITE PAY COMMITTEE, TO BE CHAIRED BY JOHN DUNLOP,
IS THEREFORE BEING ESTABLISHED, WITH A FIRST TASK OF
RECOMMENDING PAY STANDARDS FOR THE PERIOD AHEAD.

-8IN THIS CONNECTION, THE ADMINISTRATION WORKED OUT
A NATIONAL ACCORD WITH AMERICAN LABOR LEADERSHIP IN
SUPPORT OF THE WAR AGAINST INFLATION AND PROVIDING FOR
LABOR INVOLVEMENT IN THE PAY-PRICE PROGRAM.

GOVERNMENT REGUUTIONS
IN BATTLING INFLATION, WE MUST NOT OVERLOOK THE
COST-RAISING ACTIONS OF GOVERNMENT.
THE COSTS OF UNNECESSARY REGULATION.

AMONG THESE ARE
W E MUST

INTENSIFY EFFORTS TO REDUCE THE BURDEN OF GOVERNMENT,
AND IN PARTICULAR THE BURDEN ON THE BANKING SYSTEM.
BUT LET ME NOT RAISE FALSE HOPES.

WHEN I WAS AT

THE FEDERAL RESERVE WE LAUNCHED PROJECT AUGEUS

TO UNDERTAKE THE HERCULEAN TASK OF .CLEANING OUT
REGULATORY STABLES THAT SEEMED SOMEWHAT LIKE THE
STABLES OF AUGEUS THAT HAD GONE UNCLEANED FOR THIRTY
YEARS.

THE EFFORT CONTINUES; AND I HOPE TO LAUNCH

A SIMILAR ATTACK AT TREASURY.
BUT IT IS NOT EASY.

MUCH REGULATION IS FOUNDED

11^ STATUTE, AND WHILE WE CAN IMPROVE AND SHORTEN
AND CLARIFY, WE OFTEN NEED LEGISLATION TO MAKE REAL
REDUCTIONS IN BURDEN.
SO IT WILL TAKE TIME, AND WILL NEED YOUR HELP
AND SUPPORT.

I WOULD PARTICULARLY WELCOME YOUR

SUGGESTIONS AND RECOMMENDATIONS IN THIS AREA.

-9INTERNATMNAI FfGNOMIC POLICY
NOW LET ME TURN TO THE INTERNATIONAL SECTOR.
A SOUND AND STABLE DOLLAR IS ESSENTIAL IF WE ARE TO
ACHIEVE PRICE STABILITY

IN OUR DOMESTIC

ECONOMY.

A DECLINING DOLLAR INCREASES THE PRICES WE PAY
FOR NECESSARY IMPORTS AND OTHERWISE CONTRIBUTES TO
HIGHER PRICES HERE AT HOME.
THE INTERNATIONAL EXCHANGE VALUE OF THE DOLLAR IS
ADVERSELY AFFECTED BY TWO BASIC FACTORS:

INFLATION

DIFFERENTIALS WITH OTHER COUNTRIES AND DEFICITS IN
OUR BALANCE OF PAYMENTS.
THE CURRENT ACCOUNT POSITION OF THE UNITED STATES
HAS BEEN SEVERELY IMPACTED BY THE TEN-FOLD INCREASE IN
WORLD OIL PRICES SINCE 1974.

CONSIDER THE CONSEQUENCES:

IN 1973, THIS COUNTRY IMPORTED $8.5 BILLION OF OIL;
THIS YEAR IT WILL BE ALMOST $60 BILLION.
BUT DESPITE THIS, WE HAV* MADE EXCELLENT PROGRESS
>

TOWARD RESTORING BALANCE. IN 1978, OUR CURRENT ACCOUNT
SHOWED A $14 BILLION DEFICIT. THIS YEAR, THE DEFICIT
WILL BE REDUCED TO ONLY A FEW BILLION, EVEN AFTER
ABSORBING AN INCREASE OF $16 BILLION IN THE COST OF
OIL IMPORTS.
STANTIAL

AND NEXT YEAR, 1980, WE EXPECT A SUB-

CURRENT ACCOUNT SURPLUS.

IN ADDITION, WE HAVE DEALT -- AND WE WILL IN
THE FUTURE DEAL -- FORCEFULLY WITH UNWARRANTED EXCHANGE

MARKET PRESSURES. IN THIS REGARD, STRONG MEASURES

-10WERE INTRODUCED LAST NOVEMBER 1, JUST A YEAR AGO.
SINCE THAT TIME, WE HAVE ACHIEVED SIGNIFICANT PROGRESS
IN STRENGTHENING THE DOLLAR EXCHANGE RATE.

THE

DOLLAR HAS MOVED UP AGAINST SOME CURRENCIES, DOWN
AGAINST OTHERS, AND REMAINED STABLE AGAINST MOST.
MEASURED AGAINST THE AVERAGE OF THE MAJOR INDUSTRIAL
COUNTRIES, THE DOLLAR IS NOW ABOUT 5 PERCENT HIGHER
THAN IT WAS A YEAR AGO.
OPEC NATIONS,

FROM THE VIEWPOINT OF THE

IN RELATION TO THE OTHER CURRENCIES

THEY USE TO PURCHASE THEIR IMPORTS, THE DOLLAR HAS
INCREASED ABOUT 8 PERCENT ON AVERAGE FROM A YEAR AGO.
IT MIGHT ALSO BE NOTED THAT THE DOLLAR IS ABOUT
25 PERCENT HIGHER AGAINST THE JAPANESE YEN SINCE THIS
TIME LAST YEAR.
NOTWITHSTANDING FAVORABLE CHANGES IN THE DOLLAR
VALUE IN TERMS OF AVERAGES AND AGAINST SOME CURRENCIES,
WE ARE DETERMINED TO MAINTAIN EXCHANGE MARKET STABILITY
FOR THE DOLLAR IN TERMS OF INDIVIDUAL MAJOR CURRENCIES.
IN PARTICULAR, SINCE MID-JUNE THE DOLLAR HAS BEEN DOWN
•

SOMEWHAT IN RELATION TO THE DEUTSCHE MARK.

W E HAVE

THEREFORE BEEN GIVEN SPECIAL ATTENTION TO THIS SITUATION.
CONSULTATIONS HAVE BEEN HELD WITH GERMAN OFFICIALS AT
THE HIGHEST LEVELS TO ASSURE CLOSE COORDINATION OF
COUNTER MEASURES.

-11THE ACTIONS TAKEN BY THE FEDERAL RESERVE OVER THE
WEEKEND REPRESENT A POSITIVE RESPONSE.

BY MOVING

POWERFULLY TO ASSURE BETTER CONTROL OVER THE EXPANSION
OF MONEY AND CREDIT, AND TO HELP CURB EXCESSIVES IN
COMMODITY AND OTHER MARKETS, THE FEDERAL RESERVE WILL
DAMPEN INFLATIONARY FORCES AND INFLATIONARY EXPECTATIONS
AND WILL CONTRIBUTE TO GREATER STABILITY IN FOREIGN
EXCHANGE MARKETS.
WE WILL CONTINUE TO MONITOR THESE MARKETS CAREFULLY,
AND WILL BE PREPARED TO TAKE OTHER COMPLEMENTARY ACTIONS
WHEN AND IF APPROPRIATE.

WE INTEND TO MAINTAIN A

SOUND DOLLAR.

ENERGY POLICY
NEXT IS ENERGY POLICY.

THE TEN-FOLD INCREASE IN

WORLD OIL PRICES HAS BEEN A PRINCIPAL CONTRIBUTOR TO
THE ACCELERATION OF INFLATION DURING THIS DECADE.
PRICE INCREASES HAVE COME IN JTWO MAJOR WAVES:

OLL

THE FIRST

IN 1974 FOLLOWING THE OIL EMBARGO AND THE SECOND
EARLIER THIS YEAR FOLLOWING THE UPHEAVAL IN IRAN.
THE RECENT PRICE SHOCK HAS HAD A DESTABILIZING
EFFECT ON THE WORLD'S ECONOMY.

ON AN ANNUAL BASIS,

THE 60 PERCENT JUMP IN OIL PRICES WILL INCREASE THE
IMPORT BILL OF THE DEVELOPED COUNTRIES BY ALMOST
$75 BILLION AND THE IMPORT BILL OF THE DEVELOPING COUNTRIES

-12BY $15 BILLION.

AS A RESULT, THE PROSPECTS FOR WORLD

ECONOMIC PROGRESS ARE LESS PROMISING.

THE OUTLOOK IS

PARTICULARLY HARSH FOR THE POOREST NON-OIL NATIONS.
To WIN THE WAR AGAINST INFLATION, IT IS ABSOLUTELY
ESSENTIAL THAT WE REDUCE OUR DEPENDENCE UPON IMPORTED
OIL AND THAT WE REDUCE OUR DEPENDENCE UPON OIL ITSELF
AS A SOURCE OF ENERGY.

THE FUTURE AVAILABILITY AND

PRICE OF OIL IS TOO UNCERTAIN.

WE DARE NOT RISK OUR

NATION'S FUTURE ON SUCH A FRAGILE LINE.
IT IS IMPERATIVE THAT WE ESTABLISH OUR ENERGY
INDEPENDENCE.

IT IS ESSENTIAL TO OUR NATION'S SECURITY

THAT WE GAIN CONTROL OVER OUR OWN DESTINY.
THAT WE MOVE WITH ALL POSSIBLE SPEED.

IT IS URGENT

IT IS VITAL THAT

WE PURSUE MULTIPLE OPTIONS SO AS TO ASSURE TOTAL SUCCESS.
FOR TWO AND ONE-HALF YEARS PRESIDENT CARTER HAS
SOUGHT SUPPORT FOR A BROAD AND COMPREHENSIVE ENERGY
PROGRAM TO ACHIEVE THOSE OBJECTIVES. BUT BECAUSE WE
ARE A HETEROGENEOUS COUNTRY, BECAUSE SOME REGIONS
ARE PRODUCERS AND OTHERS ARE CONSUMERS, BECAUSE SOME
•

AREAS HAVE ONE OR ANOTHER FORM OF LOCAL ENERGY SUPPLY
AND OTHERS ARE TOTALLY DEPENDENT ON OUTSIDE SOURCES,
IT HAS BEEN EXCRUCIATINGLY DIFFICULT TO HAMMER OUT A
NATIONAL ENERGY PROGRAM.
SOME IMPORTANT PARTS OF THE PROGRAM HAVE FALLEN
INTO PLACE EARLIER, SUCH AS THE NATURAL GAS BILL
ENACTED A YEAR AGO.

NOW, REMAINING CRITICAL ELEMENTS ARE

UNDER ACTIVE REVIEW BY THE CONGRESS.

-13THE PRESIDENT HAS RECENTLY TAKEN TWO MAJOR STEPS
UNDER HIS OWN POWERS AND ON HIS OWN INITIATIVE.

HAS DECONTROLLED DOMESTIC CRUDE OIL PRICES OVER THE
NEXT TWO YEARS, WITH IMMEDIATE DECONTROL OF HEAVY OIL.
AND HE HAS LIMITED OIL IMPORTS FROM NOW THROUGH 1985
TO NO MORE THAN 8.5 MILLION BARRELS PER DAY, THE
LEVEL THAT PREVAILED IN 1977. THE PRESIDENT HAS
ESTABLISHED AN EVEN LOWER IMPORT LIMIT OF 8.2 MILLION
BARRELS OF OIL PER DAY FOR THIS YEAR.
THE PRIORITIES FOR OUR NATIONAL ENERGY PROGRAM
ARE CLEAR.
FIRST, CONSERVATION.

THIS IS THE SUREST,

CHEAPEST, CLEANEST WAY TO REDUCE.OUR DEPENDENCE

ON OIL.
SECOND, INCREASING THE DEVELOPMENT AND USE- OF
CONVENTIONAL DOMESTIC SOURCES OF ENERGY, SUCH AS OIL,
GAS AND COAL.

THIRD, INCREASING THE USE1)F RENEWABLE ENERGY
SOURCES, SUCH AS SOLAR, ALCOHOL, BIOMASS, WIND AND
WOOD.
FOURTH, TO ASSURE LONGER TERM SUPPLIES, THE
RIGOROUS DEVELOPMENT OF UNCONVENTIANAL DOMESTIC
ENERGY SOURCES, SUCH AS SYNTHETIC FUELS FROM COAL AND
SHALE AND UNCONVENTIANAL NATURAL GAS.

-14TO PROVIDE CAPITAL RESOURCES FOR THE OVERALL
PROGRAM. A SPECIAL EXCISE TAX ~
TAX ~
HOUSE.

THE WINDFALL PROFITS

HAS BEEN PROPOSED AND HAS ALREADY PASSED THE
THE PURPOSE OF THE TAX IS TO ALLOCATE THE

INCREASED REVENUES GENERATED BY DECONTROL OF DOMESTIC
OIL PRICES.

A GOOD PART OF THE INCREASED REVENUES

WILL REMAIN WITH THE OIL PRODUCERS TO PROVIDE THE
MEANS FOR THEM TO CONTINUE AND EXPAND PRODUCTION OF
CONVENTIONAL ENERGY.

SOME OF THE INCREASED REVENUES

WILL ALSO BE ALLOCATED TO THE ENERGY SECURITY
CORPORATION TO FINANCE PROJECTS WHOLLY IN THE PRIVATE
SECTOR FOR THE DEVELOPMENT OF UNCONVENTIONAL ENERGY.
THESE PROJECTS WILL BE LARGE SCALE .VENTURES, WITH
UNUSUAL RISKS, AND WOULD NOT LIKELY BE UNDERTAKEN
* BY PRIVATE COMPANIES ON THE SCALE NEEDED WITHOUT
GOVERNMENT FINANCIAL ASSISTANCE.

AS AN ALTERNATIVE,

RATHER THAN SEEKING FINANCING/ROM THE ENERGY SECURITY
CORPORATION, PRIVATE COMPANIES WILL BE ABLE TO TAKE
ADVANTAGE OF SPECIAL TAX CREDITS FOR UNCONVENTIONAL
FUEL PRODUCTION.
TO ROUND OUT THE PROGRAM, AN ENERGY MOBILIZATION
BOARD HAS BEEN PROPOSED IN ORDER TO SHORTEN THE TIME
FOR OBTAINING

PERMITS FOR ENERGY PROJECTS. WE CANNOT

AFFORD UNNECESSARY DELAYS.

-15WHEN FULLY IN PLACE, THE ENERGY PROGRAM IS EXPECTED
TO CUT OIL IMPORTS BY MORE THAN 50 PERCENT —
MILLION BARRELS PER DAY ~

BY 1990.

4 TO 5

THIS WILL PUT JUS

WELL ON THE WAY TO ENERGY INDEPENDENCE.

INVESTMENT POLICY
FINALLY, A FEW WORDS ABOUT CAPITAL INVESTMENTS.
FOR SOME TIME, OUR NATION HAS GIVEN TOO MUCH EMPHASIS
TO CONSUMPTION AND TOO LITTLE EMPHASIS TO INVESTMENT
IN PRODUCTIVE FACILITIES THAT MAKE CONSUMPTION POSSIBLE.
WE HAVE FALLEN BEHIND OTHER LEADING INDUSTRIAL
NATIONS.

JAPAN SPENDS OVER 20 PERCENT OF GNP ON

CAPITAL INVESTMENTS; GERMANY OVER 15 PERCENT.

THE UNITED STATES, WE HAVE BEEN RUNNING AT 10 TO
11 PERCENT.

AS A RESULT, OUR PRODUCTIVITY HAS LAGGED.

T H I S M U S T N O T C O N T I N U E , OR E L S E OUR C O M P E T I T I V E NESS

IN WORLD MARKETS WILL BE SERIOUSLY IMPAIRED.
IN

COMING MONTHS, THEREFtJftj:, WE E X P E C T T O B E

WORKING TO CREATE CONDITIONS AND INCENTIVES THAT
WILL ENCOURAGE THE SAVINGS, INVESTMENTS AND PRODUCTIVITY THAT ARE SO ESSENTIAL TO ECONOMIC PROGRESS
WITH PRICE STABILITY.

PFRjnn OF AUSTERITY'
THE WAR AGAINST INFLATION REQUIRES DISCIPLINE
AND RESTRAINT.

THIS MEANS THAT WE MUST BE WILLING TO

ACCEPT A PERIOD OF AUSTERITY FOR AMERICANS ~

AND

WORK TO SEE THAT SUCH AUSTERITY IS FAIRLY SHARED

—

-16SO THAT WE WILL BE ABLE TO ACHIEVE BALANCED GROWTH
WITH PRICE STABILITY IN THE YEARS TO COME.
IT IS RIGHT THAT GOVERNMENT SHOULD LEAD THE
WAR AGAINST INFLATION.
SURELY SUCCEED ~

BUT THE CAMPAIGN WILL MOST

AND AT A FASTER PACE ~

AMERICAN PLAYS HIS FULL PART.

IF EVERY

IT IS A TIME OF TESTING

FOR OUR NATION AND FOR EACH OF US.

YOUR HELP AND

YOUR SUPPORT WILL MAKE A GREAT CONTRIBUTION TOWARD
AN EARLY VICTORY.

CONCLUSION
IN CONSIDERING T H I S MORNING THE MANY

WE FACE, I CANNOT HELP BUT REFLECT ALSO

DIFFICULTIES
ON OUR MANY

BLESSINGS.
SOME MONTHS AGO, THIS WAS BROUGHT VIVIDLY HOME
TO ME.

WATCHING THE STRUGGLE OF THE BOAT PEOPLE TO

FIND A LIGHT IN A DARKENED CORNER FO THE WORLD, WATCHING
THE EXTREME RISKS THEY ENDURED IN SEEKING TO REACH
AN AMERICAN REFUGE ~

SPOKE MORE ELOQUENTLY THAN I COULD

OF THE LIVING REALITY OF THE AMERICAN DREAM.
a

MY P U R P O S E IS TO DO THE VERY

BEST I CAN TO ASSURE

THE LASTING VITALITY OF OUR ECONOMIC SYSTEM, TO FIGHT
AND TO WIN THE WAR AGAINST INFLATION, TO REINFORCE THE PREEMINENCE'

OF AMERICA AT HOME AND ABROAD.

AND TO HELP KEEP ALIVE THAT GREAT AMERICAN DREAM.

FOR IMMEDIATE RELEASE
October 8, 1979
TREASURY RESCHEDULES 15-YEAR 1-MONTH BOND OFFERING
The Department of the Treasury today said it is amending
its announcement of September 28, 1979 to reschedule the auction
and settlement dates of its 15-year 1-month bond offering in
the amount of $l.b billion. The auction has been rescheduled
from Tuesday, October 9, to Thursday October 11, 1979, while
the settlement date has been reset from Tuesday October 16 to
Thursday October 18, 1979.
The Treasury said that the rescheduling is to allow time
for the credit markets to adjust to the actions announced by
the Federal Reserve Board on Saturday, October 6.

# #

M-109

FOR IMMEDIATE RELEASE

October 9, 1979

TREASURY RESCHEDULES AND AMENDS OFFERING OF
15-YEAR 1-MONTH BONDS
In its original offering of September 28, the Department
of the Treasury announced that $1,500 million of 15-year
1-month bonds would be auctioned Tuesday, October 9, 1979,
and issued Tuesday, October 16, 1979.
The Treasury hereby amends its original offering announcement by providing that the $1,500 million of 15-year 1-month
bonds will be auctioned on Thursday, October 11, and issued
Thursday, October 18, 1979. The Department said that the
rescheduling is to allow time for the credit markets to adjust
to the actions announced by the Federal Reserve Board on
Saturday, October 6.
As stated in the original announcement, the bonds will
be offered to raise new cash. Additional amounts of the
bonds may be issued to Federal Reserve banks as agents of
foreign and international monetary authorities at the average
price of accepted competitive tenders.
Details about the new security, as amended, are given in
the attached highlights of the offering and in the official
offering circular.

oOo

Attachment

M-110
(over)

HIGHLIGHTS OF TREASURY
AMENDED OFFERING TO THE PUBLIC
OF RESCHEDULED 15-YEAR 1-MONTH BONDS
October 9, 1979
Amount Offered:
To the public
Description of Security:
Term and type of security
Series and CUSIP designation

$1,500 million
15-year 1-month bonds
Bonds of 1994
(CUSIP No. 912810 CJ 5)

Issue date October 18, 1979
Maturity date
Call date
Interest coupon rate

November 15, 1994
No provision
To be determined based on
the average of accepted bids
Investment yield To be determined at auction
Premium or discount
To be determined after auctic
Interest payment dates
May 15 and November 15
(first payment on May 15, 198
Minimum denomination available $1,000
Terms of Sale:
Method of sale
Accrued interest payable by
investor
Preferred allotment
Deposit requirement 5% of face amount
Deposit guarantee by designated
institutions
Key Dates:
Deadline for receipt of tenders

Yield auction
None
Noncompetitive bid for
$1,000,000 or less

Acceptable
Thursday, October 11, 1979,
by 1:30 p.m., EDST

Settlement date (final payment due)
a) cash or Federal funds
Thursday, October 18, 1979
b) check drawn on bank
within FRB district where
submitted
Tuesday, October 16, 1979
c) check drawn on bank outside
FRB district where
submitted
Monday, October 15, 1979
Delivery date for coupon securities. Wednesday, October 31, 1979

FOR RELEASE AT 4:00 P.M.

October 9, 1979

TREASURY'S WEEKLY BILL OFFERING
The Department of the Treasury, by this public notice,
invites tenders for two series of Treasury bills totaling
approximately $ 5,900 million, to be issued October 18, 1979.
This offering will not provide new cash for the Treasury as the
maturing bills are outstanding in the amount of $5,935 million.
The two series offered are as follows:
91-day bills (to maturity date) for approximately $2,900
million, representing an additional amount of bills dated
July 19, 1979,
and to mature January 17, 1980
(CUSIP No.
912793 3M 6), originally issued in the amount of $ 3,024 million,
the additional and original bills to be freely interchangeable.
182-day bills for approximately $3,000 million to be dated
October 18, 1979,
and to mature April 17, 1980
(CUSIP No.
912793 4A1) .
Both series of bills will be issued for cash and in
exchange for Treasury bills maturing October 18, 1979.
Federal Reserve Banks, for themselves and as agents of foreign
and international monetary authorities, presently hold $3,016
million of the maturing bills. These accounts may exchange bills
they hold for the bills now being offered at the weighted average
prices of accepted competitive tenders.
The bills will be issued on a discount basis under competitive
and noncompetitive bidding, and at maturity their par amount will
be payable without interest. Both series of bills will be issued
entirely in book-entry form in a minimum amount of $10,000 and in
any higher $5,000 multiple, on the records either of the Federal
Reserve Banks and Branches, or of the Department of the Treasury.
Tenders will be received at Federal Reserve Banks and
Branches and at the Bureau of the Public Debt, Washington,
D. C. 20226, up to 1:30 p.m., Eastern Daylight Saving time,
Monday, October 15, 1979.
Form PD 4632-2 (for 26-week series)
or Form PD 4632-3 (for 13-week series) should be used to submit
tenders for bills to be maintained on the book-entry records of
the Department of the Treasury.

n-m

-2Each tender must be for a minimum of $10,000. Tenders over
$10,000 must be in multiples of $5,000. In the case of
competitive tenders the price offered must be expressed on
the basis of 100, with not more than three decimals, e.g.,
99.925. Fractions may not be used.
Banking institutions and dealers who make primary markets in
Government securities and report daily to the Federal Reserve
Bank of New York their positions in and borrowings on such
securities may submit tenders for account of customers, if the
names of the customers and the amount for each customer are
furnished. Others are only permitted to submit tenders for
their own account. Each tender must state the amount of any net
long position in the bills being offered if such position is in
excess of $200 million. This information'should reflect positions
held at the close of business on the day prior to the auction.
Such positions would include bills acquired through "when issued"
trading, and futures and forward transactions as well as holdings
of outstanding' bills with the same maturity date as the new
offering; e.g., bills with three months to maturity previously
offered as six month bills. Dealers, who make primary markets in
Government securities and report daily to the Federal Reserve
Bank of New York their positions in and borrowings on such
securities, when submitting tenders for customers, must submit a
separate tender for each customer whose net long position in the
bill being offered exceeds $200 million.
Payment for the full par amount of the bills applied for
must accompany all tenders submitted for bills to be maintained
on the book-entry records of the Department of the Treasury. A
cash adjustment will be made on all accepted tenders for the
difference between the par payment submitted and the actual issue
price as determined in the auction.
No deposit need accompany tenders from incorporated banks
and trust companies and from responsible and recognized dealers
in investment securities for bills to be maintained on the bookentry records of Federal Reserve Banks and Branches. A deposit
of 2 percent of the par amount of the bills applied for must
accompany tenders for such bills from others, unless an express
guaranty of payment by an incorporated bank or trust company
accompanies the tenders.
Public announcement will be made by the Department of the
Treasury of the amount and price range of accepted bids. Competitive bidders will be advised of the acceptance or rejection
of their tenders. The Secretary of the Treasury expressly
reserves the right to accept or reject any or all tenders, in
whole or in part, and the Secretary's action shall be final.
Subject to these reservations, noncompetitive tenders for each
issue for $500,000 or less without stated price from any one
bidder
respective
(in three
willdecimals)
issues.
be accepted
of accepted
in full at
competitive
the weighted
bids average
for the price

-3Settlement for accepted tenders for bills to be maintained
on the book-entry records of Federal Reserve Banks and Branches
must be made or completed at the Federal Reserve Bank or Branch
on October 18, 1979, in cash or other immediately available
funds or in Treasury bills maturing October 18, 1979.
Cash
adjustments will be made for differences between the par value of
the 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 these bills 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 these
bills (other than life insurance companies) must include in his
or her Federal 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.
Department of the Treasury Circulars, Public Debt Series Nos. 26-76 and 27-76, and this notice, prescribe the terms of
these Treasury bills and govern the conditions of their issue.
Copies of the circulars and tender forms may be obtained from any
Federal Reserve Bank or Branch, or from the Bureau of the Public
Debt.

FOR IMMEDIATE RELEASE
Expected 10:00 A.M., E.D.T.

STATEMENT OF H. DAVID ROSENBLOOM,
INTERNATIONAL TAX COUNSEL,
BEFORE THE SENATE COMMITTEE ON ENERGY AND NATURAL RESOURCES,
WEDNESDAY, OCTOBER 10, 1979
Mr. Chairman and members of this distinguished Committee:
I am pleased to have the opportunity to testify today on H.R.
3756 and H.R. 3758. The Treasury Department will outline the
Administration's position on tax and customs provisions; the
Interior Department will address other issues. In a nutshell, we
are opposed to the provisions on H.R. 3756 which would provide
that the Secretary administer the present territorial tax
systems. We support the three-year delay in the extension of
Federal income tax laws to the Northern Marianas as provided in
H.R. 3758 and section 204 of H.R. 3756.
Our opposition to IRS administration of the present
territorial tax systems reflects our concern regarding problems
inherent in those systems. The G.A.O. released last week its
report on Guam's inadequate administration of its territorial
income tax. In our view, administration is only part of the
problem. The present "mirror" systems contain major inequities,
ambiquities and inconsistencies. The Treasury Department expects
to release shortly a detailed analysis of those systems. This
study was undertaken in conjunction with the Administration's
interagency task force set up at the direction of the President
to review Federal government policy toward the territories. The
territories, agencies of the Federal government, and the Congress
are in - the process of commenting on various options identified by
the Task Force, including possible changes in the substance and
the administration of the territorial income tax systems. These
options will be sent to the President shortly for decision.
Because this decision is imminent, the Administration is opposed
to
making fundamental changes in territorial tax administrations
M-112
now.

-2-

In addition to this qeneral objection to the tax
administration provisions of H.R. 3756, we have some specific
difficulties with particular provisions of that bill:
1. The Administration is opposed to the provisions by which the territories could require the IRS
to administer local taxes other than income taxes.
The IRS would not bring any special skill to the
administration of these taxes, which have
traditionally been enacted and administered by
political subdivisions of the United States.
2. The bill provisions requiring employment of
local residents for administration of the territorial
income tax are too restrictive. The territories have
frequently found it necessary to hire retired IRS
personnel as technicians or management advisors, and
there appears to be a shortage of trained tax
personnel in the territories at the present time.
Accordingly, we would need the ability to employ
competent and trained personnel from outside the
territories to meet the needs of administration. Of
course, to the extent possible, we would hire local
residents to administer these taxes. The IRS offices
in Puerto Rico are an example of hiring and developing
local residents. Virtually the entire staff
administering the Social Security tax is now Puerto
Rican, including top management. This has been
accomplished without any statutory mandate or
requirement.
3. The bill does not empower the Secretary to
issue any necessary and appropriate regulations in
performing the duties imposed by this bill.
4. The provision of this bill that the Secretary,
administer the territorial income tax in the
territories beginning January 1, 1980, is unrealistic.
At this late date, we would be unable to assume
administrative responsibility before January 1, 1981.
5. The bill 3oes not provide authority for the
Secretary to enter into agreements with the
territories for an orderly transfer of work in
progress. The territory should continue the ongoing
examination of returns, administrative or judicial

-3appeals, collection of delinquent accounts, pursuit of
delinquent returns, and so forth. A period of 18
months would, we estimate, permit completion of much
of this work and permit a smooth transfer of the
remainder.
6. We do not believe that territorial officials
should be given the authority to decide unilaterally
whether or not the IRS will continue to administer the
tax. A series of abrupt changes in tax administrations would be exceedingly costly and disruptive.
7. Regarding the provisions for collection of
territorial customs duties by the United States, H.R.
3756 would allow a customs duty to be imposed and the
cost of collection borne by the Federal government
even when the volume of territorial imports makes the
collection of a duty wholly uneconomical. The
Northern Mariana Islands, Guam and American Samoa
presently import too little to justify the imposition
of such duties. The Virgin Islands customs duty is
presently administered by the Federal government, and
we objected to the provision enacted in 1978 which
provided for the Federal government to absorb the cost
of collection.
Our preliminary estimate is that annual administrative costs
of administering the territorial income taxes alone will range
between $5 million and $8 million, depending on the responsibilities contained in the final legislation. Between 140 and 270
IRS personnel will be required for that purpose.
The Administration has no objection to section 204 of H.R.
3756 or to H.R. 3758, which would delay the implementation of the
Internal Revenue Code in the Northern Mariana Islands. The
enactment of section 204 would not create a "tax haven" or
foreclose any further Federal legislation.
In summary, the Administration is deeply concerned by the
inadequacies of the territorial income tax systems. We believe
that leqislation is necessary to restructure those systems and to
improve upon present administration. The shape of that legislation involves important policy issues — the adequacy of
territorial government finances, the scope of territorial selfgovernment, and the relationship of the territories to the
Federal government — which the Administration has not, to date,
resolved internally. We request that the question of who should
administer the territorial tax systems be deferred until the
forthcoming Presidential decisions are made and comprehensive
oOo
proposals are submitted to the Congress.

ortmentoftheTREASURY
T E L E P H O N E 566-2041

INGTON, D.C. 20220

FOR LMMEDIATE RELEASE

October 5, 1979

RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $2,901 million of 13-week bills and for $3,000 million of
26-week bills, both to be issued on October 1 1 , 1979,
were accepted today,
RANGE OF ACCEPTED
COMPETITIVE BIDS:

13-week bills
maturing January 10, 1980
Discount Investment
Price
Rate
Rate 1/

26-week bills
maturing April 1 0 , 1980
Discount
Investment
Price
Rate
Rate 1/

,a/
.b/High
97.308^' 10.650% 11.13%
94.629^'10.624%
11.41%
Low
97.240
10.919% 11.42%
94.592 10.697%
11.50%
Average
97.268
10.808% 11.30%
94.610 10.662%
11.46%
a_/ Excepting
tenders totaling $1,260,000
b/ Excepting
tenders totaling $710,000
Tenders at the low price for the 13-week bills were allotted 4 8 % .
Tenders at the low price for the 26-week bills were allotted 9 5 % .

Location
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Treasury
TOTALS

TENDERS RECEIVED AND ACCEPTED
(In Thousands])
Received
Accepted
Received
:
$
35,835 $
$
21,705
35,835
2,957,035
2,207,035 :
3,924,055
44,610
19,610 :
14,605
56,845
31,845
46,710
36,575
36,575
26,885
36,775
36,775
27,360
386,045
289,045 :
366,310
14,185
14,085 :
21,400
4,820
4,820 :
5,510
41,920
41,920 :
29,765
16,605
16,605 :
21,890
180,840
120,840 :
197,820
45,570
45,570 :
61,550

Accepted
$
21,705
2,479,255
13,615
21,710
26,885
26,860
196,210
17,400
5,510
29,765
11,890
87,820
61,550

$3,857,660

$2,900,560

$4,765,565

$3,000,175

$2,177,235
472,075

$1,220,135
472,075

i
•

$2,600,860
398,055

$2,649,310

$1,692,210' '

$2,998,915

$1,233,525

$1,208,350

•

$1,766,650

$2,900,560

$4,765,565

$3,000,175

Type
Competitive
Noncompetitive
Subtotal, Public

Federal Reserve
and Foreign Official
$1,208,350
Institutions
TOTALS

$3,857,660

1/Equivalent, coupon-issue yield.
M-1T1

835,470
398,055

MmentafthtTREASURY
HNGTON, D.C. 20220

TELEPHONE 566-2041
Wk\\\\ttt\t\\\\\tm

October 10, 1979

FOR IMMEDIATE RELEASE

RESULTS OF TREASURY'S 52-WEEK BILL AUCTION
Tenders for $ 3,471 million of 52-week bills to be issued October 16, 1979,
and to mature October 14, 1980, were accepted today. The details are as
follows:
RANGE OF ACCEPTED COMPETITIVE BIDS:

Price
High
Low
Average -

88.382
88.339
88.364

Discount Rate

Investment Rate
(Equivalent Coupon-issue Yield)

11.490%
11.533%
11.508%

12.81%
12.86%
12.83%

Tenders at the low price were allotted 92%.
TENDERS RECEIVED AND ACCEPTED
(In Thousands)
Location

Received

Accepted

Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Treasury

$
4,705
5,669,740
57,090
55,225
44,855
28,760
248,740
14,500
12,685
10,525
2,610
239,900
9,505

$ 4,705
3,392,085
2,090
5,225
4,855
13,060
12,540
6,500
2,685
5,525
2,110
9,900
9,505

TOTALS

$6,398,840

$3,470,785

$4,423,280
97,660

$1,495,225
97,660

Type
Competitive
Noncompetitive

Subtotal, Public $4,520,940
Federal Reserve
and Foreign Official
Institutions
1,877,900
TOTALS

$6,398,840

$1,592,885

1,877,900
$3,470,785

OGI 12*73
REMARKS BY THE HONORABLE ROBERT CARSWELL
DEPUTY SECRETARY OF THE TREASURY
BEFORE THE ANNUAL ASSEMBLY OF THE
ATLANTIC TREATY ASSOCIATION
WASHINGTON, D.C.
October 10, 1979
Security and the World Economy
I am honored to address this august association on the
occasion of the thirtieth anniversary of the North Atlantic
Treaty. Just as the signing of that Treaty in 1949 clearly
reflected our common determination to attend to the security
of the free Western world through close cooperation and
mutual assistance, so too the earlier signing of the principal international economic agreements (OECD, Bretton Woods,
GATT) evidenced a similar commitment to cooperative effort
in the economic sector. The linkage between the two sectors
is inescapable, and events of recent years have only served
to underscore the necessity that they be addressed together.
These Annual Assemblies provide a convenient occasion
for assessing whether the nations of the Atlantic community
are realizing the objectives identified with this Association. Few of us here question those objectives. We accept
the philosophy of leaders of previous generations that the
best path to peace and a dignified existence for all people
is through cooperation and reason. We continue to believe
that failure to follow that path will ultimately mean not
only a decline in the influence of the nations of the Atlantic
Community but an abridgment of human rights and dignity in the
world. Hence it is important to take time to assess how this
process of cooperation is proceeding.
The major agreements on which the cooperative policies
of the Atlantic nations have been based, have provided an
indispensable framework for adjusting to the demands of a

M-115

- 2dynamic world in economic relations as well as in the
security sphere. NATO remains our principal mechanism for
coordinating military policies,, and the OECD one of our
most important economic and trade policy forums. But the
velocity of events in recent years and changes in the relative strengths of different members of the group have caused
modifications in the basic agreements and the adoption of
ancillary arrangements in many areas. The Alliance could
not have endured without accommodating change and without
our continuing, active commitment to work together for our
mutual benefit.
f
\ '
Increasingly we have come to realize that our growing
interdependence both limits our real national autonomy and
demands that we coordinate the management of national
policies if we are to maintain "the '• security and prosperity
that we have achieved. This is especially true in the
economic sphere.
The economic wellbeing of the Western nations is not
determined by national economic policies alone. World
growth, world availability of crucial supplies, access to
world markets, world demand for our currencies, and world
inflation all have a direct, significant impact on economic
growth and stability at home. Nor can we ignore the consequences of our own actions on other nations, which may be
forced to react in self-defense if our policies adversely
affect them. We cannot act in a vacuum, even should we
want to.
In that context and with some trepidation because the
clear light of hindsight is not yet available, I propose to
make some preliminary comments on four significant economic
areas: the international monetary system, energy, trade
and inflation.
The International Monetary System
During the decade of the 1970's the world economy has
been punctuated by recurrent strains and unusual demands.
These have challenged the integrity of the international
monetary system—and the willingness of nations to cooperate
in this vital sphere. Accommodation has not been easy. Fixed
exchange rates have largely given way to variable rates; extraordinary increases in energy prices have created extraordinary
financing needs; individual nations have temporarily required

- .3 emergency assistance. But as the decade comes to a close,
the institutions organized at Bretton Woods remain at the
center of our system. Equally important, the nations of
the West have taken or encouraged a series of cooperative
actions:
— The IMF Articles have been very significantly
revised, laying the basis for orderly evolution
of the international monetary system;
— Intergovernmental cooperation in exchange markets
has become stronger and closer;
— Private financial markets have successfully
channeled huge flows of funds from surplus to
deficit countries, and developing countries
gained access to these private capital markets
on a substantial scale;
— Flows of official development resources have
continued to expand.
The next decade will no doubt require actions of comparable importance. Markets and needs will continue to
change and test our technical capacity and our commitment
to a collegial system. The record of the '20's and '30's
when a succession of divisive policies ended in a decade
of world-wide depression and conflict, evidences how high
the stakes are.
Energy
Until the 1973 oil crisis, there seemed little need for
multilateral action in energy, which was cheap and plentiful.
Today there is almost no area in which the need for common
action is more obvious or more urgent. And there is virtually
no other area where the Western nations as a whole depend so
strongly on supplies from one turbulent part of the world,
the Middle East, which contains over half of the world'd
proven energy reserves.
By the fall of 197 4, the Western nations had agreed that
energy was a global problem that required a multilateral
solution. They agreed on an International Energy Program
and the creation of an International Energy Agency within
the OECD. The Program provides for oil-sharing in the case

- 4 -.
of major supply disruptions to limit the damage from any
future embargo, but also for demand restraint, long-term
cooperation to reduce dependence on imported oil, the
collection of data on the international oil market and
establishment of relations with producers and other consumer countries. The IEA remains the major forum for
coordination of industrial nations' energy policies.
The economic summits have also considered energy to
be a major issue requiring the attention of Chiefs of State
to assure cooperation and the reduction of dependence on
imported oil. Energy was the major issue at the last
Summit in Tokyo, which agreed on specific limits on oil
imports and a concerted effort to increase the supply of
alternative energy resources. President Carter has subsequently indicated that the United States will ensure a
reduction in imports even below the ambitious levels set
at the Tokyo Summit. Last Thursday, the Administration
asked for public comment on alternative ways of ensuring
that U.S. consumption will stay within the limits set by
the President.
In the longer run, the enormous investment needs of
developing alternative energy supplies will impinge on the
availability of resources for other purposes. Implementing
the Summit commitments, therefore, will require difficult
decisions and hard choices. But they must be made, and we
must make them in a cooperative, joint effort to assure the
future security of our national economies.
Trade
The recent successful conclusion of the Multilateral
Trade Negotiations provides an essential framework for the
management of the world trading system in the 1980's. The
new agreements revise and update the General Agreement on
Tariffs and Trade to meet the demands of today's increasingly
complex trading environment. This is crucial, for trade
relations have become an important element of all nations'
foreign policies, with political as well as economic aspects.
Increasing government involvement in trade through policies
that directly affect both imports and exports has made it
especially important to achieve international agreement on
acceptable bounds for this involvement.
The new codes regulating government involvement in
trade are clearly the most significant achievement of the

- '5 negotiations. They cover a wide array of burgeoning nontariff barriers to trade: standards, government procurement,
licensing procedures, customs regulations, government subsidies and countervailing duties. Hopefully, they also
reflect a willingness to consult in problem areas before
trade is adversely affected.
The agreements as a whole provide tangible progress
toward a more open and equitable international trading
system. The United States Congress has already ratified
the new understandings, and provided detailed guidance for
their administration, through the Trade Agreements Act of
197 9, which President Carter signed in July.
But I should
point out that no other OECD nation has yet taken these
steps. The United States urges all OECD countries to redouble their efforts to ratify the agreement and provide
meaningful guidance for administrative implementation.
Work must also be completed on a safeguards code,
which has been stalled by inability to agree on the
desirability of selective safeguard action, i.e. the
imposition of import restraints against specific suppliers.
The developing nations regard the lack of agreement on
safeguard actions as a direct, protectionist threat against
their trade. We must try to assure that trade remains as
open as possible for all nations. A safeguard code is one
important step toward this objective.
The United States is also concerned that very few
developing nations have agreed to join the new codes on
subsidies, government procurement, standards, and other
government measures. Failure to join the codes could well
mean that a two-tier trading system will be created, with
assured benefits for signatories and discrimination against
those that do not join.
The benefits of joining the codes are substantial. As
trade becomes increasingly important to the developing nations,
LDC participation in the future interpretation and evolution
of the code regulations, which will be central to the future
management of international trade problems, is clearly in
their interest.
Two related areas of government intervention (official
export credits and investment incentives) must also be
addressed on an international basis. I would like to discuss them briefly.

- 6 (1) Export Credits. What countries were willing to
do in reducing export subsidies in the context of the MTN,
they have been unwilling to do in the context of official
trade finance. Accordingly, the Export-Import Bank of the
United States, operating within the framework of the International Agreement on Export Credits, has been much more
aggressive in providing export financing in support of
U.S. exports.
— The Bank has increased the percentage of cover from
around 40 percent of export value to over 60 percent in FY 1979.
— It has held down its interest rates, which are still
considerably higher than the Arrangement minimums, while
dollar interest rates in the private market and the cost of
money to the Bank have continued to rise.
— In support of U.S. aircraft manufacturers, the Bank
has met the generous financing offers made by the governments
of Germany and France in support of the Airbus, in spite of
the huge expense involved.
— The provision of mixed credits by France and the
United Kingdom also has a distinct adverse impact on exports
of countries seeking sales on commercial terms. Eximbank
has matched these credits on a selective basis, as necessary
to maintain a competitive U.S. position.
The United States will continue to match foreign
practices in this area, if necessary, to assure a fair
shake for U.S. exporters in international trade. The
competitive scuffle this involves is not necessary. It
is disruptive and counterproductive to those nations
involved.
Competition among the developed nations to subsidize
the construction of foreign facilities of categories that
are already in oversupply is especially troublesome. In
particular, the United States believes that greater discipline over the use of official export credits for steel
plants is in our mutual interest and will help avoid
artificial stimulation of excessive and uneconomic steel
production.
Better coordination of policies would be much more
beneficial for all of us—in terms of economic efficiency,
cost to our treasuries, and political good will. We cannot

- 7afford an export credit war. Let's step back from confrontation and then move forward together in more effective
common management of our export finance policies.
(2) Investment. Governments also actively intervene
in the international investment process to garner benefits
for their national economies. Government-sponsored investment
incentives and performance requirements, in particular, can
have the effect of shifting the location and benefits of
investment across national borders—in essence, exporting
one country',s problem to another. The potential for proliferation of such measures in a beggar-thy-neighbor fashion
makes increased multilateral discipline on incentives and
other interventions an important aspect of our international
economic relations. Our objective should be to maintain an
open investment environment and to avoid emulative countermeasures.
Most governments have not yet recognized the need for
increased international cooperation and management of investment issues.
Direct investment is a relatively recent
development in our international relations. Individual
clashes regarding the use of national measures have occurred,
but vital interests have not yet been called into question.
The writing is on the wall, however, and the United States
is convinced that the time to address problems is at an
early stage—before politics or vested interests create a
crisis
in our economic relations.
Inflation
The final area I would like to discuss involves our
most important common problem and the greatest threat to
our common economic security: inflation. Inflation affects
all of us—industrialized and developing nations alike. It
saps our economic strength and undermines our national
wellbeing.
Inflation in the United States also has called into
question the soundness of the dollar as a store of value
and medium of exchange with attendant instability and unwarranted speculation in the exchanges and other markets.
There is little disagreement in the countries of the
Atlantic alliance on the many causes of inflation: rising
energy and raw material prices, inadequate investment and

- 8a gradual decline in productivity, historically high
government deficits and overly expansionary monetary
policies, expensive and sometimes redundant government
regulation.
Recent initiatives of the Administration address all
these areas, including the actions taken this weekend by the
Federal Reserve Board to check increases in the money supply.
We expect to persevere in our domestic policies and in time
to bring down the rate of inflation. The impressive improvement in the'U.S. current account balance this year and next
should provide a basis for a more stable U.S. dollar and thus
also contribute to a reduction in the externally-generated
portion of our inflation.
Globally, the MTN will help reduce import barriers in
all nations as an aid to our anti-inflation efforts. Pricestabilizing commodity agreements for sugar and natural rubber,
and efforts to revise the tin and cocoa agreements in ways
that would contribute more to global price stability, should
also help.
More can and must be done to coordinate our individual
efforts through the OECD, through the economic summits, and
through regular consultations at mid-levels of government to
ensure that monetary or other actions taken by one government
are not diluted or frustrated by actions of another. The
fight against inflation must be our number one priority—
and effective coordination of national policies our primary
objective.
Conclusion
I think it is fair to say that in all the critical
areas I have touched on—the international monetary system,
energy, trade and inflation—there has been a recent record
of significant and productive cooperation among the nations
of the alliance. Such cooperation is now more vital than
ever before. Yet politically the Western industrialized
nations are not prepared to contemplate openly a partial
ceding of national authority over economic policy to an
international body. But realistically, we must face this
issue in the not-too-distant future.
The question for all of us—but particularly for the
industrialized market economies—is whether we will learn

- 9 to coordinate the management of our economies, to the
benefit of all concerned, or whether, because of the
strains and pressures arising from our interdependence,
we end up retreating from the thrust of the past three
decades and slipping back into a nationally-oriented and
ultimately autarchic international regime. The pressure
of events is forcing us toward a choice because grudging
compromises in an atmosphere of near crisis cannot produce
consistent and constructive policies. There is no viable
middle ground in the long run—and the long run is getting
shorter and.shorter.
We have all benefited from the vibrance and growth of
the world economy, and from the increased interdependence
that has been part and parcel of that growth. Clearly, a
reversal of this trend—through conscious decision or
through failure to act together—cannot possibly benefit
either the United States or the world as a whole.
The crucial task now is to build upon the framework
of cooperation we have achieved to assure the effective
policy coordination and problem management we require for
the future.
0O0

•~~?

partmentoflheTREASURY
HINGTON, D.C. 20220

TELEPHONE 566-2041

FOR IMMEDIATE RELEASE
October 11, 1979

Contact:

Alvin M. Hattal
202/566-8381

TREASURY PROPOSES REVISION
OF CUSTOMS REGULATIONS FOR
ANTIDUMPING DUTY INVESTIGATIONS
Robert H. Mundheim, General Counsel of the Treasury,
today announced a Proposed Revision of the Customs Regulations
Relating to Antidumping Duties. These proposed regulations
will implement changes in the antidumping law, effective
January 1, 1980, resulting from enactment of the Trade Agreements Act of 1979, P.L. 96-39, which replaces the Antidumping
Act, 1921, as amended.
The principal changes implemented by the Trade Agreements
Act of 19 79 are (1) shortened time limits during the investigative phase of antidumping proceedings, (2) detailed provisions
concerning the suspension of investigations, (3) imposition of
time limits on the liquidation of entries subject to the
assessment of antidumping duties, (4) yearly administrative
review of outstanding Antidumping Duty Orders and suspension
agreements, and (5) greater public participation in, and access
to, information developed during antidumping proceedings.
The regulations also codify many current practices of the
Treasury in the administration of the antidumping law and
propose some modifications to present rules to render determinations more equitable.
Oral comments on the proposed revisions and the previously
announced proposed revisions of the Countervailing Duty
Regulations (published in the Federal Register on October 3)
are invited at a meeting to be held at 9:30 a.m., November 5
and 6, in Room 4121 of the Main Treasury Building, 1500
Pennsylvania Avenue, N.W., Washington, D. C. The meeting,
originally scheduled for October 24 and 25, will be conducted
by Deputy Assistant Secretary Peter Ehrenhaft. Written comments
on the proposed revision of Antidumping Duty Regulations will
be accepted until November 30, 1979,
Notice of these actions will be published in the Federal
Register on October 16, 1979, which will include instructions
for requesting an opportunity to present oral comments at the
November meeting.
o 0 o
M-116

ipartmentoftheTREASURY
SHINGTON, D.C. 20220

TELEPHONE 566-2041

FOR IMMEDIATE RELEASE

October 11, 1979

RESULTS OF AUCTION OF 15-YEAR l-MONTH TREASURY BONDS
The Department of the Treasury has accepted $1,501 million of
$2,514 million of tenders received from the public for the 15-year
1-month bonds auctioned today.
The range of accepted competitive bids was as follows:
Lowest yield
Highest yield
Average yield

10.10%^
10.25%
10.17%

The interest rate on the bonds will be 10-1/ 8%. At the 10-1/8% rate,
the above yields result in the following prices:
Low-yield price 100.155
High-yield price
Average-yield price

99.013
99.620

The $1,501 million of accepted tenders includes $93 million of
noncompetitive tenders and $1,408 million of competitive tenders from
private investors, including 17 % of the amount of bonds bid for at the
high yield.
1/

Excepting 2 tenders totaling $22,000

M-117

apartment of theJREASURY
(SHINGTON, D.C. 20220

TELEPHONE 566-2041

FOR IMMEDIATE RELEASE

October 11, 1979

10.25%
10.17%

The interest rate on the bonds will be 10-1/ 8%. At the 10-1/8% rate,
the above yields result in the following prices:
Low-yield price 100.155
High-yield price
Average-yield price

99.013
99.620

The $1,501 million of accepted tenders includes $93 million of
noncompetitive tenders and $1,408 million of competitive tenders from
private investors, including 17% of the amount of bonds bid for at the
high yield.
1/ Excepting 2 tenders totaling $22,000

TREASURY BONDS OF 1994
'/;^>

DATE:. October 11, 1979

HIGHEST S£$S£V

LAST ISSUE:
4

^r/i~
11-117
LOWEST SINCE

TODAY:

G-

~Z~7 — " 7 ?

FOR RELEASE AT 8 P.M.
REMARKS OF THE HONORABLE
G. WILLIAM MILLER
SECRETARY OF THE TREASURY
AT DINNER HONORING
C. C. HOPE, JR., PRESIDENT ELECT OF THE
AMERICAN BANKERS ASSOCIATION
AND
CLAUDE E. POPE
OUTGOING PRESIDENT, MORTGAGE BANKERS ASSOCIATION
AT CHARLOTTE, NORTH CAROLINA
OCTOBER 11, 1979
It is a great pleasure to be in Charlotte tonight to
join Governor Hunt, Jesse Helms, Bob Morgan and your other
distinguished gjests in honoring two North Carolinians that
nave given so much service to their country and tne banking
ind jstry.

Tne decade of the 1970's has been marred by continuous
and sometimes dramatic changes in our political and economic
environment. In tnese troublesome times, we are very fortunate to nave leaders like C.C. Hope and Claude Pope to work
with. C.C. and Claude nave two outstanding characteristics
that make their leadership especially valuable to us now:
First, a natural love for working with people in all walks
of life to resolve our common problems; second, an ability
to understand change and what we all must do to meet its
challenges.
C.C. Hope's career has changed in many ways since 1947
when he first started in banking as a teller. However,
C.C.'s approach to life nasn't cnanged. I understand ne
will still take tne Greyhound bus to see banks out in tne
countryside rather tnan keep a driver waiting to bring him
back in. Also, despite the enormous amount of time he has
dedicated to just about every ABA task force and committee
in recent years, he has managed to remain heavily involved
witn Wake Forest University and with his church. The ABA is
fort-mate to have C.C. as the third North Carolinian to be
its president.
Claude Pope is the second from your state to serve as
President of the Mortgage Bankers Association. Claude has
been involved 'with the M.B.A. for at least the last fifteen
M-118

-2years. He has worked with the M.B.A. on a wide range of
issues including education, ethics in Mortgage Banking, and
the M.B.A.'s political action committee. Despite these
professional involvements, like C.C. Hope, he still manages
to save some time for a wide range of church and community
involvements. I don't see how all of this leaves Claude
much time for anything else, but I do know he likes to
travel around your state in his camper. I guess he thojght
that if C.C. could use a Greyhound bus, he could at least
use a van.
Both of these men signify what is best about business
leaders in our country. The energy to devote themselves
tirelessly not only to their own business interests, but to
improving the common welfare of their communities as well.
Changes in Our Financial Structure
Like the economy as a whole, there have been dramatic
changes in banking over the last decade. The challenge of
meeting these changes seems likely to become even greater in
the future.
There has been a gradual breaking down of the walls
which once separated the activities that different financial
institutions performed. For example, many more types of
institutions now offer transaction accounts. Because of
regulatory differences in how these accounts were treated,
and the burden of Federal Reserve membership in particular,
this development has led to troublesome competitive inequities. I want to take this opportunity to commend C.C. Hope,
in particular, for the leading role he played with the ABA
in promoting monetary improvement legislation in this
session of Congress.
The dual objectives of reducing burdens on member banks
and providing greater competitive equality among financial
institutions will help strengthen our banking system. The
recent action of the ABA in reaffirming endorsement for the
concept of reserve requirements on transactions accounts of
all financial intermediaries, with a lower reserve ratio
below a certain deposit level, should provide momentum for
favorable Congressional action.
The banking industry has also been called upon to play
an increasingly difficult role in international capital
markets. Floating exchange rates have added new complexity
to many international transactions. Similarly, many were
concerned that the huge surpluses the OPEC countries generated by successive price increases could not be effectively
recycled. This fear has been proven unfounded largely as a
result of the effective role that has been played by private
financial institutions.

-3American banks are also facing much more intensive
competition from overseas institutions than in the past. In
the past, the rules of the international banking game nave
not always been the same for everyone and these inequities
have lessened competition and reduced economic efficiency.
That is the reason that this Administration so strongly
supported the passage of the International Banking Act of
1978, which addressed many of the competitive inequalities
between U.S. banks and foreign institutions operating nere.
These are just some examples of the challenges banking
has had to face both domestically and internationally. We
are also seeing the emergence of new credit and financial
instruments both within and without the banking system, tne
availability of advanced technology in communications and
data processing, and an overall intensification of competition. Both commercial banking and mortgage banking nave
demonstrated remarkable resourcefullness, flexibility and
vigor in responding to these challenges.
Inflations Challenge
The greatest challenge confronting all of us now is
dealing with inflation. Inflation is the dominant economic
problem of our time.
The causes of inflation are many and well known to you.
Inflation has built up over the past fifteen years. It is
now deeply embedded in our economic structure. It is a
clear and present danger to our national well-being.
Inflation reduces real incomes and values; it threatens
our ability to provide employment opportunities; it dries up
job creating investments; it impedes productivity; it breeds
recession; it falls most heavily on those least able to bear
the burden.
The war against inflation must be our top priority.
There is no quick or simple solution. The war must be waged
through a comprehensive strategy on all fronts on a
continuous basis.
We do have an integrated strategy. We are marshalling
all resources. We are directing all economic policies
toward a total war against inflation.
And most of all, we are directing our efforts at the
fundamental causes of inflation rather than just the
symptoms.
I would like to outline the principal policies which
together must form the main forces for our assault.

-4-

First, is a disciplined fiscal policy. The cumulative
effect of large federal deficits year after year has been to
fuel the fires of inflation. We are determined to apply
fiscal restraint and move as quickly as possible toward a
balanced budget.
Some progress can already be reported. In 1976, the
federal deficit was three percent of Gross National Product.
This year, it will be down to only one percent. Unless the
current recession deepens, we should make further progress
next year.
Even more important is to gain better control over
federal spending and to reduce the relative role of federal
expenditures in our national economy. In 1976, federal
spending was 22.6 percent of GNP. This year it will be down
to about 21.5 percent. And we intend to reduce it further.
The net result, over time, of reduced deficits and
reduced expenditures as a percent of GNP will be to release
substantial resources for tne private sector. The spending
and investing decisions of individuals and businesses witn
respect to these resources will be far more beneficial to
your economy than channeling the same amounts through
government.
Monetary Policy
A second weapon in the war against inflation is a
disciplined monetary policy. The Federal Reserve has been
pursuing a course to keep firm control over the growth of
the money supply. The object has been to reduce progressively the rate of growth of money and credit in order to
starve out inflation.
Again, there has been some progress, and growth rates
have slowed. For instance, the increase in M-1 over the
past twelve months has been held to 4.9 percent -- less than
half the increase in consumer prices. Buv. in recent months,
following the large increase in oil prices in the second
quarter, the growth has been much more rapid.
The Federal Reserve has responded promptly to counter
the trend and to deal with recent evidence of renewed inflationary pressures. On Saturday evening, the Federal Reserve
announced unanimous approval for a series of complementary
actions. The discount rate was increased a full percent,
from 11 to 12 percent; a marginal reserve requirement of 8
percent was established for "managed liabilities"; and the
method of conducting monetary policy was revised to support
the objective of containing growth in the monetary aggregates over the remainder of this year within the previously
adopted ranges. In addition, the Federal Reserve Board
called upon banks to avoid making loans that support specu-

-5lative activty in gold, commodities and foreign exchange
markets.
These actions should serve to dampen inflationary
forces and contribute to greater stability in foreign
exchange markets.
Pay-Price Policy
Fiscal and monetary restraint represent powerful
weapons to attack the fundamental causes of inflation. But
they take effect with some lag. Therefore, another important policy is the voluntary program to moderate pay and
price increases and thus provide time for the other basic
policies to take hold.
Because of widespread cooperation, most major corporations and most labor contracts have been in compliance with
the voluntary standards during the first year. As a result,
overall price and pay increases have been smaller than
otherwise would have been experienced.
For the second year of the program, it was felt desirable to provide for greater participation by management and
labor in the process of establishing and applying pay standards. This should help avoid inequities which otherwise
may develop over time. A tripartite Pay Committee, to be
chaired by John Dunlop, is therefore being established, with
a first task of recommending pay standards for the period
ahead .
In this connection, the Administration worked out a
National Accord with American labor leadership in support of
the war against inflation and providing for labor involvement in the pay-price program.
Government Regulations
In battling inflation, we must not overlook the
cost-raising actions of government. Among these are the
costs of unnecessary regulation. We must intensify efforts
to reduce the burden of government, and in particular the
burden on the banking system.
But let me not raise false hopes. When I was at the
Federal Reserve we launched Project Augeus -- to undertake
the herculean task of cleaning out regulatory stables that
seemed somewhat like the stables of Augeus that had gone
uncleaned for thirty years. The effort continues; and I
hope to launch a similar attack at Treasury.
But it is not easy. Much regulation is founded in
statute, and while we can improve and shorten and clarify,
we often need legislation to make real reductions in burden.

-6So it will take time, and will need your help and
support. I would particularly welcome your suggestions and
recommendations in this area.
Energy Policy
There can be no doubt that reducing our reliance on
imported oil is essential for both controlling inflation and
strengthening the dollar. The ten-fold increase in world
oil prices has been a principal contributor to the acceleration of inflation during this decade. Oil price increases
have come in two major waves: the first in 1974 following
the oil embargo and the second earlier this year following
the upheaval in Iran.
It is imperative tnat we establish our energy independence. It is essential to our nation's security that we
gain control over our own destiny. It is urgent that we
move with all possible speed. It is vital that we pursue
multiple options so as to assure total success.
For two and one-half years President Carter has sought
support for a broad and comprehensive energy program to
achieve those objectives. But because we are a heterogeneous country, because some regions are producers and others
are consumers, because some areas have one or another form
of local energy supply and others are totally dependent on
outside sources, it has been excruciatingly difficult to
hammer out a national energy program.
Some important parts of the program have fallen into
place earlier, such as the natural gas bill enacted a year
ago. Now, remaining critical elements are under active
review by the Congress.
The President has recently taken two major steps under
his own powers and on his own initiative. He has decontrolled domestic crude oil prices over the next two years, with
immediate decontrol of heavy oil. And he has limited
imports to no more than 8.5 million barrels per day, the
level that prevailed in 1977. The President has established
an even lower import limit of 8.2 million brrels of oil per
day for this year.
The priorities for our national energy program are
clear .
First, conservation. This is the surest, cheapest,
cleanest way to reduce our dependence on oil.
Second, increasing the development and use of
conventional domestic sources of energy, such as oil, gas,
and coal.

-7Tnird, increasing the use of renewable energy sources,
such as solar, alcohol, biomass, wind and wood.
Fourtn, to assure longer term supplies, the rigorous
development of unconventional domestic energy sources, such
as synthetic fuels from coal and shale and unconventional
natural gas.
To provide capital resources for the overall program, a
special excise tax—the Windfall Profits Tax--nas been
proposed and has already passed the House. The purpose of
the tax is to allocate the increased revenues generated by
decontrol of domestic oil prices. A good part of the
increased revenues will remain with the oil producers to
provide the means for them to continue and expand production
of conventional energy. Some of the increased revenues
will also be allocated to tne Energy Security Corporation to
finance projects wholly in the private sector for the
development of unconventional energy. These projects will
be large scale ventures, with unusual risks, and would not
likely be undertaken by private companies on the scale
needed without government financial assistance. As an
alternative, rather than seeking financing from the Energy
Security Corporation, private companies will be able to take
advantage of special tax credits for unconventional fuel
production.
To round out the program, an Energy Mobilization Board
has been proposed in order to shorten the time for obtaining
permits for energy projects. We cannot afford unnecessary
delays.
When fully in place, the energy program is expected to
cut oil imports by more that 50 percent so that in 1990 we
are importing 4-5 million barrels per day rather than our
current level of more than 8 million barrels per day. This
will put us well on the way to energy independence.
Investment Policy
Finally, a few words about capital investments. For
some time, our nation has given too much emphasis to
consumption and too little emphasis to investment in
productive facilities that make consumption possible.
We have fallen behind other leading industrial nations.
Japan spends over 20 percent of GNP on capital investments;
Germany over 15 percent. In the United States, we have been
running at 10 to 11 percent. Our savings rate, at about
4.5%, is the lowest in the developed world. As a result,
our productivity has lagged.
This must not continue, or else our competitiveness in
world markets will be seriously impaired.

-8In coming months, therefore, we exppect to be working
to create conditions and incentives that will encourage the
savings, investments and productivity that are so essential
to economic progress with price stability.
Tne Dollar
I have not spoken specifically about the dollar
tonight, but let me point out that controlling inflation
and reducing our dependence on imported oil are essential to
strengthening its international value. We have taken strong
steps recently to strengthen tne dollar. Let me emphasize
again that this Administration is fully committed to that
course. I am fully confident these steps will be successful
and we are prepared to take successive actions should that
become necessary.
Conclusion
Inflation will not disappear overnight, but I am
confident it can be defeated if we have the courage and the
willpower necessary to devote ourselves to the fight. This
will require that all of us be willing to accept a period of
austerity in America and focus on the long term public good
rather than just our own short term self interest. In that
regard let me return to why we are nere. C.C. Hope and
Claude Pope symbolize the kind of American business leader
who works long and nard in their own business as well as in
their outside activities to make things a little better for
everyone. If all of us take tnat approach more often, we
will be able to successfully address the difficult economic
challenges of our time.
0OO0

FOR IMMEDIATE RELEASE
October 12, 1979

Contact: Charles Arnold
202/566-2041

SECRETARY MILLER NAMES SIX NEW MEMBERS TO
TREASURY SMALL BUSINESS ADVISORY COMMITTEE
Secretary of the Treasury G. William Miller today announced
the appointment of six new members to the Treasury Small Business
Advisory Committee. Secretary Miller also announced the appointment of Susan Hager as Chairperson of the Committee, replacing
William L. Hungate, former Congressman from Missouri, who has
been appointed to the federal bench.
Committee members are chosen from small businesses of
various types and sizes in different sections of the country,
from the academic community, and from professional organizations
representing small business. The objective of the Committee is
to provide information and advice to the Secretary on the broad
range of economic issues which from time to time affect the
small business community. The Committee was created to provide
a means of communication between the small business community
and the Secretary on economic issues including capital formation,
tax policy, tax administration and governmental regulation.
A two-day meeting of the advisory group is scheduled for
October 29 and 30 in Washington.
Attached is a listing of the new members of the Treasury
Small Business Advisory Committee, as well as a listing of
current members of the Committee who are being reappointed.
Attachements

M-119

NEW MEMBERS
Ms. Norma K. Bork, Angwin, California; owner and operator
of a consulting firm in speech and language
therapy; former member of Napa County Commission on
the Status of Women; Board of Directors of the
Mental Health Association.
Mr. Wilber S. Doyle, Martinsville, Virginia; President of •
Doyle Lumber Inc.; member of the Small Business
Council of the United States Chamber of Commerce.
Dean Donald H. Driemeier, St. Louis, Missouri; Dean of the
School of Business Administration; University of
Missouri-St. Louis.
Ms. Marlene Johnson, St. Paul, Minnesota; President of Split
Infinitive; President of the Minnesota Chapter of
the National Association of Women Business Owners;
Treasurer of the National Association of Women
Business Owners.
Mr. J. Fred Kubik, Wichita, Kansas; managing partner,
F.B. Kubik & Company, Certified Public Accountants;
Chairman of Small Business Taxation Subcommittee
of AICPA.
Mr. Richard A. Lewis, Nashville, Tennessee; President and
Chief Executive Officer of Citizens Savings Bank
and Trust Company; member of Advisory Council of
• the Small Business Administration.

CURRENT MEMBERS
Chairperson: Ms. Susan Hager, Washington, D . C ; President,
Hager, Sharp & Abramson Associates, Inc.; National
Advisory Council to the Small Business Administration;
past President, National Association of Women Business Owners.
Mr. Harry G- Austin, Mars, PA.; President, James Austin Company;
past President Smaller Manufacturers Council of
Western Pennsylvania.
Mr. Walton E. Bell, III, Washington, D . C ; Partner, Arthur Andersen & Company, Certified Public Accountants.
Mr. Alan J. Bennett, Los Angeles, CA; Secretary, Black Businessmen's Association of Los Angeles; President, Centaurans
7 Enterprises, Inc.
Mr. Craig M. Bollman, Jr., Denver,-CO; President, Aristek Corporation; Chairman, Advocacy and Public Communication
Committee of the Small Business Advisory Council.
Mr. Eugene N. Bryant, Atlanta, GA; Owner and operator, service
station; owner and operator, day care and early achieve
ment center.
Mr. Bruce G- Fielding, Mountain View, CA; Bruce G."Fielding &
Co., Certified Public Accountants; member, Commission
on Federal Paperwork; Director of National Federation
of Independent Business.
Mr. Patrick Ionatta, Bethpage, NY; President, Ecolotrol, Inc.;
Chairman, New York State Association of Small Business
Councils; Chairman, Executive Committee, National
Mobilization Task force of the U.S. Chamber of Commerce
on Small Business; Vice President, Small Business of
Long Island Association of Commerce and Industry;
member Executive Committee, U.S. Chamber of Commerce
Council on Small Business.

- 2 Ms. Carol R. Johnson; Cambridge, MA; President, Carol R. Johnson &
Associates, Inc.
Mr. James D. McKevitt, Washington, D . C ; Washington Council,
National Federation of Independent Business.
Mr. Clayton L. Norman, Detroit, MI; Owner and operator two
McDonald's franchises; member, Booker T. Washington
Business Association.
Mr. Vincent M. Panichi, Beachwood, OH; Monastra, Ciuni &
Panichi, Certified Public Accountants; Professor, John
Carrol University; member, Board of Directors of the
Council of Smaller Enterprises for Northern Ohio.

FOR IMMEDIATE RELEASE
October 15, 1979

Contact:

Alvin M. Hattal
202/566-8381

TREASURY TENTATIVELY REVOKES FINDING
OF DUMPING ON WATER CIRCULATING PUMPS
FROM THE UNITED KINGDOM
The Treasury Department today announced its preliminary determination that water circulating pumps
from the United Kingdom are no longer being sold in
the United States at less than fair value.
("Sales at less than fair value" generally occur
when imported merchandise is sold here for less than
in the home market or to third countries.)
If this action is made final, imports of this
merchandise will no longer be subject to special dumping duties.
Notice of Treasury's earlier determination that
this merchandise was being dumped was published in the
July 7, 1976, issue of the Federal Register. The
Department has tentatively revoked that finding because,
except for a very small number of sales for which
minimal dumping duties have been assessed, there have
been no shipments of this merchandise since that date
sold at less than fair value prices. There are also
no unliquidated entries of such products.
Notice of this action appears in the October 15,
1979, issue of the Federal Register.
o 0 o

M-120

partmentoltheTREASURY
HINGTON, D.C. 20220

TELEPHONE 566-2041

FOR IMMEDIATE RELEASE

October 15, 1979

RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $ 2,900 million of 13-week bills and for $3,000 million of
26-week bills, both to be issued on October 18, 1979,
were accepted today.
RANGE OF ACCEPTED
COMPETITIVE BIDS:

13-week bills
maturing January 17, 1980
Discount Investment
Price
Rate
Rate 1/

High
Low
Average

97.069 11.595%
12.14%
96.983
11.935%
12.51%
97.008
11.836%
12.40%
a/ Excepting 2 tenders totaling $205,000

26-week bills
maturing April 17. 1980
Discount Investment
Price
Rate 1/
Rate
•*l 11.660% 12.60%
94.10512.72%
94.053 11.763%
12.66%
94.077
11.716%

Tenders at the low price for the 13-week bills were allotted 94%.
Tenders at the low price for the 26-week bills were allotted 89%.

Location
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Treasury
TOTALS

TENDERS RECEIVED AND ACCEPTED
(In Thousands )
Received
Accepted
Received
38,145
$
38,145 $
$
37,620
3,366,485
2,254,085
4,236,345
32,065
32,065 :
66,835
49,605
44,605
47,875
35,675
35,675
30,450
57,190
57,190
37,285
77,985.
347,985
287,020
47,940
67,940
48,265
7,195
7,195
7,600
39,795
39,795
31,630
30,940
30,940
10,895
180,225
280,225
195,790
54,360
54,360
61,030

Accepted
$
37,620
2,521,945
66,835
27,875
30,450
37,285
57,020
19,265
7,600
31,630
10,895
90,790
61,030

$4,407,605

$2,900,205 :

$5,098,640

$3,000,240

$2,631,445
666,780

$1,124,045 :
666,780 :

$3,020,425
500,355

$1,122,025
500,355

$3,298,225

$1,790,825 :

$3,520,780

$1,622,380

$1,109,380

$1,109,380 :

$1,577,860

$1,377,860

$4,407,605

$2,900,205:

$5,098,640

$3,000,240

Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
and Foreign Official
Institutions
TOTALS

1/Equivalent _coupon-issue yield.

FOR RELEASE UPON DELIVERY
EXPECTED AT 10:00 A.M.
TUESDAY, OCTOBER 16, 1979
TESTIMONY OF THE HONOPABLE G. WILLIAM MILLER
SECRETARY OF THE TREASURY
BEFORE THE
SUBCOMMITTEE ON FISCAL AND INTERGOVERNMENTAL POLICY
OF THE JOINT ECONOMIC COMMITTEE
Mr. Chairman and Members of this distinguished Subcommittee:
Thank you for this opportunity to discuss the
economic outlook, its regional impact, and what might be
done to mitigate the effects of a recession on our State
and local governments. I am pleased that the Subcommittee
is giving its attention to this important subject.
Economic Outlook
Let me begin by summarizing briefly my assessment of
the current economic outlook. In recent weeks the economy
has shown more strength than earlier anticipated. Indeed
GNP growth in the third quarter of this year is likely to
show some recovery from the depressed levels of the second
auarter. The September unemployment rate fell back to
5.8 percent after rising to 6.0 percent in August. Retail
sales for August and September were up 5 percent in nominal
terms, and almost 3 percent in real terms, from second
quarter levels. However, this strengthening of economic
M-122

. J

-2activity has been coupled with an acceleration of inflation,
a heightening of inflationary expectations, an expansion
in credit flows and increasing evidence of speculative
activity in commodity and financial markets.
In September, the rate of inflation, as measured by
producers' finished goods prices, accelerated. The monthly
increase of 1.4 percent was the largest single monthly
advance since late 1974.
In recognition of accelerating inflationary pressures
and developments in the domestic and international financial
markets, on Saturday, October 6 the Federal Reserve Board
acted to slow the growth in money and credit expansion.
The recent policy actions by the Federal Reserve—actions
which are appropriate and necessary—will help us get a
better handle on inflation, the dominant economic problem
of our time. If we are to preserve the economic advances
that have been made since the end of the last recession, we
have no reasonable alternative but to mount a strong and
broad attack on inflation and inflationary expectations.
We must recognize, however, that the underlying factors
have now changed somewhat and we cannot be as certain as
previously about the depth and severity of the economic slowdown. However, there are few signs that we are facing a deep

-3-

downturn of the 1973-75-type, and with economic policies
focused on curbing inflationary expectations, the outlook
continues to indicate a moderate recession.
The Administration intends to continue its comprehensive
fiscal discipline, monetary restraint, responsible pay-price
policy, an overall energy program, reduction of regulatory
burden and other measures. This will contribute to a slowing
of price increases during the coming months. By doing so, we
can avoid an acceleration of wage and price increases and a
new inflationary spiral,
3y acting to slow the rate of inflation, we will be able
to shore-up real incomes, reduce uncertainty, reverse expectations of future inflation, strengthen consumer and
business confidence, and reduce significantly the chances
for a deeper recession.
The steps that have been taken to reduce inflation are
necessary to restore economic stability and balanced growth.
We must prove to ourselves and demonstrate to others that we
have the conviction, the courage, and the fortitude to stick
with the policies that are needed to bring inflation under
control.
Regional Impact of Recession
With this brief background on the economic outlook, let
me now address the question of the regional impact of a
recession.

-4The sensitivity of regions to a national economic
recession varies widely and is dependent upon a number of
factors, including industrial composition and growth rates.
Historically, during periods of declining economic activity,
manufacturing industries (particularly durable goods manufacturing) have tended to experience relatively wider
fluctuations in output and employment than other industries.
Purchases of consumer durables (such as automobiles and large
household applicances) and capital goods are more readily
postponed during economic slowdowns than purchases of nondurables (such as clothing and food) and many services.
Thus regions which are heavily dependent upon manufacturing
activity as a source of income and employment are generally
more severely impacted by national recessions.
Regions that have been experiencing rapid increases
in economic growth due to increased capital investment, inmigration of labor, favorable climate, relatively cheap
resources, or any number of other factors may be less
severely affected by national economic recession than
regions with slower growth rates and regions that have a
relatively older, less-efficient capital base.
Regions heavily engaged in agriculture are not usually
affected by recession to the same degree as regions heavily
dependent upon industry.

-5-

During the post-war period, 1948-1975, the East North
Central, New England, and Mid-Atlantic States have displayed
the greatest sensitivity to national economic slowdowns in
terms of employment declines relative to the national average.
On the other hand, the Mountain, West South Central, West
North Central and South Atlantic States have shown the least
sensitivity.

The degree of sensitivity is explainable basic-

ally in terms of the make-up of the economic base of the
various regions.
Using the latest data then available, a 1978 Boston
Federal Reserve Bank study indicates that:
(1)

During the six business cycle episodes of the

post-war period, employment in the East North Central, New
England and Middle Atlantic States has almost always
shown percentage declines far in excess of the national
average.

In the 1973-1975 recession, for example, total

U.S. employment declined 2.9 percent from its peak-totrough.

Employment declined 4.7 percent, however, in the

East North Central States, 4.3 percent in the New England
States and 3.8 percent in the Middle Atlantic States.
Although employment declines in other regions occasionally
exceeded the national average, this has been the exception
rather than the rule.

-6-

In the three regions where employment declines are more
severe than the nationwide average, manufacturing is the
predominant source of labor and proprietor's income. Manufacturing is also more important to these three regions than
to any other region in the Nation and durable manufacturing
is substantially more important than nondurable manufacturing.
(2) Except for the 1969-1970 recession, when employment
losses in the Pacific States were aggravated by the winding
down of the Vietnam War and its impact on the aerospace industry, employment declines in this region have been less than
the national average. During the last recession, the Pacific
States suffered employment declines of only 1.3 percent, less
than half of the national average. Although manufacturing
accounts for about 25 percent of the region's total labor and
proprietor's income, the relative importance of income
from government, services, trade, and other nonmanufacturing
sectors is greater in the Pacific region than in the Nation
as a whole. Thus, the Pacific region is more diversified
than many of the other regions and is less sensitive to
recessions.
(3) In each of the six post-war recessions, employment
declines in the Mountain States have also been substantially
less than the national average. During the severe 1973-1975
recession, for example, this region experienced an employ-

-7-

ment decline only half that of the national average; and
in the two preceding recessions these States suffered no
declines in nonagricultural employment. The Mountain
States receive a smaller share of their income (less
than 15 percent) from manufacturing than any other region.
This fact and the fact that government and services account
for larger income shares than in any other region probably
assures this region of only a minimal adverse impact from
recessions.
A region's -industrial mix also has implications for the
timing of the recession's impact.

Since manufacturing

activity is most sensitive to a recession, those States or
regions most heavily dependent upon manufacturing (particularly durable manufacturing) generally should feel the
effects of a recession first.

Those States or regions also

would probably be among the first to qualify for fiscal
assistance from the Federal Government under the Administration 's proposed Intergovernmental Fiscal Assistance program
that I will discuss shortly.

Private forecasts of the

regional impacts of the current recession seem to bear out
this point.
Not all regions will be affected to the same extent by
the current recession.

Only those regions relatively heavily

engaged in manufacturing (particularly durable goods manu-

-8facturing) or experiencing slow growth are likely to be
seriously affected.

In the mild 1969-1970 recession, for

instance, the South Atlantic, East South Central, and Mountain
States experienced no declines in employment while the West
South Central States showed only minimal declines.

In con-

trast, the New England, East North Central, and Mid-Atlantic
regions endured employment declines far above the national
average.

(Regional employment data for past recessions is

presented in Table 1 and regional definitions are shown in
Table 2.)
During the 1973-1975 recession, the most severe economic
downturn since the Great Depression, no region escaped unscathed.

All suffered employment losses. Even the East

South Central and South Atlantic States, which experienced
no employment declines during the mild 1969-1970 recession,
showed large declines.

At the same time, however, three

regions—the West South Central, Pacific and the West North
Central States—experienced milder relative declines in
employment during the last recession than they had during
the mild 1969-1970 recession, highlighting the fact that the
regional impacts of recession differ from recession to
recession.
SMidies of the Regional Impacts of the Current Recession
The Administration has no official economic forecasts of
individual States, local areas, or regions.

However, there

-9-

have been a number of private forecasts of the regional
impacts of the expected current recession.

Those fore-

casts were undertaken several months ago and are predicated
upon the assumption of a modest recession for the national
economy.
The private forecasts indicate that the recession's
regional impact pattern will not differ greatly from that
experienced during the mild 1969-197 0 recession.
The New England, Middle Atlantic, and East North
Central regions are expected to bear the brunt of
the recession.

As noted previously, all three of

these regions rely heavily upon durable manufacturing
for jobs and income.
The Mountain States are expected to suffer little
or no employment losses—only a slowdown in employment growth.

As also noted earlier, of all the

regions of the country, this one is least dependent
upon manufacturing.
The Pacific, South Atlantic, East South Central,
West North Central and West South Central States all
are predicted to experience mild employment declines.
Except for the Pacific region, where specific factors
were operative, none of these areas experienced marked

-10employment declines during the mild 1969-1970
recession.
Of course, these studies of the regional impacts of the
current recession are largely based upon historical regional
impact patterns. To the extent that the weaknesses and
causes underlying the current recession differ significantly from previous recessions and to the extent that
structural changes in communications and transportation have
taken place, the regional impact of the current recession
could differ from the past.
Current Fiscal Position of State and Local Governments
There has been considerable attention directed to the
"huge" budget surpluses enjoyed by States. However, only a
few States account for most of these surpluses. More importantly, virtually all of these surpluses consist of
contributions to various social insurance funds (such as
retirement funds, workmen compensation, and temporary disability insurance funds) which are not generally available
for other purposes. During the second quarter of this year,
State and local governments actually ran a $6.3 billion
deficit (based on national income and product accounts data)
after allowances are made for contributions to social insurance
funds (See Table 3). This was the first such deficit since

-lithe second quarter of 1976. With the anticipated declines
in the growth of employment, personal income, and retail
sales due to the recession, further reductions in the rate
of growth in State and local government revenues can be
expected. If it were to continue for some time, such a
development could jeopardize the fiscal posture of many
State and local governments.
The spread of public sentiment for Proposition 13-type
tax reductions could result in a further deterioration of
the fiscal position of States and localities unless public
spending is also curtailed. Curtailing public spending,
however, could exacerbate the recession. A countercyclical
fiscal assistance program for State and local governments
would help avoid such pro-cyclical actions.
Many of the regions that will be most affected by the
recession have older cities that are experiencing secularly
declining economic growth rates. These cities may be particularly hard-pressed to maintain service levels in the
face of the current slowdown.
The Administration considered the prospects for regional
variation in the effects of a recession in preparing its
fiscal assistance proposal, which was submitted to the
Congress last March. Let me first relate the basic justification for a countercyclical program to the evidence on

-12varying regional effects from a recession.

Then, I will

summarize the provisions of the bill recently passed by
the Senate, which'is very similar to the Administration's
March proposal.
The Rationale for Countercyclical Fiscal Assistance
During periods of economic prosperity, most States and
local governments accumulate fund balances that allow them
to sustain spending for as much as a year after a recession
begins.

At such a point, typically about the time recovery

begins, fund balances have been reduced to the point where
the normal spending trend can no longer be sustained, and
outlays in real terms may actually begin to decline.

This

pattern is observable in the record of every recession and
recovery since World War II, including the 1973-77 period.
Although the continued growth in spending during the decline
helps to reduce the seriousness of the recession, the falloff in spending tends to slow the pace of the early phase of
the recovery.

Thus, from the perspective of macroeconomic

policy, countercyclical fiscal assistance should be triggered
well after the economy has turned down.

However, payments

should cease after the recovery is well under way, in order
to minimize potential inflationary effects.

-13payments should cease after the recovery is well under way,
in order to minimize potential inflationary effects.
In the current economic environment, decisions on macroeconomic policy must take serious account of the potential
inflationary side-effects of any anti-recession fiscal
policy option under consideration.

The choice among the

available policy options should be based upon a careful
balancing of relative job-creation effectiveness per dollar
of federal deficit against potential inflationary side-effects.
Other things equal, a policy that targets the firstround economic stimulus to areas with significant concentrations of unemployed or underutilized human and capital
resources is likely to have the least inflationary effect on
prices.

Such targeting cannot be achieved by traditional

forms of antirecession tax cuts, which must apply uniformly
throughout the nation.

However, a geographically differentiated

spending program can be targeted to areas with high levels
of unemployed resources.
Studies of the recent experience suggest that a countercyclical fiscal assistance program—such as Antirecession
Fiscal Assistance (AREA) adopted in 197 6 and extended in 1977, or
the similar countercyclical tier of the Targeted Fiscal
Assistance Program currently before the House—can be very
effective in terms of job creation with minimal inflationary
side-effects.

-14-

Logic and the evidence on the experience with ARFA suggest
that local governments with high unemployment rates are most
likely to commit such grants quickly and for job-creating
purposes.

This is a major reason why the targeting mechanism

in the proposed program is based on local unemployment rates,
rather than on such alternatives as the change in real wages
and salaries.
While the recession facing the nation is expected to be
moderate, the current economic outlook remains volatile,
particularly in light of the uncertainties about energy prices
and availability.

It therefore seems prudent to put in place

a stand-by countercyclical fiscal assistance program, such as
the countercyclical tier of the Senate-approved bill that
is now pending before the House Subcommittee on Intergovernmental Relations and Human Resources.
As in the Administration's March proposal, there are
two tiers in the Senate bill.

The first involves the payment

of $85 million per quarter in targeted fiscal assistance
payments in FY 1980 to a very small number of particularly
distressed local governments.
The second tier, which is germane to this discussion
today, involves a stand-by countercyclical fiscal assistance
program which would trigger on during periods of high national
unemployment rates.

-15-

Stand-by Countercyclical Fiscal Assistance Program
Let me indicate briefly how this countercyclical tier
would work.

By comparison with the 1976-78 ARFA program,

the proposed program is much more highly targeted.

would only operate when the national unemployment rate
reaches 6.5 percent or more for a full quarter, instead of
6 percent as under ARFA.

Once the program is triggered, a

recipient government would be eligible for payment under
the Senate-passed bill only if its quarterly unemployment
rate is at least 6 percent, instead of the 4.5 percent
under ARFA.

This additional targeting, in the present infla-

tionary context, is highly desirable.

It would ensure that

countercyclical funds go only to areas with substantial amounts
of unemployed human and physical capital, and thus are less
likely to fuel inflation.

Moreover, governments in areas

with high unemployment rates are more likely to be experiencing
significant fiscal stress, and such governments are most
likely to use the payments for purposes that involve maximum
job-creation effects.
The Administration's mid-session economic forecast
anticipated that national unemployment rates would have reached
6.5 percent or more by the last calendar quarter of 19 79.
This would have triggered payments under the proposed stand-by
program.

The apparent strength of the economy in the third

quarter, and the events of the last few weeks, have caused
us to reconsider the economic forecast, but a new one is not

-16yet available.

If the national unemployment rate reaches

6.5 percent by the first calendar quarter of 1980, this would
trigger payments under the countercyclical tier, which would
be distributed in the last quarter of fiscal year 1980.
Given the lags in State and local budgetary processes and
the spend-down of balances accumulated during the past few
years, this is approximately the time when recession induced
revenue losses raise the prospect of serious budgetary disruption. This disruption will then threaten to require
fiscal behavior by State and local governments that will tend
to impede the early stage of the recovery from the recession.
When the program provided for in the Senate bill is
triggered, it would distribute $125 million per quarter plus
an additional $30 million for each one-tenth of one percent
by which national unemployment exceeds 6.5 percent. One-third
of the funds would be distributed to the States, the balance
to eligible local governments.
Conclusions
The proposed fiscal assistance program is an important
element of the President's domestic program. It is a balanced,
two-tiered program that would address the immediate needs of
a limited number of fiscally strained local communities, as
well as the prospective needs of State and local governments
as they strive to deal with substantial economic uncertainty.

-17In particular, the stand-by tier of the program is a sensible
fiscal insurance program for State and local governments
in the event of future excessive unemployment.
I appreciate the opportunity to discuss the pending
proposals for countercyclical fiscal assistance in the
context of regional variation in the economic effects of a
recession.

I look forward to working with you and other

members of Congress toward enactment and implementation of
the program.

0O0

Table 1
Percentage Drop in Nonagricultural Employment
during Six Postwar Recessions

England

Middle
Atlantic

East
North
Central

West
North
Central

South
Atlantic

East
South
Central

West
South
Central

Mountain

5.0

5.6

6.8

6.7

1.8

4.8

7.4

2.3

1.8

4.5

1953-54

3.5

3.9

4.5

6.2

2.3

3.0

3.6

2.2

2.7

1.9

1957-58

4.4

5.0

4.5

8.5

2.3

2.0

2.5

1.8

1.4

3.1

1960-61

2.3

1.1

2.5

4.9

1.2

1.3

1.6

0.4

1969-70

1.4

3.1

2.1

4.3

1.7

0.5

1973-75

2.9

4.3

3.8

4.7

2.8

4.5

4.3

0.7

1.5

United
States
1948-49

New

Pacific* *

i
00

2.6

1.3

No decline in absolute level of employment during the recession.

** Data for the first three expansion periods calculated using California and Oregon employment only; data
for final three periods calculated using employment figures for the entire region.

Source: Federal Reserve Bank of Boston, New England Economic Review (November/December 1978).

-19-

Table 2
Census Bureau's Regions of the United States
New England

East North Central

West South Central

Connecticut
Maine
Massachusetts
New Hampshire
Rhode Island
Vermont

Illinois
Indiana
Michigan
Ohio
Wisconsin

Arkansas
Louisiana
Oklahoma
Texas
Mountain

East South Central
Middle Atlantic
New Jersey
New York
Pennsylvania

Alabama
Kentucky
Mississippi
Tennessee

South Atlantic

West North Central

Delaware
District of Columbia
Florida
Georgia
Maryland
North Carolina
South Carolina
Virginia
West Virgina

Iowa
Kansas
Minnesota
Missouri
Nebraska
North Dakota
South Dakota

Arizona
Colorado
Idaho
Montana
Nevada
New Mexico
Utah
Wyoming
Pacific
Alaska
California
Hawaii
Oregon
Washington

-20-

Table 3
State and Local Government
Receipts and Expenditures
1975

1976

1977

1978

1975>
I

Billions of dollars; annual rates
Receipts

236.9

268.0

298.8

331.0

343.9

345.9

Expenditures

230.6

250.1

271.9

303.6

316.3

326.1

6.2

17.9

22.8

27.4

27.6

19.7

12.4

15.7

19.6

23.2

25.0

26.0

-6.2

2.3

7.3

4.2

2.6

-6.3

Surplus or
deficit (T)
National income and
Product accounts
Social insurance .
funds
Other funds

Source:

Bureau of Economic Analysis, U.S. Department of Commerce

Note: Figures may not add due to rounding.

FOR IMMEDIATE RELEASE
October 16, 1979

CONTACT: ° GEORGE G. ROSS
(202) 566-2356
—

. 2* f-

U.S.A.-UNITED KINGDOM ESTATE AND GIFT TAX TREATY*
INSTRUMENTS OF RATIFICATION EXCHANGED
The Treasury Department today announced that instruments
of ratification were exchanged on October 11, 1979, with
respect to the "Convention between the Government of the
United States of America and the Government of the United
Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion
with Respect to Taxes on Estates of Deceased Persons and on
Gifts." Arthur W. Rovine, Assistant Legal Adviser for Treaty
Affairs, Department of State and Andrew S. Winckler, First
Secretary, British Embassy, exchanged the instruments of
ratification in Washington, D.C.
The Convention will enter into force on November 11, 1979
and will have effect, in the United States, in respect of
estates of individuals dying and transfers taking effect after
that date and, in the United Kingdom, in respect of property
by reference to which there is a charge to tax which arises
after that date.
o 0 o

M-123

nrtrntntajthiTREASURY
UNGTON, D.C. 20220

TELEPHONE 566-2041

IMMEDIATE RELEASE
October 16, 1979

Contact: Charles Arnold
202/566-2041

TREASURY NAMES CONSULTANTS ON CHRYSLER PLAN
The Treasury Department today announced it has hired two
consultants to assist the Department in evaluating the revised
business and financing plan to be submitted by Chrysler
Corporation in support of its request for U.S. Government
assistance.
Ernst & Whinney, a national accounting firm, has been
hired as an accounting consultant. The assignment will involve
a review of Chrysler's historical financial data and its financial projections, but not an audit of the corporation.
John Secrest, retired financial vice president of the
American Motors Corporation, has been hired as a financial
consultant. The consultants began work last week.

M-124

FOR RELEASE AT 4:15 P.M.

October 16, 1979

TREASURY'S WEEKLY BILL OFFERING
The Department of the Treasury, by this public notice,
invites tenders for two series of Treasury bills totaling
approximately $6,200 million, to be issued October 25, 1979.
This offering will provide $ 200
million of new cash for the
Treasury as the maturing bills are outstanding in the amount of
$6,022 million. The two series offered are as follows:
91-day bills (to maturity date) for approximately $3,100
million, representing an additional amount of bills dated
July 26, 1979,
and to mature January 24, 1980
(CUSIP No.
912793 3N 4"), originally issued in the amount of $3,024 million,
the additional and original bills to be freely interchangeable.
182-day bills for approximately $3,100 million to be dated
October 25, 1979, and to mature April 24, 1980
(CUSIP No.
912793 4B 9).
3oth series of bills will be issued for cash and in
exchange for Treasury bills maturing October 25, 1979.
Federal Reserve Banks, for themselves and as agents of foreign
and international monetary authorities, presently hold $2,925
million of thee maturing bills. These accounts may exchange
bills they hold for the bills now being offered at the weighted
average prices of accepted competitive tenders.
The bills will be issued on a discount basis under competitive
and noncompetitive bidding, and at maturity their par amount will
be payable without interest. Both series of bills will be issued
entirely in book-entry form in a minimum amount of $10,000 and in
any higher $5,000 multiple, on the records either of the Federal
Reserve Banks and Branches, or of the Department of the Treasury.
Tenders will be received at Federal Reserve Banks and
Branches and at the Bureau of the Public Debt, Washington,
D. C. 20226, up to 1:30 p.m., Eastern Daylight Saving time,
Monday, October 22, 1979.
Form PD 4632-2 (for 26-week series)
or Form PD 4632-3 (for 13-week series) should be used to submit
tenders for bills to be maintained on the book-entry records of
the Deoartment of the Treasury.
M-125

-2Each tender must be for a minimum of $10,000. Tenders over
$10,000 must be in multiples of $5,000. In the case of
competitive tenders the price offered must be expressed on
the"basis of 100, with not more than three decimals, e.g.,
99.925. Fractions may not be used.
Banking institutions and dealers who make primary markets in
Government securities and report daily to the Federal Reserve
3ank of New York their positions in and borrowings on such
securities may submit tenders for account of customers, if the
names of the customers and the amount for each customer are
furnished. Others are only permitted to submit tenders for
their own account. Each tender must state the amount of any net
long position in the bills being offered if such position is in
excess of $200 million. This information should reflect positions
held at the close of business on the day prior to the auction.
Such positions would include bills acquired through "when issued"
trading, and futures and forward transactions as well as holdings
of outstanding bills with the same maturity date as the new
offering; e.g., bills with three months to maturity previously
offered as six month bills. Dealers, who make primary markets in
Government securities and report daily to the Federal Reserve
Bank of New York their positions in and borrowings on such
securities, when submitting tenders for customers, must submit a
separate tender for each customer whose net long position in the
bill being offered exceeds $200 million.
Payment for the full par amount of the bills applied for
must accompany all tenders submitted for bills to be maintained
on the book-entry records of the Department of the Treasury. A
cash adjustment will be made on all accepted tenders for the
difference between the par payment submitted and the actual issue
price as determined in the auction.
No deposit need accompany tenders from incorporated banks
and trust companies and from responsible and recognized dealers
in investment securities for bills to be maintained on the bookentry records of Federal Reserve Banks and Branches. A deposit
of 2 percent of the par amount of the bills applied for must
accompany tenders for such bills from others, unless an express
guaranty of payment by an incorporated bank or trust company
accompanies the tenders.
Public announcement will be made by the Department of the
Treasury of the amount and price range of accepted bids. Competitive bidders will be advised of the acceptance or rejection
of their tenders. The Secretary of the Treasury expressly
reserves the right to accept or reject any or all tenders, in
whole or in part, and the Secretary's action shall be final.
Subject to these reservations, noncompetitive tenders for each
issue for $500,000 or less without stated price from any one
bidder
will
be accepted
in full competitive
at the weighted
respective
(in three
decimals)
issues.
of accepted
bids average
for the price

-3Settlement for accepted tenders for bills to be maintained
on the book-entry records of Federal Reserve Banks and Branches
must be made or completed at the Federal Reserve Bank or Branch
on October 25, 1979, in cash or other immediately available
funds or in Treasury bills maturing October 25, 1979.
Cash
adjustments will be made for differences between the par value of
the 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 these bills 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 these
bills (other than life insurance companies) must include in his
or her Federal 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.
Department of the Treasury Circulars, Public Debt Series Nos. 26-76 and 27-76, and this notice, prescribe the terms of
these Treasury bills and govern the conditions of their issue.
Copies of the circulars and tender forms may be obtained from any
Federal Reserve Bank or Branch, or from the Bureau of the Public
Debt.

FOR RELEASE AT 4:15 P.M.

October 16, 1979

TREASURY TO AUCTION $3,900 MILLION OF 2-YEAR NOTES
The Department of the Treasury will auction $3,900
million of 2-year notes to refund approximately the same
amount of notes maturing October 31, 1979. The $3,864
million of maturing notes are those held by the public,
including $1,454 million currently held by Federal Reserve
Banks as agents for foreign and international monetary
authorities.
In addition to the public holdings, Government accounts
and Federal Reserve Banks, for their own accounts, hold
$470 million of the maturing securities that may be refunded
by issuing additional amounts of the new notes at the
average price of accepted competitive tenders. Additional
amounts of the new security may also be issued at the
average price to Federal Reserve Banks, as agents for
foreign and international monetary authorities, to the
extent that the aggregate amount of tenders for such
accounts exceeds the aggregate amount of maturing securities
held by them.
Details about the new security are given in the
attached highlights of the offering and in the official
offering circular.

oOo

Attachment

(over)

M-126

HIGHLIGHTS OF TREASURY
OFFERING TO THE PUBLIC
OF 2-YEAR NOTES
TO BE ISSUED OCTOBER 31, 1979
October 16, 1979
Amount Offered:
To the public
Description of Security:
Term and type of security
Series and CUSIP designation

$3,900 million
2-year notes
Series Y-1981
(CUSIP No. 912827 KA 9)

Maturity date October 31, 1981
Call date
Interest coupon rate

No provision
To be determined based on
the average of accepted bids
Investment yield To be determined at auction
Premium or discount
To be determined after auction
Interest payment dates
April 30 and October 31
Minimum denomination available
$5,000
Terms of Sale:
Method of sale
Yield auction
Accrued interest payable by
investor
None
Preferred allotment
Noncompetitive bid for
$1,000,000 or less
Deposit requirement 5% of face amount
Deposit guarantee by designated
institutions
Acceptable
Key Dates:
Deadline for receipt of tenders
Tuesday, October 23, 1979,
by 1:30 p.m., EDST
Settlement date (final payment due)
a) cash or Federal funds
b) check drawn on bank
within FRB district where
submitted
c) check drawn on bank outside
FRB district where
submitted
Delivery date for coupon securities.

Wednesday, October 31, 1979

Friday, October 26, 1979

Friday, October 26, 1979
Wednesday, November 7, 1979

Qct<pJ>A^gi6, 1979
TKb-'ouTvY JLFARTHEST
The Department of the Treasury said today that
future sales of Treasury gold will be subject to variations
in amounts and dates of offering.
New standard bid forms for use in future auctions
will be made available. Dates and amounts will not be
specified in these bid forms, but would be the subject of
Treasury announcement prior to an auction.
Under the new procedures, auctions can be held within
a few days of an announcement and the amounts to be
auctioned can be varied as may be appropriate at the time.

# # #

M-127

artmentaftheTREASURY
INGT0N, D.C. 20220

TELEPHONE 566-2041

FOR IMMEDIATE RELEASF
October 16, 1979

Contact: Robert F. Nipp
202/556-5323

TREASURY ANNOUNCES RESULTS OF GOLD SALE
The Department of the Treasury announced that 750,000
troy ounces of fine gold were sold today to 8 successful
bidders at an average price of $391.93 per ounce.
Awards were made in 300 ounce bars whose" fine gold
content is 39.9 to 91.7 percent at prices ranging from $390.16
to $393.07 per ounce. Bids for this gold were submitted by
11 bidders for a total amount of 1.2 million ounces at prices
ranging from $350.00 to $393.07 per ounce.
Gross proceeds from the sale were $294.0 million. Of
the proceeds, $31.7 million will be used to retire Gold
Certificates held by Federal Reserve Banks. The remaining
$262.3 million will be deposited into the Treasury as a
miscellaneous receipt.
The list of the successful bidders and the amount awarded
to each is attached. The General Services Administration will
release information on the individual bids made by all bidders,
and the details of the individual awards to successfull bidders.

M-128

OUNCE
BANK LEU
MEW YORK

4300
NY

CREDIT SUISSE 3600
ZURICH
SWITZERLAND
DFRBY AND CO. LTD. 3600
LONDON
ENGLAND
DRESDNER BANK 503100
FRANKFURT
WEST GERMANY
PHILLIP BROS 33000
NEW YORK
NEW YORK
SHARPS, PIXLEY IMC. 39000
MEW YORK
NEW YORK
SWISS BANK CORP 92400
ZURICH
SWITZERLAND
UNION 3ANK OF SWITZERLAND 73500
ZURICH
SWITZERLAND

FOR RELEASE UPON DELIVERY
EXPECTED AT 11:00 A.M.
WEDNESDAY, OCTOBER 17, 1979

TESTIMONY OF THE HONORABLE G. WILLIAM MILLER
SECRETARY OF THE TREASURY
BEFORE THE
JOINT ECONOMIC COMMITTEE
Mr. Chairman and Members of this distinguished Committee:
Thank you for this opportunity to appear before the whole
Committee. The primary focus of this hearing is on Federal
Reserve monetary policy, its contribution to the fight against
inflation and to the maintenance of exchange market stability.
Chairman Volcker will comment in detail on monetary policy. I
will briefly outline the major elements of our comprehensive
strategy to deal with inflation, in which monetary policy plays a
critical role.
High and persistent inflation has become deeply embedded in
our economic structure and is a clear and present danger to our
national well-being. It reduces real incomes and values; it
inhibits job creating investment and threatens our ability to
provide employment opportunities; it impedes productivity; it
breeds recession; and it bears most heavily on those least able
to afford it.
Containment of inflation is fundamental to restoration of
sound economic growth. It is our top priority.
The causes of inflation are many, and the war against
inflation must be dealt with on a broad front. We have a
comprehensive, integrated strategy. All economic policies are
being directed toward a total war against inflation.
First, the Administration is pursuing a disciplined fiscal
policy. We are determined to reverse the trend of expanding
federal deficits and expanding federal claims on the national
economy. Progress has been made, both in reducing the deficit
and in reducing the relative role of federal expenditures in the
economy. We intend to make further progress. The net result
over time will be to reduce the demands of the federal government
on the economy and to release substantial resources to the
private sector.
M-129

-2-

Monetary policy represents the second major weapon in the
attack on inflation. The objective is to reduce progressively
the rate of growth of money and credit in order to starve out
inflation. Again, progress has been made. But in recent
months monetary growth has accelerated. Earlier this month, the
Federal Reserve announced a series of forceful actions that
should serve to contain growth in the monetary aggregates and
dampen inflationary pressures. These steps were needed and
appropriate.
Third, fiscal and monetary restraints are being supplemented
by the voluntary program to moderate pay and price increases.
Widespread cooperation during the first year brought smaller
price and pay increases than would otherwise have been recorded.
We are providing for greater participation by management and
labor in establishing and applying pay standards during the
second year, which should help avoid inequities that could
otherwise develop over time. A broadly representative pay
committee, to be chaired by John Dunlop, will have as its first
task the development of pay standards for the period ahead. The
Administration has developed a National Accord with labor
leadership in support of the war against inflation, and providing
for labor involvement in the pay-price program.
Fourth is energy. The ten-fold increase in world oil prices
has been a principal contributor to the acceleration of inflation
during this decade. Constraints on energy supply pose important
questions about the prospects for real economic progress
worldwide.
To win the war against inflation, it is essential that we
reduce our dependence on imported oil and that we reduce our
dependence on oil itself as a source of energy.
For 2-1/2 years, President Carter has sought support for a
broad and comprehensive program to achieve these objectives. The
diversity of individual circumstances and interests in our vast
country has made it exceedingly difficult to hammer out a
national energy program. Some important parts of the program
have already been put into place. The President has recently
taken two major steps—on decontrol of domestic crude prices and
on limiting oil imports—under his own powers and his own
initiative. Remaining critical elements are now under active
review by the Congress.

-3The priorities for our energy program are clear. We must
conserve. We must increase the development and use of
conventional domestic energy sources. We must increase the use
of renewable energy sources. And we must rigorously develop
unconditional domestic energy sources. Fully in place, our
national energy program is expected to cut oil imports by about
50 percent—4 to 5 million barrels per day—from present levels
and by about 8 to 9 million barrels per day from levels that
would have been reached without a comprehensive energy plan.
Also of major importance for the longer run, we are
attacking unnecessary cost-raising government regulation. Much
has been done to reduce regulatory barriers to efficiency and
competition, and to reduce the administrative burdens on business
in complying with excessive regulation. But much regulation is
founded in statute. Administratively, we can clarify and
simplify. But we will frequently need legislation to achieve
real reductions in burden.
These domestic policies—our efforts to wring out inflation,
secure sufficient independence and restore efficiency and
vitality to the U.S. economy—are also the policies needed to
assure a strong external position, a sound and stable dollar.
Indeed, maintenance of exchange market stability is essential
in the fight against inflation and forms an important part of our
comprehensive attack on inflation.
Despite the massive buildup in our oil import bill, the
effort to strengthen the United States balance of payments has
made significant progress. In 1978, the U.S. current account was
in deficit by $14 billion. This year, even though the recent oil
price increases are imposing a $16 billion rise in the cost of
our imports, we anticipate a deficit of only a few billion
dollars. Next year the U.S. current account will be in
substantial surplus. This major positive shift in our balance of
payments—together with our concerted attack on
inflation—provide the fundamental basis for dollar strength and
stability.
Action on the fundamentals is being supplemented forcefully
with action to deal with unwarranted exchange market pressures.
The Committee is familiar with the program announced last
November 1, nearly a year ago. Since that time, the dollar has
strengthened by over 6-1/2 percent against other currencies used
in our trade, and by nearly 10 percent from the viewpoint of the
oil exporting nations in relation to the other major currencies
they use to purchase their imports.

-4-

We are not, of course, interested only in averages. We are
concerned about the dollar's value in terms of major individual
currencies. The dollar is now about 30 percent higher against
the Japanese yen than it was a year ago, reflecting in part the
dramatic—and welcome—moderation of the large Japanese balance
of payments surplus. But the dollar has also been somewhat lower
in relation to the German mark at times since mid-June, and this
movement has attracted market interest and speculative pressure.
We have therefore given this situation special attention in our
exchange market operations, and have consulted closely with
German officials at the highest levels to assure that our joint
techniques and resources are adequate and effective.
We are determined to maintain a sound and stable dollar.
This is in the interests of our own domestic economic stability,
and consonant with our broader world interests and
responsibilities. Our basic economic policies are headed in a
direction that will ensure that result. Our external position is
strengthening sharply. And cooperative arrangements with other
major countries are in place to deal with unwarranted exchange
market pressures.
In sum, we are pursuing a comprehensive strategy to deal
with U.S. economic problems, internal and external. Inflation is
central to all aspects of those problems. Our domestic and
international objectives are closely related by the overriding
importance of controlling the inflationary pressures affecting
our economy.

FOR RELEASE UPON DELIVERY
Expected at 10:00 a.m.
October 18, 197 9

TESTIMONY OF
THE HONORABLE ROBERT CARSWELL
DEPUTY SECRETARY OF THE TREASURY
BEFORE THE
HOUSE SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
SUPERVISION, REGULATIONS AND INSURANCE
OF THE
HOUSE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
Mr. Chairman and members of this distinguished Subcommittee:
I appreciate this opportunity to present the views of the
Administration on the several bills under consideration today,
including H.R. 1539, H.R. 2747 and H.R. 2856. In this brief
testimony I will not be able to analyze each of the many provisions of the several bills; rather I will concentrate on the
subject of commercial bank underwriting and dealing in currently
ineligible revenue bonds and on the some of the major provisions
of the proposed legislation pertaining to bank holding companies.
The Treasury staff stands ready to assist the Subcommittee in
analyzing the sections of legislation not covered by today's
testimony and, of course, I will try to answer any questions
Subcommittee members may wish to ask concerning these other
sections of the bills.
Commercial Bank Underwriting/Dealing in Municipal Revenue Bonds
Commercial banks in the United States have engaged for many
decades in underwriting and dealing in general obligation debt of
States and municipalities. The G.O. market appears to be a smoothly
functioning one, with banks and nonbank dealer/brokers sharing in
the provision of underwriting services to issuers and the maintenance of a secondary market for investors. Currently, commercial
M-130

- 2 banks underwrite approximately 4 0 percent of the value of new
long-term G.O. issues, with nonbank securities firms underwriting
the other 60 percent. In recent years, however, municipalities
and States have turned increasingly to revenue bonds as a source
of financing new projects, apparently because of statutory limits
on the use of G.O. debt and because the debt service costs of
revenue bond issues are more clearly borne by the users of the
project rather than by the State and local taxpayers as a whole.
In 197 8, revenue bonds accounted for 6 3 percent of the value of
new long-term tax-exempt issues, compared with 4 3 percent of such
new issues in 1968. Projections are that this trend will continue,
making revenue bonds an increasingly more important part of the
municipal securities market.
Under the provisions of the Glass-Steagall Act of 1933,
commercial banks were prohibited from underwriting and dealing
in municipal revenue bonds. This prohibition was relaxed somewhat
by the 1968 Amendments to the Housing Act which permitted banks
to underwrite and deal in housing, dormitory, and university
revenue bonds. Based on current value of new issues, banks are
permitted under the 19 68 legislation to underwrite and deal in
approximately 30 percent of new issues of revenue bonds. However,
SEC analysis suggests that banks actually underwrite only approximately 10 percent of total new revenue bond issues.
The question of commercial bank participation as underwriters and
dealers in the market for currently ineligible municipal revenue bonds
has come before the Congress on several occasions since the 1968
legislation. The Treasury Department has, in the past, supported
legislative proposals that would permit further bank participation
in the revenue bond market. As described in more detail below, we
continue to support bank participation in this market. We also
support continuation of bank underwriting and dealing in general
obligations bonds issued by States and municipalities, and oppose
the provisions of H.R. 274 7 which would prohibit existing bank
participation in the G.O. market.
Broadening bank participation in the municipal securities
market would result in increased competition, with some potential
benefits. First, issuers should benefit from lower underwriter
spreads. The greater number of underwriters available to bid
for competitive issues should also result in smaller spreads on
negotiated issues, as the additional number of potential rivals
will cause negotiating underwriters, for fear of losing future
business, to offer more favorable terms to issuers. Municipal
issuer groups regard this increased competition as a significant
matter in reducing their overall borrowing costs.
Second, although banks can purchase ineligible revenue bonds
for their investment portfolio, they cannot "make a market" in
ineligible bonds. Further bank entry into revenue bond under-

- 3 writing/dealing would increase the number of potential dealers
by more than 2 0 percent. Currently, there are approximately
1,440 nonbank dealers registered with the Municipal Securities
Rulemaking Board (MSRB), while registered bank dealers number
about 325. Of course, only a portion of the 325 bank dealers
might actually be dealing at any one time in currently ineligible
revenue bonds. Nevertheless, even this extent of bank participation
will result in increased liquidity in the secondary market.
Increased liquidity in turn should reduce the risk to dealers
in general and enhance the attractiveness of revenue bonds
to investors, thus broadening the scope of the market.
Third, a larger number of competitors could result in the
expansion of the market for currently ineligible revenue bonds
as a consequence of the net addition of banks1 marketing (or
search) capability to that of the nonbank dealer community. This
net addition to the investor population would derive, in part,
from the banks1 ability to market and deal in a fuller line of
tax-exempt bonds in a manner similar to nonbanks. Such an
expansion of the market would tend also to reduce issuer costs.
We conclude, as do the municipal issuer groups, that the
increased competition, as well as the dealing and distribution
capabilities that banks would bring to revenue bond underwriting, will produce savings for the issuers. The precise range
of issuer savings that would result is difficult to predict.
Various empirical studies in this area point to issuer savings
ranging up to $400 million, based on 1977 new issue volume. We
have reviewed these studies and have concluded that they do not
provide sufficient basis for assuming that the issuer savings will
be on the order of $400 million. Our general conclusion is that
the savings will be of a considerably more modest order of
magnitude.
The benefits of increased bank participation in the municipal
securities market must be balanced against some potential costs.
First, there is legitimate concern over possible conflicts of
interest for banks. For example, conceivably a bank might induce
its trust department to purchase securities underwritten by the bank,
perhaps at above-market prices. However, safeguards such as those
contained in H.R. 1539, plus existing laws and regulations, would
minimize the possibility of conflicts of interest. Indeed, we are
not aware of evidence indicating significant abuses from banks'
participation in the G.O. market.
Another concern sometimes referred to in the analyses of this
issue is the potential for tie-ins. Under this theory, a bank
might "tie" the terms under which a municipality or its agencies
receive banking services such as interim financing to the choice
of that bank as underwriter on its revenue bonds. We do not
believe that this represents a significant danger. Tie-ins are

- 4 illegal. They are prohibited for banks by section 106(b) of the
Bank Holding Company Act as well as by other provisions of the
antitrust laws. Of course, the most effective way of preventing
such abuses is to preserve free entry and viable competition
both in the market for bank services such as interim financing
and in the market for underwriting. With sufficient numbers
of potential rivals, no bank or dealer/broker can force
municipalities to pay excessive prices for financial services.
Another area of concern is that banks, by virtue of their size
and their apparent tax advantage over nonbank dealers, will eventually
take over the revenue bond market, resulting in increased concentration and reduced competition over the long run. Banks, unlike
nonbank dealers, can deduct the interest cost-to-carry of their
inventories of municipal securities. This tax advantage has been
of little consequence in underwriting per se, because the majority
of new issues are sold before the underwriter must take delivery,
thus involving no cost-to-carry. Moreover, the actual market
procedures followed by some securities firms may have the effect of
minimizing their tax exposure.
Indeed, the data indicate that neither banks' absolute size
nor their apparent tax advantage has allowed them to dominate the
business of underwriting municipal bonds. SEC analysis suggests
that nonbank broker/dealers account for 6 0 percent of the underwriting of new G.O. issues and 90 percent of eligible revenue bond
issues. In 197 8, 10 years after the 1968 legislation, no bank was
among the top 10 syndicate managers and only 3 were among the top
20 managers of new eligible housing bonds. Apparently, the
expertise and the market position of the dealer/brokers are well
established. Indeed, because of the growing importance of revenue
bonds vis-a-vis G.O.s, banks have lost market share in overall
municipal underwriting in recent years.
While it is unclear whether the differing tax treatment for
banks and broker-dealers amounts to a substantial competitive
difference, we are prepared to address this issue of potential
competitive inequality and to support legislation to equalize the
tax treatment for banks and broker-dealers.
A final area of concern over bank entry into revenue bond
underwriting and dealing is that such entry would reduce the
profits of broker/dealer firms at a time when the earnings of the
securities industry already are under pressure. Losses could lead
to insolvencies of individual securities firms and thus to a
reduction in the number of firms eligible for underwriting and
dealing in corporate securities, reducing competition in that very
important sector of the financial industry.
In fact, the track record of banks in competing with broker/
dealers in the G.O. market, and the banks' rather limited

- 5 incursions into the eligible revenue bond underwriting market in
the past 11 years, indicate that the short-term effect on securities
firms of permitting banks to enter the new segments of revenue bond
market is not likely to be great.
These are manifestly turbulent times for the securities industry,
and the legitimate concerns of its leaders should not be ignored.
We would therefore suggest, Mr. Chairman, that if your Committee
should determine to support further bank entry into the revenue
bond market, it consider a phase in, perhaps initially by adding
only utility revenue bonds to those currently eligible for bank
underwriting and dealing, with banks to be given full authority to
underwrite and deal in all revenue bonds covered by H.R. 1539 five
years after enactment of legislation. At present, utility bonds
account for approximately 35% of the value of new issues of
currently ineligible revenue bonds and 25% of all new revenue
bonds. This phase-in of bank entry into the revenue bond market
would ease the transitional effects of such entry on the
securities industry. And the Congress would have an additional
five years in which to assess the effects of the bank entry
"experiment" which was initiated by the 1968 legislation.
In summary, we recognize that there is considerable debate over
the sources and size of potential benefits of additional competition
in the municipal revenue bond market. Our position is based on the
potential for a flow of benefits to society; at the same time we have
not found any evidence that further bank entry into the revenue bond
area, if phased in over time, would have significant detrimental
effects either in the short or the long run. The question of bank
entry remains a close one. But, on balance, at a time when we are
striving to reduce inflationary costs wherever possible, we believe
we should pursue the potential for savings that increased
competition holds.
Let me turn now to several of the more important provisions
of the bills under discussion as they would relate to bank holdBank Holding Company Issues
ing company activities.
Ceilings on Asset Size
H.R. 2856 and H.R. 2747 both would prohibit banks and bank
holding companies from acquiring another bank if, as a result,
the acquiring bank organization would hold in excess of 20 percent
of the total banking assets held by all banks and bank holding
companies in the state in which the acquiring bank organization
is located. Exceptions to the statutory limit would include
situations in which an acquisition was essential to prevent a bank
failure and where no feasible less anticompetitive alternative was
available.

- 6 This statutory language presumably is aimed at long-held
concerns regarding concentration in banking, particularly that high
state-wide concentration can limit potential entry into local markets,
given the existing legal restrictions on competition from out of state
banks. But close examination suggests that a statutory limit on the
percentage of state-wide assets held by a banking organization as a
result of mergers raises extremely difficult issues. First, the
empirical evidence does not lend support to the hypothesis of
steadily increasing concentration in banking. Recent Federal Reserve
Board studies have shown that on a nationwide basis the shares of
domestic deposits held by the 100 largest and the ten largest U.S.
banking organizations have declined since 1960. Also, analyses of
three-firm and five-firm concentration ratios on a state-by-state
basis fail to show any significant overall trend towards increased
statewide concentration since 1960. Finally, the great growth in
the share of deposits held by bank holding companies in recent
years is due primarily to the conversion of independent banks to
the holding company form of organization rather than to bank
acquisitions by multi-bank holding companies.
Second, the relevant banking market is more or less "local"
in nature, and the aggregation of all statewide assets (or
deposits) as the base against which to measure monopoly power
or lack of competition can be misleading. The statewide marketshare measure simply would not capture other important information
such as the number and size distribution of the banking
organizations operating in the various local banking markets
of a state. Also, the flat percentage ceiling conceivably could
prevent the de novo expansion of some banking organizations in
otherwise concentrated markets — an anticompetitive result.
Further, the inclusion of all banking assets -- domestic and
foreign — in the measurement of a banking organization's share
of statewide banking assets would tend to discriminate against
those institutions with a relatively large foreign business, despite
the focus of the proposed legislation which presumably is the
competitive structure of the domestic banking market. Finally, the
emphasis on banking assets in a single state, narrowly defined, tends
to overlook the role of numerous nonbank depository and nondepository
financial institutions that compete directly with banks. It also
overlooks the ongoing consideration of the merits of absolute
restrictions on the offering of certain banking services on an
interstate basis. Thus, we believe that the necessity for the
proposed legislation at this time is open to serious question
and that the legislation in its current form could prove to be
inequitable and even anticompetitive.

- 7 Federal Reserve Determination of Permissible
Section 4(c)(8) Nonbank Activities
Currently the Federal Reserve Board is empowered to determine
the nonbanking activities in which a bank holding company may engage.
Proposals to engage in such activities must pass two tests before
receiving Board approval. The first test requires a proposed activity
to be "so closely related to banking or managing or controlling banks
as to be a proper incident thereto." The second test requires that
a proposed activity "can reasonably be expected to produce benefits
to the public that outweigh possible adverse effects."
The proposed legislation would greatly strengthen the "closely
related" and the "public benefits" tests of Section 4(c)(8) of the
Bank Holding Company Act. To gain Board approval proposed nonbank
activities would have to be "so closely and directly related ... as
to be a proper and necessary incident thereto" and be "likely to
produce substantial benefits to the public which clearly and
significantly outweigh possible adverse effects." A narrow interpretation of this language could preclude banks from offering any
and all nonbanking financial services, even if such activity were to
result, on net, in a social benefit. Also, it would treat national
banks (acting for themselves or through affiliates or subsidiaries)
as bank holding companies subject to the Section 4(c)(8) determinations of the Federal Reserve Board.
Here too, the proposed legislation is premature and possibly
counterproductive. The empirical record to date fails to demonstrate
that the public has suffered adverse effects by reason of the
Section 4(c)(8) activities of bank holding companies. Rather, the
record seems to show that on balance the public has benefited,
albeit modestly, in terms of enhanced convenience and competition.
Also, practically all of the nonbank activities currently approved
by the Board for bank holding companies have long been engaged in
by national Activities
banks (with
mostand
notable
exception
being the underProhibited
ofthe
Banks
Bank Holding
Companies
writing of credit life and credit accident and health insurance).
In addition to the more stringent "closely related" and
"public benefits" tests and the extension of the nonbanking
activities rulemaking authority of the Federal Reserve to national
banks, the proposed legislation also would classify certain
activities as statutorily not related to banking; i.e., as
impermissible. These prohibited activities include: (1) selling
or distributing securities except those of the BHC, the U.S., or
deposit-like securities of a subsidiary bank, (2) serving as
investment adviser to collective investment funds, investment
companies, and other investment vehicles other than the traditional

- 8 commingled investment fund, (3) engaging in the business of directly
or indirectly taking deposits from the general public at rates
above the Regulation Q ceilings, (4) engaging in certain real estate
related activities such as brokerage, real property management, land
development, real estate appraisal, and underwriting mortgage
guarantee insurance, (5) engaging in the business of leasing motor
vehicles directly to the public, and (6) providing insurance as a
principal, agent, or broker, with certain exceptions.
The call for this "negative laundry list" of activities stems
from concern over the concentration of resources, the threat of
conflicts-of-interest, tie-ins, the safety and soundness of banking,
and unfair competition. These are concerns to which the regulators
should be attentive. If serious abuses were to be documented in
the specific activity areas mentioned in the proposed legislation,
then legislation might be appropriate. However, the case for the
proposed statutory prohibitions is, in our judgment, clearly
insufficient at this time.
First, even though BHCs have assumed a significant role in a
limited number of nonbank industries — most notably mortgage
banking, factoring, and consumer finance — overall BHC nonbanking
activities amount to less than 5 percent of total BHC assets at
present. This suggests that the fear of an excess concentration
of resources stemming from nonbanking activities of BHCs is
unfounded in fact. Also, recent analyses of BHC performance in
certain nonbank activities have failed to uncover any adverse
effects on the public.
BHC nonbanking activities do not appear _in general to be
inherently more risky than "pure" banking; indeed, some diversification of BHC activity may reduce overall bank risk. With
respect to abuses such as forced tie-ins, no evidence of systematic
abuse has been found even after intense study such as the recent
Federal Reserve study of tie-ins in the insurance area. Thus,
concerns with respect to bank safety and soundness, conflicts-ofinterest, and so on are not best addressed by singling out certain
related activities and classifying them as impermissible for banks
or BHCs. Statutory barriers to bank participation in these
activities can do little but diminish competition and inconvenience
the public. Rather, potential abuses of this type are more
*
*
*
appropriately subjected to the vigilance of the bank regulators
and corrected on a case-by-case basis.
Mr. Chairman, that concludes my formal testimony. I would
be glad to answer any questions the members of the Subcommittee
may have.

R10M 5§04
FOR IMMEDIATE RELEASE Contact^ Alvin M. Hattal
October 18, 1979
Ui, lij'fS 202/566-8381
U-,L,,,,,.,

uiJvu'lTHENT
TREASURY SAYS IT WILL OPEN
ANTIDUMPING INVESTIGATION OF
COKE IMPORTS FROM WEST GERMANY

The Treasury Department today said it will open a
full-scale antidumping investigation of U.S. imports of
West German coke.
The investigation is based on a petition filed on
behalf of the domestic coking coal and coke industries
by three domestic producers. The petitioners claim that
coke is being sold in this country at prices below those
charged in the European Coal & Steel Community, and that
some grades may be sold at less than their cost of production.
The Customs Service will immediately initiate the
price phase of the investigation and is seeking some additional facts to determine whether a full-scale inquiry
into the claim of sales below cost is warranted.
The case has been referred to the U.S. International
Trade Commission for a preliminary consideration of the
question of whether there is a reasonable indication that
imports of coke from West Germany have caused or threaten
to cause injury to the domestic industry.
Imports of West German coke during 1978 were valued
at $300 million.
The Treasury also said that a complaint of unfair
competition filed by domestic anthracite coal producers
before the U.S. International Trade Commission and referred
to Treasury by the Commission under section 337(b) (3) of
the Tariff Act of 1930 does not contain sufficient information to establish a basis for initiating a full-scale
investigation under either the Antidumping Act or the
Countervailing Dury Law.
Notice of these actions will appear in the Federal
Register of October 22, 1979.
o

M-1M

FOR RELEASE UPON DELIVERY
October 22, 1979 10:00 AM EDST

0C"l 25'79
TritiAb<,.<.•. • '. ' -'.'V i i-iEr* i

TESTIMONY OF THE HONORABLE G. WILLIAM MILLER
SECRETARY OF THE TREASURY
BEFORE THE SUBCOMMITTEE OF TAXATION
AND DEBT MANAGEMENT OF THE SENATE FINANCE COMMITTEE

Thank you for inviting me to discuss S. 1435, a very
significant proposal to restructure the system of
depreciation allowances. I am pleased to see the broad
interest in legislation to encourage capital formation and
increase productivity.
The 10-5-3 proposal would restructure the system of tax
allowances for capital recovery. It would greatly shorten
the periods over which most capital expenditures can be
written off. The proposal provides for non-residential
buildings to be written off over 10 years, in a pattern so
accelerated that 70 percent of the acquisition cost could be
deducted in the first 5 years. Expenditures for most
machinery and equipment could be fully written off, also in
an accelerated pattern, over 5 years. A limited amount of
expenditures for cars and light trucks used in businesses
would be written off over a three-year period. This proposal
would also liberalize the investment tax credit, by allowing
the full 10 percent credit (instead of 6 2/3 percent) for
equipment depreciated over 5 years, and a 6 percent credit
(instead of 3 1/3 percent) for the 3-year class of assets.
A phase-in over 5 years is proposed whereby the write-off
periods, starting from a 1980 base, are reduced
year-by-year. The 1980 lives are determined by reference to
the current Asset Depreciation Range (ADR) system.
Advocates of 10-5-3 argue that it would promote
simplification and certainty, aid small business, and
provide incentives for capital expansion. These are
laudable goals, and should be considerations in evaluating
any tax structure. Evaluation of our current system shows
M-132
that there is room for improvement.

-2Economic Background
The increase of 2.4 percent in real GNP for the third
quarter of this year is further indication of strength in
the economy, but prices continue to show rapid increase. I
want to emphasize that the Administration intends to sustain
a firm and consistent policy to reduce inflation. This
policy has a number of aspects, but none is more important
than the maintenance of strict fiscal discipline. At the
present time, the action of steady budget pressure to slow
the rate of inflation offers the strongest promise of
restoring the health of our economy, reducing economic
uncertainty, and reversing expectations for future
inflation.
I believe that a commitment to widen the budget deficit
by the magnitude of S. 1435 would be premature at this time.
However, we should study possibilities for a program that
will promote longer-range economic objectives as effectively
and fairly as possible. At the appropriate time, you should
be prepared to act on a program carefully structured to
expand economic capacity, to reduce production costs, and to
promote productivity. Appropriate depreciation allowances
can help to accomplish these goals and should be given
serious consideration as an element of any future tax
package.
Revenue Costs of 10--5-3
Looking specifically at the 10-5-3 proposal, I would
first point out that it would have a massive budget impact.
The cost of S.1435 rises from about $4 billion in the first
year to over $50 billion in 1984 and over $85 billion in
1988 (see Table 1 ) .
These estimates have been carried out further into the
future than we would normally show in order to see the full
effect of the proposed phase-in rules. Because the program
would be implemented gradually during the first five years,
it is not until 1984 that the full benefit of the more
liberal depreciation allowances would be given to investment
for any one year. For this reason, the revenue costs
continue to build until 1988, after which revenue losses
begin to fall. Eventually, the level of these losses
stabilizes and thereafter they grow at about the same rate
as investment expenditures. By 1987, when corporate tax
receipts are expected to be $116.7 billion, S.1435 would
provide corporate tax reduction of nearly half that amount.
The total revenue cost also includes a reduction in
individual income taxes resulting from deductions taken by
unincorporated businesses. This is equal to about 15
percent of the total revenue cost.

-3The year-by-year revenue costs do not take account of
the additional tax receipts resulting from economic
expansion induced by the tax reductions. These "feedback"
revenues amount to about 30 percent of the static revenue
loss and are reflected primarily in increases in individual
tax receipts. If these "feedback" revenues are taken into
account, the result is a net revenue loss of about $35
billion in 1984. It should be noted that the additional tax
receipts that would be induced by this tax cut are about the
same as that from any tax reduction having a comparable
impact on GNP.
Background on Depreciation Allowances
The present tax depreciation system is cumbersome and
complex. It involves a number of choices and uncertainties,
and is especially burdensome for small businesses. It
should be simplified. The present system provides an
insufficient incentive for capital expansion in periods of
rapid inflation and financial uncertainty. These incentives
should be strengthened as much as our budget resources will
allow.
Under the present rules, the business taxpayer is
confronted with a myriad of choices. The first choice is
whether to use the Asset Depreciation Range (ADR) System or
to justify tax allowances on taxpayer's particular facts and
circumstances. For those electing ADR, there is a choice of
useful life within the allowable range for each class of
assets. For all taxpayers there is also a choice of
depreciation methods over the chosen lifetime. For some
types of assets, especially buildings, there may be no ADR
class and there may be a restricted choice of methods. With
regard to types of equipment having allowable lives less
than 7 years, the taxpayer must choose whether to foresake
some portion of the investment tax credit in favor of more
rapid write-off. For large firms having computerized
accounting systems, these options present no formidable
problems. They elect ADR, using the most rapid method of
depreciation, and the shortest available useful life after
taking account of the investment credit rules. These large
firms own the great bulk of depreciable assets.
A very small percentage of small business taxpayers
have chosen to elect the ADR system. Despite recent changes
in regulations to reduce requirements for reporting, small
businesses apparently believe that ADR dictates a more
complicated accounting system and involves more complex
regulations. If these small businesses choose not to elect

-4ADR, but to use the shorter lives that are allowed without
question to ADR electors—and we believe many small
businesses so choose—they face the possibility that upon
audit they may be required to justify those lives on facts
and circumstances. For these reasons, small businesses may
regard the ADR system as not addressed to their needs and
circumstances.
Productivity and Investment
The stimulation of investment and improvement of
productivity performance must be among the foremost
objectives of economic policy. The share of business fixed
investment in GNP has varied around a nearly flat trend for
about the last 15 years (Chart 1 ) . However, in the last
expansion it neither grew as rapidly nor reached as high a
peak as during the previous cycle that peaked in 1974.
Investment in nonresidential structures has shown a
persistent downward trend since 1966, while the equipment
component has tended to increase as a percentage of GNP.
This is partly explained by mandated expenditures for
pollution control equipment, which are now about 7 percent
of equipment spending.
Aggregate productivity growth has exhibited a
pronounced decline in the last decade and output per hour
worked is now well below its post-war trend (Chart 2). For
the 20 years ending 1968, the annual rate of growth in
output per hour worked was about 2 1/2 percent. More
recently, and beginning even before the oil embargo and the
recession of 1974 and 1975, the rate of this productivity
growth has markedly slowed. In the years 1968 through 1973
the growth rate was only about 1 3/4 percent.
In the last recovery cycle, the upturn in productivity
growth that normally accompanies expansion occurred later
and was generally weaker than in other post-war recoveries
(Chart 3). The average for this latest period, 1973-78 was
an annual productivity gain of only one percent. This
slowing of productivity growth has helped to perpetuate a
spiral of inflationary wage price adjustments in the economy
and has eroded our ability to compete in international
markets.
While the recent growth in average productivity
throughout the economy is unmistakably lower in recent
years, this record is by no means uniform across major
productive sectors (see Chart 4 ) . The communications sector
has experienced rapid and even accelerating growth in
productivity throughout the period, while at the other

-5extreme, the construction industries have suffered declines
in productivity in absolute terms since the late sixties,
particularly over the most recent years. Among the public
utilities, productivity growth has also slowed markedly
since the late 1960s after rapid and steady increases up to
that time. The record in manufacturing also shows a decline
in the productivity growth throughout the 1970s but that
growth has continued up to the present time, except for a
one-year downturn in 1974. In the trade sector, output per
hour has grown at less than a 2 percent annual rate over the
entire period and is nearly flat in recent years.
Within the manufacturing sector, productivity growth
has been and continues to be somewhat stronger in
non-durables manufacturing as compared to the durables
sector (see Chart 5 ) . Among the durable goods industries
the record of the motor vehicle industry has been
particularly strong since 1974, while a pronounced decline
in productivity has occurred in that some period for the
primary metals industry.
The wide diversity in productivity gains across sectors
and industries illustrates the importance of looking behind
the aggregate trends. To the extent that declines in
productivity in particular sectors can be attributed to
lagging capital formation, we should pay close attention to
the distribution of tax incentives among sectors of the
economy, in addition to the aggregate amount of incentive.
This is not to suggest that we attempt to direct all of the
tax relief to particular industries that have poor
productivity records (or those that have performed well) in
the recent past but we should know the degree to which any
proposal matches the incentives to the economic objectives.
Acceleration of depreciation allowances can be
effective in providing investment stimulus. The direct tax
savings that accompany the acquisition of capital provides
additional cash flow to business firms for further
investment and replacement. It is as if interest-free loans
from the government were provided in the early years of a
capital asset's use to be repaid out of the future
productive output of these assets. These accelerated
deductions reduce the "tax wedge" that is interposed between
the returns to the physical investment and the rewards that
can be paid to those who supply funds for investment. The
reduction in the tax wedge reduces the cost of capital and,
thereby, increases the amount of capital that can be
profitably employed for the benefit of the company, its
employees, and its customers.

-6The Concept of Capital Recovery
Before I get to a specific analysis of some of its
likely consequences of the 10-5-3 proposal, I would like to
discuss briefly the concept of capital recovery allowances.
Many people regard depreciation as an arcane topic involving
"useful lives," complicated formulas such as double
declining balance and sum-of-years-digits, vintage
accounting, and numerous other technicalities. Although the
subject of depreciation is replete with imposing
terminology, the underlying concept is straightforward.
Depreciation is a cost of employing capital; as such, it
must be deducted to arrive at net income, the same way that
a wage deduction is taken for payments for labor.
In order to impose a tax on net income, the timing of
receipts and expenses must be matched, and this requires
that the cost of assets be deducted as they are consumed by
use in a business. The Internal Revenue Code provides that
there shall be a reasonable allowance for exhaustion, wear
and tear, and obsolescence.
Of course, the determination of capital recovery
allowances in any tax system is more difficult than for wage
deductions because there is no current payment that measures
the exact amount of capital consumed from one year to the
next. The cost of depreciation each year is, therefore,
estimated to be some proportion of the acquisition, or
historical, cost of the asset. Inflation, however,
increases capital consumption as measured in current
dollars, and, therefore, depreciation allowances based on
historical cost may be inadequate. Acceleration of tax
depreciation may compensate for the general understatement
of depreciation.
If the allowable depreciation deduction is greater for
any year than the amount of capital consumed, the government
is in effect extending an interest-free loan to the
business. In the opposite case, inadequate depreciation
allowance will prematurely increase taxable income, impose
prepayment of taxes, and reduce internal cash flow.
The Effects of 10-5-3
The 10-5-3 proposal is a major departure from current
practice in the determination of depreciation or capital
recovery allowances. It would allow a large share of the
acquisition cost of equipment and structures to be deducted
for tax purposes much more rapidly than currently. The
proposal deals with the problem of complexity by

-7substituting a single mandatory system in place of the
existing complex of choices. The proposed system has simple
categories, certain recovery periods, and a fully prescribed
pattern of recovery allowances. This approach to both
investment incentives and simplification deserves
condieration, but there are deficiencies that should be
examined carefully.
For example, the proposal is not as simple as it first
appears. As drafted, the 10-5-3 proposal would have to
establish mandatory guidelines lives during the five year
phase-in that are tied to the ADR classification system.
Each year, for five years, every taxpayer would apply a new
schedule of depreciation rates to assets acquired in that
year until they are fully written off. The phase-in rules
also create a perverse incentive effect that postponment of
investment until the following year will increase the rate
of capital recovery allowances. The phase-in is intended to
postpone the revenue losses, but it also increases
complexity and uncertainty. To the extent that investment
is delayed, feedback revenues are also delayed.
When the 10-5-3 rules are fully effective, their
combination of rapid write-offs of and increased investment
credit for machinery and equipment would be very generous,
indeed. The investment credit would immediately pay for 10
percent of the cost of acquiring new equipment. Then 76
percent of the gross cost could be written off in the first
three years; the entire amount in 5 years. The present
value of the tax saving from the combination of the
investment credit and the accelerated deductions is greater
than full, first-year write-off would be. The treatment of
equipment under 10-5-3 would be better for the taxpayer than
immediate expensing.
Such a dramatic increase in capital allowance is not
only expensive in terms of the budget, but it could also
greatly increase tax shelter activity. The proposed
deductions and credits would be most attractive to
high-income individuals who could obtain the tax benefits
through net leasing of machinery and equipment. Tax shelter
opportunities could also increase for those investing in
buildings, such as offices and shopping centers, as the
proposed bill both shortens the recovery period for these
buildings and accelerates the depreciation method. A
tougher recapture rule for buildings is proposed in the
bill, but this only offsets a portion of the potential
tax-shelter benefits.

-8Another result of 10-5-3 is a wide range of
differential benefits among businesses according to the
types of assets that they use and their present industry
classification. For example, machinery and equipment (other
than automobiles and light trucks) are now depreciated as if
they had an average depreciation lifetime of 10.2 years
(Table 2); the recovery period prescribed in S. 1435 is
less than half that current average. For buildings, present
practice is equivalent to an average lifetime of 32.6 years.
The proposal would allow these buildings to be written off
in less than one-third that time. For autos and light
trucks, the reduction is relatively small from 3.5 years to
3.0 years, although, in many cases, autos and trucks would
benefit from an increase in the investment credit.
The variation in benefits provided by 10-5-3 is most
pronounced when industry categories are compared. After the
five year phase-in, all major industry classes would have
higher depreciation allowances under 10-5-3. However, the
share of projected total investment "paid for" by
accelerated depreciation is generally higher for those
industries employing longer-lived assets. For machinery and
equipment, you can see (Table 2) that the reduction in the
recovery period is minimal in the case of construction and
very small for manufacture of motor vehicles. Toward the
other end of the spectrum, the recovery period for assets
used in the primary metals industry would be nearly half the
present ADR lives, communications would be about one-third,
and public utilities about one-fourth. (Table 3 attached to
this statement provides quarter industry detail.)
The Treasury Department has simulated changes in
depreciation periods, together with the changes in the
investment credit, to estimate potential tax savings during
the period of phase-in. These estimates are then used to
compute the tax saving per dollar of projected investment.
Not surprisingly, the relative magnitudes generally follow
in the same order as the degree of reduction in write-off
periods (Chart 6 ) . In 1984, the tax saving per dollar of
projected investment in the construction industry would be
less than 5 percent; for motor vehicles it is 8 percent; for
primary metals it is around 15 percent; for communications
just less than 20 percent; and the tax saving would pay for
more than 20 percent of investment in the public utilities.
You may wonder about the apparent revenue increase in
motor vehicle manufacturing for 1981. This results from a
phase-in rule that immediately increases the recovery period
for the auto companies1 special tools from three years up to
five years. In later years, the year-by-year reduction
prescribed for longer-lived assets becomes dominant.

-9Highway transportation, services, agriculture,
wholesale and retail trade, fabricated metals, and
electronics are among other industries with relatively
smaller benefits (Table 4). Among the other larger gainers
are railroads, shipping, and oil pipelines.
The benefits estimated here are "potential" in the
sense that no allowance is made for the possibility that
certain companies will have insufficient tax liabilities
against which to take the full amount of any additional
deduction. Likewise, the estimates for public utilities
take no account of the rule that disallows the use of 10-5-3
to utilities that "flow through" the benefits of accelerated
depreciation to consumers.
Among industries with relatively poor productivity
performance over the last five years, the construction
industry has the smallest amount of potential benefit from
10-5-3 among all industries and utilities has the largest
(Chart 7 ) . Looking at the stronger productivity sectors,
communication is among the larger gainers from 10-5-3, while
communications and motor vehicles are among the more modest
beneficiaries. In general, there is no discernible
relationship between the amount of additional capital
formation incentive provided by 10-5-3 and the relative
strength of productivity performance over the past five
years. The point here is not that these should be exactly
matched, but rather that it is very difficult to see any
purpose to the vastly different amounts of investment
incentive provided across industries by 10-5-3.
I do not come to you today with any specific proposal
nor, in view of the deficiencies of 10-5-3, can I support
S.1435. I am obviously concerned about the large revenue
cost, and the implication that greatly differing amounts of
investment stimulus would be scattered about
indiscriminantly among industries and asset types.
The simplification objectives of 10-5-3 could be
achieved through other depreciation proposals. I would
further suggest that you should consider the continuation of
some administrative mechanism for the system to assure that
the capital recovery deductions allowed for tax purposes are
consistent with changes in true depreciation costs. I
believe we should analyze carefully a wide range of
depreciation plans, and I will continue to develop and work
with you to promote a depreciation or capital recovery
system that we can all regard as simple, effective and fair.
Such a system should be put into effect as soon as budgetary
resources and prudent fiscal policy permit.

Table 1
Revenue Estimates
($Billions)

W51)

TWL

T5TJ2

T983

1984

1985

T986

1987

1988

Change in Tax Liability - Calendar Years
Corporate -3.2 -8.5 -17.9 -29.9 -44.1 -57.2 -67.6 -72.9 -73.3 -70.9
Individual -0.6 -1.5 -3.2 -5.3 -7.8 -10.1 -11.9 -12.9 -12.9 -12.5
Total -3.8 -10.0 -21.1 -35.2 -51.9 -67.3 -79.5 -85.8 -86.2 -83.4
Change in Receipts - Fiscal Years
Corporate -1.5 -5.6 -12.7 -23.3 -36.2 -49.8 -61.7 -69.8 -73.0 -72.1
Individual -0.2 -0.9 -2.1 -4.0 -6.2 -8.7 -10.8 -12.3 -12.9 -12.8
Total -1.7 -6.5 -14.8 -27.3 -42.4 -58.5 -72.5 -82.1 -85.9 -84.9
Office of the Secretary of the Treasury October 19, 1979
Office of Tax Analysis

1989

Chart 1

BUSINESS FIXED INVESTMENT AS
PERCENT OF REAL GNP

ol
1955

I
1960

J
1965

1970

1975

1979

Chart 2

Output Per Hour, Private Nonfarm Business Sector
Ratio Scale, Index, 1967=100

- 140

1948

1953

1958

1963

1968

1973

1978

Chart 3

Cyclical Comparisons of Output Per Hour,
Private Nonfarm Business Sector*
Index, Peak Quarter = 100
—I 120

AVERAGE OF FIVE
PREVIOUS CYCLES

110

100

1973

/ CURRENT CYCLE
(1973-04 - 1979-02)

1975

* Changes following the cyclical peaks as specified by N B E R .

1977

90
1979

Chart 4

INDEX OF PRODUCTIVITY,
SELECTED INDUSTRIES(1955=100)

INDEX OF PRODUCTIVITY,
SELECTED MANUFACTURING
INDUSTRIES (1955-100)
Motor Vehicles
•p • • • • a i

•

I 3
1960

I i
1965

| i
1970

i I
1975

I I
1978

Table 2

"BEST ALLOWABLE " ADR DEPRECIATION
PERIODS AS COMPARED T010-5-3
SELECTED INDUSTRIES
10-5-3

ADR

/
/

Asset Class

Autos & Light Trucks

3.5

3.8

3.1

4.4

3.2

4.5

Other Machinery
and Equipment

10.2

5.1

5.8

14.6

11.3

20.4

32.6

35.0

36.0

35.0

5.9

12.7

Buildings
Total

Table 3

"Best Allowable" Depreciation Life (Years)
Under Present Law, by Industry

Cars and
Light Trucks

Machinery and
Equipment

Building

All Industries

3.5

10.2

32.6

Agriculture

3.9

7.7

20.0

Construction

3.8

5.1

35.0

Oil and Gas
Drilling
Production
Refining
Marketing

3.2
3.2
3.4

7.0
11.0
12.4
13.0

35.0
35.0
35.0
13.0

Mining

3.6

7.8

35.0

Manufacturing
Food
Tobacco
Textiles
Apparel
Logging/Saw Mills
Wood Products
Pulp and Paper
Printing and publishing
Chemicals
Rubber Products
Plastic Products
Leather
Glass
Cement
Stone and Clay Products
Primary Metal
Fabricated Metal
Machinery
.Electrical Machinery
Electronics
Motor Vehicles

3.2
3.3
3.2
3.1
3.9
3.8
3.2
3.1
3.1
3.1
3.0
3.0
3.0
3.5
3.5
3.2
3.1
3.0
3.0
3.0
3.1

9.2
11.4
8.1
7.1
6.8
7.1
9.9
8.7
7.7
9.6
8.0
8.5
9.2
14.0
10.9
11.3
4.9
7.9
9.3
7.1
5.8

35.0
35.0
35.0
35.0
35.0
35.0
35.0
35.0
35.0
35.0
35.0
35.0
35.0
35.0
35.0
35.0
35.0
35.0
35.0
35.0
35.0

-2-

"Best Allowable" Depreciation Life (Years)
Under Present Law, by Industry
(continued)

Cars and
Light Trucks

Areospace
Shipbuilding
Railroad Equipment
Instruments
Other
Transportation
Rail

3.0
3.3
3.3
3.1
3.1
-

Machinery and
Equipment

7.8
9.7
8.8
9.0
9.0
11.7

Buildings

35.0
35.0
35.0
35.0
35.0

—

3.4

5.6

35.0
35.0
35.0

Communication

4.4

14.6

36.0

Utilities
Electric
Gas
Pipeline

4.5
4.5

20.5
23.1
17.5

35.0
35.0
35.0

Wholesale and Retail Trade 3.5

6.8

35.0

Services

3.3

7.8

35.0

Amusements

3.0

9.8

35.0

Air
Water
Highway

Note:

9.4
15.7

The "best allowable" depreciation period for an industry is a special type
of weighted average of the best available depreciation periods (taking account
of the investment credit effects of lives lower than five or seven years) for
equipment used in the industry. The weights are estimated 1976 investment in
the several types of equipment. The weighted average takes account of the time
value of tax saving. In the case of builidngs not covered by ADR, the best
available depreciation period is assumed to be 35 years, which is approximately
the average useful life employed by taxpayers, as revealed by Treasury
Department surveys in 1972 and 1973.

TAX SAVINGS DUE TO 10-5-3
PER DOLLAR OF PROJECTED INVESTMENT IN
DEPRECIABLE ASSETS ; 1980,1981, AND 1984,
Percent
SELECTED INDUSTRIES
25r-

• 2 U " 1980 1981 1984

Construction

1980 1981 1984

Motor Vehicle
Manufacturing

Primary Metals

Communications

Utilities

Table 4

Estimated Tax Reduction Due to 10-5-3
as a Percent of Projected Investment 1/, 1984

Industry Class

Manufactur ing:
Non-durables
Food
Tobacco
Textiles
Apparel
Pulp and Paper
Printing and Publishing
Chemicals
Rubber
Plastics
Leather
Durables
Wood Products and Furniture
Cement
Glass
Other Stone and Clay
Ferrous Metals
Non-ferrous Metals
Fabricated Metals
Machinery
Electrical Equipment
Electronics
Motor Vehicles
Aerospace

1984
Projected
Estimated
Tax Reduction
1984
1984
Tax Reduction Investment As Percent of
($ Millions) ($ Millions) Investment

5,729
1,258

50
332
121
837
341
2,345

123
303
16
5,606

98
90
146
281
1,107

421
504
950
493
266
458
182

50,016
10,624

2,918

11.5
11.8
13.6
12.0
10.1
10.8
10.1
11.8
13.3
10.4

220

7.3

51,496
2,100

10.9

622

14.5
11.6
13.1
16.4
14.0

369
2,757
1,196
7,777
3,390
19,838

927

1,258
2,150
6,739
3,004
6,587
8,345
4,448
2,884
5,716
1,591

4.7

7.7
11.4
11.1

9.2
8.0
11.4

1/ Estimates of investment by purchasing sector are based on Annual Survey of
Manufacturers, 1976, and data from regulatory agencies, trade associations,
and other industry sources.

-2-

Industry Class

Projected
1984
($Millions)

1984
Tax Reduction
As Percent of
Investment

169
17
222
202

1,534
129
2,383
2,006

11.0
13.2
9.3
10.1

Transportation
Railroads
Airlines
Water Transport
Highway Transport

4,048
562
814
1,432
1,240

40,504
3,362
6,175
9,492
21,475

10.0
16.7
13.2
15.1
5.8

Communication
Utilities
Electric Utilities
Gas Utilities and Pipelines

5,956
9,162
7,533
1,629

32,130
42,187
35,853
6,334

18.5
21.7
21.0
25.7

Mining, except oil and gas

1,120

10,796

10.4

Oil and Gas Drilling
Oil and Gas Production
Petroleum Refining
Petroleum Marketing
Oil Pipelines

238
5,079
1,207
142
2,202

2,945
38,390
8,785
1,254
10,175

8.1
13.2
13.7
11.3
21.6

Construction

1,114

25,085

4.4

Wholesale and Retail Trade

3,823

44,097

8.7

Agriculture

2,069

27,220

7.6

Services

3,337

41,109

8.1

51,912

435,725

11.9

Shipbuilding
Railroad Equipment
Instruments
Other Manufacturing

Grand Total

Estimated
1984
($Millions)

Chart 7

BENEFITS OF 10-5-3
AS COMPAREDTO RECENT
GROWTH
INDUSTRIES
1984 Tax SavingINPRODUCTIVITY,SELECTED
as
Average Annual Productivity
Percent of Investment

Growth, 1973-78
Construction
Motor Vehicles

Primary Metals

Communications
Utilities

-10%

10%

20%

-5%

For-Release Upon Delivery
Expected
—
—
October 22, 1979

STATEMENT OF
THE HONORABLE DONALD C. LUBICK
ASSISTANT SECRETARY OF THE TREASURY (TAX POLICY)
BEFORE THE
SUBCOMMITTEE ON TAXATION AND DEBT MANAGEMENT
OF THE
SENATE FINANCE COMMITTEE
Mr. Chairman and Members of the Subcommittee:
My testimony today relates to three bills: S. 1021,
S. 1078 and S. 1467. I will begin with S. 1021, the
bondholder taxable option proposal, introduced by Senator
Danforth.
I. BONDHOLDER TAXABLE OPTION (S. 1021)
This innovative proposal would provide a 66 2/3 percent
tax credit to the holders of tax-exempt bonds who elect to
treat the income from the bonds and the amount of the credit
as taxable income. This proposal would accomplish the same
results as the taxable bond option proposal recommended by
the Administration in 1978. It would promote tax equity,
increase the efficiency of Federal tax subsidies to State and
local government, and help to stabilize the tax-exempt bond
market. Unfortunately, it would—as would our 1978
proposal—also provide greater economic and political
incentives to expand the use of the tax-exempt market for
nongovernmental purposes, in recent years, the amount of
tax-exempt bonds issued for nongovernmental purposes has
sharply increased. We believe that it is unwise to enact
either a bondholder taxable option or a taxable bond option
in this climate. If tighter limits on the use of tax
exemption for nongovernmental purposes were imposed,
particularly for pollution control facilities and single
family housing, we would at once support the adoption of a
taxable bond option, either as proposed in 1978 or in the
form now proposed in S. 1021.
M-133

-2Similarities Between S; 1021-and-Taxable-Bond-Option
The taxable bond option ("TBO") would provide for a
direct subsidy to a State or local government electing to
issue taxable bonds in an amount equal to 40 percent of the
interest due on the bonds. The bondholder taxable option of
S. 1021 ("BTO")/ on the other hand, would provide a 66 2/3
percent tax credit to the holders of tax-exempt bonds who
elect to treat the interest and the amount of the credit as
taxable. BTO would thus be an option for investors; TBO
would be a choice available to State and local governments.
Both TBO and BTO would lower the cost of borrowing to
State and local governments. Both proposals would lower tne
interest rate of tax-exempt bonds from approximately 70
percent to 60 percent of the interest rate on taxable bonds
of comparable risk. This change in the relationship between
tax-exempt and taxable interest rates will result from market
forces. For example, under BTO, investors in marginal tax
brackets of less than 40 percent would have an incentive to
purchase tax-exempt bonds and claim the credit because it
would provide them with a higher after-tax return than
taxable bonds at current interest rates.
A taxpayer in the 30 percent marginal tax bracket could,
for example, purchase $100 of tax-exempt bonds paying 7
percent interest. By electing BTO, the interest would be
taxable. A tax credit of two-thirds of the interest would be
available which also would be taxable. The credit would
exceed the tax liability resulting from the increased income,
increasing the after-tax return for a taxpayer in the 30
percent marginal tax bracket from $7 to $8.17.* If, on the
other hand, the taxpayer had purchased a taxable bond for
$100 paying 10 percent interest, he would be subject to $3
tax resulting in an after-tax return of $7/ or 7 percent.
Thus, the demand for tax-exempt bonds would increase, driving
up the price of tax-exempt bonds and lowering the tax-exempt
interest rates. The market would reach an equilibrium when
the tax-exempt interest rate is 4 0 percent below taxable
*The taxpayer•s
taxable
income
would be
($7 plus
rates
(such as atotal
taxable
rate of
10 percent
and$11.67
a tax-exempt
$4.67). At the 3 0 -percent marginal tax bracket, his tax
liability would be $3.50. He would, however, be entitled to
a credit of $4.67, producing a net tax benefit of $1.17 or a
total after-tax return of $8.17.

-3rate of 6 percent); at that point, investors in marginal tax
brackets of less than 4 0 percent would receive the same
after-tax return from holding tax-exempt State and local
bonds and claiming the credit as from holding taxable
corporate bonds.*
Under TBO, States and localities will initially find net
interest costs on subsidized taxable bonds (60 percent of the
taxable rate) lower than the net interest costs on tax-exempt
bonds (approximately 70 percent of the taxable rate). As
subsidized taxable bonds replace tax-exempt bonds, the supply
of tax-exempt bonds will fall. The price of tax-exempt bonds
will rise until tax-exempt interest rates fall to 40 percent
below taxable rates. Therefore, TBO and BTO would have the
same overall economic effects.
Both TBO and BTO would provide a more efficient subsidy
to State and local governments than the current system.- The
current system is inefficient. Tax-exempt borrowers over the
years have benefited from interest rates which on the
average have been about 70 percent of taxable rates. Thus,
the implicit subsidy of exemption to State and local
governments is equivalent to a 30 percent interest rate
reduction. Although the average subsidy is 30 percent, a
reasonable estimate of the average marginal tax rate of all
purchasers of tax-exempt bonds is about 4 2 percent. In other
words, if municipal bond interest income were subject to tax,
issuers of this debt would lose a subsidy of 30 percent of
the taxable rate and the Treasury would gain revenues equal
to about 4 2 percent of the taxable rate. This means that,
with the present stock of tax-exempt debt outstanding, less
than 75 percent of the Treasury revenue loss flows to State
and local governments. Under both TBO and BTO, the
*The
taxpayerbenefit
in the to
30 State
percent
tax bracketinwould
incremental
and marginal
local governments
lower
thus receive $6 of interest from the tax-exempt bond and
would be entitled to a tax credit of $4 (2/3 of $6). The
additional tax, on the other hand, would be only $3 (30% x
$10 taxable income comprised of $6 (interest) + $4 (taxable
credit)). The $1 excess of the credit over the tax increases
the return on the tax-exempt bond from $6 to $7, the
after-tax return from a taxable bond.
BTO would require some system for allowing the IRS to
verify that taxpayers claiming the tax credit have in fact
received interest entitling them to the credit. The most
effective system would be to require issuers to file
information returns with the IRS as is presently required for
interest on taxable bonds.

-4mterest costs will exceed the increased budget cost to the
Federal government, thereby increasing the efficiency of tax
exemption as a subsidy. As described below, this improvement
is derived from a reduction in the windfall gains to high
bracket investors.
TBO and BTO, therefore, would also improve the equity of
the tax system. Much of the inequity under current law stems
from the high tax-exempt interest rate as compared with the
taxable rate. An investor in th3 50 percent tax bracket, for
example, would be willing to buy tax-exempt bonds as long as
the return was just above one-half of that on taxable
instruments. Tax-exempt bonds thus have an implicit "tax"
resulting from the acceptance by the investor of a lower
return than that which is otherwise available. If municipal
rates were in fact one-half of taxable rates, tax-exempt
bonds would have an implicit tax to the investor in the 50
percent bracket of 50 percent; the implicit tax would equal
his marginal tax bracket. As municipal rates rise to 60
percent, 6 5 percent and 7 0 percent of the taxable rate, this
investor in the 50 percent marginal tax bracket finds that
the after-t^x return becomes increasingly above that required
to induce him to invest. This extra return is purely a
windfall gain. Thus, the higher the tax-exempt rate relative
to the taxable rate, the greater the windfall gain. By
lowering the interest rate on tax-exempt bonds from 70
percent to 60 percent of the taxable interest rate, both TBO
and BTC would reduce this inequity by increasing the implicit
tax to 4 0 percent.
Both TBO and BTO would broaden the market for State and
local securities by making them potentially attractive to
taxpayers in low brackets and to tax-exempt institutions.
Under TBO, low bracket investors would be attracted to
subsidized taxable bonds issued by State and local
governments. Under BTO, low bracket investors would
generally select the taxable option. By so broadening the
market for State and local debt, both proposals would reduce
the volatility of the tax-exempt bond market.
Differences Between-S; • 1021- and' Taxable- Bond' Option
There are several significant differences between TBO
and BTO. Under BTO, 'mlike TBO, all State and local
borrowing would continue to be conducted by issuing
tax-exempt bonds and therefore BTO would net alter existing
arrangements for marketing State ctnd local debt.
Institutions currently involved in underwriting and marketing
tax-exempt bonds will not be adversely affected by BTO
because tha volume of tax-exempt issues will not be reduced.
Under TBO, the subsidy to State and local governments
would appear on the expenditure side of the budget. In
contrast, BTO would be a ta> expenditure; it would be

-5recorded as a reduction in tax revenues. As such, BTO might
appear to be less subject to review under Executive Branch
and Congressional Budget Procedures.
Because of these two differences, States and localities
may regard BTO more favorably than TBO. Although Treasury's
advocacy of TBO was intended to help State and local
governments by making an existing subsidy deeper, more
stable, and more efficient, some organizations feared that
TBO might be a first step toward elimination of
tax-exemption. We have always viewed TBO as a supplement,
not a substitute for tax-exemption. While accomplishing the
same economic objectives as TBO, BTO may appear less suspect
to States and localities because it does not directly affect
the institutions that issue tax-exempt bonds and because, as
a tax provision, it may appear less subject to future
dilution than an expenditure program.
Reasons BTO or TBO Should Not Be Enacted At This Time
Notwithstanding the advantages of these proposals, the
Administration does not support enacting either proposal at
this time. Our principal concern is that a substantial
portion of the increased subsidy would inure to the benefit
of private persons and that the increased subsidy would
provide further political and economic incentives to even
further increase the amount of tax-exempt financing for
nongovernmental purposes.
In recent years, the volume of tax-exempt bonds issued
for nongovernmental purposes—principally for housing,
private hospitals, pollution control and small issue
industrial development bonds—has increased sharply as a
share of the total tax-exempt market. There are indications
that this trend is likely to increase. Just last week the
Senate Finance Committee voted to significantly expand the
exceptions to the industrial development bond provisions
dealing with electric energy and solid waste disposal
facilities.
A rough picture of the increased importance of the
nongovernmental use of tax-exempt financing is provided by
data compiled by the Public Securities Association. The PSA
data subdivide new tax-exempt borrowing by purpose. Two of
the categories are industrial aid (which includes pollution
control bonds and all other industrial development bonds
issued for corporations) and social welfare (which includes
housing bonds and hospital bonds). These two
categories—which include most tax-exempt borrowing for
nongovernmental use—have increased, from 9 percent of all
new tax-exempt borrowing (excluding refundings) in 1970, to
20 percent in 1972, 28 percent in 19"^, 35 percent in 19^7
and 41 percent in the first six months of 19 7 9. In addition,
there is evidence that PSA data underestimate the recent
growth in small issue industrial development bonds because
most
small issues are direct placements which usually are not
reported.

-6Congress is currently considering legislation to limit
the use of tax-exempt bonds for home mortgages which have in
part been responsible for this increase. However, this
legislation, under consideration since last May, has not been
enacted; nor has last year's Administration proposal to
eliminate the use of tax-exempt bonds for pollution control
facilities. In addition, we have no doubt that imaginative
promoters are turning their attention to finding other legal
devices to use tax exemption to finance nongovernmental
activities. The increase in the subsidy under BTO would
encourage this activity as well as making existing
opportunities more attractive. It would aggravate the
misallocation of limited capital resources which occurs when
some industries can borrow at the tax-exempt rate while
others cannot. Finally, it would insulate the tax-exempt
market from the rise in interest rates which would normally
accompany expansion of borrowing in the tax-exempt market.
Thus, it may be some time before there is firm and effective
legislation limiting tax exemption to governmental purposes
or at least constraining the nongovernmental uses of
tax-exempt borrowing to an acceptable level.
S. 1021 attempts to deal with the problem of tax
exemption for nongovernmental purposes by not allowing the
bondholder taxable option for interest received from
tax-exempt industrial development bonds. Unfortunately,
market forces would defeat the laudable intent of this
provision. This provision would not affect the general level
of tax-exempt interest rates. Its only effect would be to
cause low bracket investors and tax-exempt institutions, who
would seek to claim the credit, to concentrate on holdings of
public purpose State and local bonds while high bracket
investors, who would not claim the credit, would concentrate
on holding tax-exempt industrial development bonds. Because
the spread between tax-exempt and taxable interest rates
would be equal to the subsidy rate provided by BTO, all
tax-exempt borrowers, including users of the proceeds of
industrial development bonds, would receive the same benefit
from BTO.
Conclusion
Treasury reluctantly concludes that BTO should not be
enacted at this time. The benefits that would flow to
nongovernmental activities, and the encouragement given to
expansion of nongovernmental uses of tax exemption, outweigh
the benefit which would be derived by State and local
governments in financing governmental facilities.
Treasury strongly supports tax-exempt State and local
borrowing. We believe, however, that this tax exemption
should not be used as a device to provide an indirect Federal
subsidy to a wide range of nongovernmental activities, such
as pollution control facilities and single family housing.

-7Treasury believes that the first legislative priority in
the area of tax-exempt financing is to control the
nongovernmental use of tax-exempt borrowing. Once this has
been accomplished, we would support proposals such as S. 1021
or TBO which would contribute to tax equity and provide
greater, more efficient Federal support for State and local
governments.

-8II.

THE "ARTISTS' TAX EQUITY ACT OF 1979" (S. 1078)

Section (2) of this bill would allow the estate of any
artist to meet its liability for estate tax by transferring
works of the artist's creation, included in the estate, to an
arm of the United States government. The transferee would be
required to certify the significance of the work and that it
will be held for display to the public, but would not be
required to reimburse the Treasury for the estate tax
forgiven. Section (3) of the bill would allow a 30 percent
credit against income tax liability, subject to certain
dollar limitations, for artistic, literary or musical
compositions contributed to a government or exempt
organization by the individual whose personal efforts created
the work. Section (4) would provide that an activity
consisting of artistic, literary or musical creation is
presumptively carried on for profit if the artist produced a
profit in any 2 of 10 consecutive years rather than 2 out of
5 as under present law. Section (5) would provide that art
works received by an artist's beneficiaries from the artist's
estate would be treated as capital assets notwithstanding
their having a carryover basis.
The Treasury is opposed to sections (2) through (4) of
the bill. The change that would be achieved by section (5)
is supported by Treasury and is included in H.R. 4694, the
carryover basis "clean up" bill introduced by Congressman
Fisher.
Payment of Estate Tax
Section (2) of the bill, which would allow a credit
against tax liability for the full fair market value of art
works contributed to the Federal government, is presumably
motivated by a desire to alleviate liquidity problems
perceived to be faced by artists' estates. The provision
perhaps would be defended by its proponents on the ground
that, if the Federal government places a value on an art work
for estate tax purposes, it should be prepared to accept the
work at that value in satisfaction of estate tax liability.
The Tax Reform Act of 1976 mitigated significantly the
liquidity problems sometimes faced by authors' and artists'
estates. Under that Act, payment of estate taxes may be
deferred up to 10 years on a showing of "reasonable cause"—a
standard more easily satisfied than the "undue hardship" test
of prior law. In addition, professional authors and artists
whose estates include significant portions of their literary
or art works could qualify for the new "automatic" 15 year
deferral of estate tax payment. It is our view that these
provisions, together with the "automatic" 10 year deferral of
estate tax permitted under prior law, afford adequate relief
for illiquid estates.

-9The perceived need for additional liquidity relief, such
as that provided by section (2) of the bill, stems from
concern that the inventory of art works in an artist's estate
will be overvalued, by being valued either at the sum of
their "retail" prices rather than as inventory in the hands
of a dealer, or at their undiscounted current value,
disregarding the time needed to liquidate the inventory. In
this context it is important to note that as a matter of
practice the Internal Revenue Service has accepted the
decision in Estate of- David-Smith v.-Commissioner, 57 T.C.
650 (1972), a£fJd on other-grounds, 510 t.l& 475 (2d Cir.
1975), and has initiated a regulation project to consider the
application of its current estate tax valuation regulations
to artists' estates.
We are strongly opposed to creating a precedent that
could significantly impair the efficiency of the government's
revenue collecting function by substituting in-kind transfers
for cash payments in satisfaction of tax liabilities. There
is no logical basis on which a provision such as that
contained in section (2) could be limited to works of an
artist's creation. Nor do we think that artists should be
afforded more favorable treatment with respect to their
estate tax liabilities than other taxpayers.
This section does not, however, merely create a
precedent that could significantly impair the efficiency of
collection of Federal revenues. It also has the effect of
subverting the appropriations process. It is the function of
Congress to determine the purposes for which funds will be
appropriated. Direct appropriations allow aid to be targeted
much more carefully to specific groups of people and specific
objectives. Direct appropriations also allow coordination
among related programs. In contrast, this bill would permit
an artist's executor to decide what works of art will be
transferred to various governmental arms, to the extent of an
artist's estate tax liability. Thus, an artist's execrtor
would have the power to determine how government funds will
be spent.
For the foregoing reasons the Treasury opposes section
(2) .
Charitable Contribution Credit
Section (3) of the bill would allow a 30 percent credit
against income tax liability for property consisting of an
artistic, literary or musical composition contributed by its
creator to the government or an exempt organization. This
credit would be in lieu of the charitable deduction. The
bill also contains a series of provisions that have the
effect of limiting the amount of the credit in any year to
the greater of $2,500 or 50 percent of the taxpayer's
liability for tax, and in no event may the credit exceed
$10,500.

-10Prior to the Tax Reform Act of 1969, a taxpayer,
including an artist, who contributed appreciated property to
charity, was entitled to a charitable contribution deduction
based on fair market value even though the appreciation was
never subject to tax. In many cases, this enabled an
individual to obtain a benefit through a charitable
contribution that would exceed the after-tax proceeds from a
sale. For example, assume an individual in a marginal tax
bracket of 70 percent who owns property worth $100 that has a
negligible cost. If the property were sold, the individual
would owe $70 in tax and would retain $30. If the property
were given to charity, the charitable deduction would reduce
the donor's taxes by $70, resulting in a $40 increase in
after-tax profit on a supposedly charitable transfer. Since
this possibility was more evident in the case of property
that would result in ordinary income if sold, Congress in
1969 modified the law primarily as to ordinary income .
property. Capital gain property was generally unaffected
except in particular cases—for example, transfers to private
foundations.
Works of art are treated as inventory in the hands of
the artist and gain on their disposition by the artist is
taxed as ordinary income. Thus, the 1969 Act affected the
charitable deduction for contributions by artists of their
work but not for contributions by investors in art. Under
the Act, an artist's income tax deduction for works of the
artist's creation contributed to a charity is generally
limited to cost. Under this provision an artist donating art
works to charity would be in the same position as if the
works had been sold and the after-tax proceeds contributed to
the charity.
We believe this approach is correct. It is also
consistent with the treatment of other income producers. For
example, a physician who works a half day in a hospital
without pay does not get a charitable contribution deduction.
The physician's income is unaffected, just as if he earned
$100 for his services and donated a like amount to charity.
We recognize that S. 1078 attempts to meet some of our
concerns by providing the artist with a tax credit rather
than a deduction and by limiting the dollar amount of the
credit. This would equalize the benefit to artists at all
income levels and is intended to prevent any artist from
obtaining a greater benefit from a charitable transfer than
would be available from a sale. However, the latter would be
achieved only if the deduction for charitable contributions
could be limited to the actual fair market value that could
be obtained by sale. The Commissioner's Art Advisory Panel
cannot possibly evaluate all transfers for which taxpayers
seek charitable deductions.

-11Moreover, a tax credit is in many ways similar to a
direct appropriation. The government is offering 30 cents on
the dollar for any art work the artist is willing to transfer
to charity. However, a tax credit, unlike a direct payment,
is not included in income. Moreover, other government
programs to promote the arts already exist. If government
aid to the arts is to be increased, it would be better to do
so through existing or new programs subject to the
appropriations process rather than through tax credits. The
Treasury is therefore opposed to section (3) of the bill.
Activities Entered into for-Profit
Section (4) of the bill would amend section 183 to
extend from 5 to 10 years the period in which to determine
whether an activity consisting of artistic, literary or
musical creation is presumed to be carried on for profit
under section 183(d). We can discern no legitimate reason
for providing preferential treatment in this area to
artistic, literary or musical activities. We see no
justification for providing that if a writer's activities are
profitable in 2 out of 10 years, the favorable presumption of
section 183(d) is created while a farmer would be entitled to
the favorable presumption only if his activities were
profitable in 2 out of 5 years. It should also be kept in
mind that section 183(d) merely creates a presumption; all
relevant facts and circumstances are considered in
determining whether a particular taxpayer is engaged in an
activity for profit.
The Treasury therefore opposes section (4).
Capital-Asset- Status
Section (5) would provide that art works received by an
artist's beneficiary from the artist's estate would be
treated as capital assets notwithstanding their having a
carryover basis. Such a provision should be enacted as part
of any bill to clean up carryover basis, such as H.R. 4694
introduced by Mr. Fisher.
The Treasury therefore supports section (5).

-12III.

METHODS OF DEPRECIATION - RAILROADS

(S. 1467)

S. 145"? deals with methods of depreciation available to
railroads. The bill would amend section l^7 of the Internal
Revenue Code to provide that the retirement-replacementbetterment ("RRB") method of accounting for depreciation is an
acceptable method o f depreciation for Federal income tax
purposes.
Under the RRB method, the original costs of an asset are
capitalized, and no ratable depreciation is taken. When the
asset is retired, the original costs are written off. If,
instead of being retired, the asset is replaced by an asset of
similar quality, the original costs remain capitalized, and
the costs of replacement (less the-fair market value of the
asset replaced) are expensed. In addition, a full investment
tax credit is allowed, even though the cost is currently
deducted. To the extent a "replacement" represents an asset
of a better quality than the one being replaced, the costs of
replacement, to that extent, *re treated as a "betterment" and
are capitalized. The method can be illustrated with the
following example. Assume that rail with an original cost o*
$25 per ton (and a current fair market value of S40 per ton),
is replaced by new rail of equal quality with a current cost
of $150 per ton. The original cost of $25, on which no
ratable depreciation has been taken, remains capitalized, and
the replacement cost of $150, less the fair market value of
the rail being replaced ($40), or $110, is deducted. If,
however, the rail is replaced by rail of a better quality at a
cost of $200 <per ton, the increase in cost of $50 is a
betterment and is capitalized.
The RRB method has historically been used by railroads
for regulatory, financial and tax purposes, although we
understand that five railroads use ratable depreciation for
financial statement purposes. Its origin goes back about 100
years when a similar method was adopted by state railroad
commissioners. Since the beginning of.the income tax in 1913,
the method has been used for tax purposes for roadway assets.
However, in 1943 the Interstate Commerce Commission (ICC^
ordered Class I railroads to change from the RRB method to
straight-line depreciation for roadway assets (buildings,
bridges, tunnels, etc.) other than roadbed or track. Such
change was also made in 1943 for tax purposes with the
Technical Amendments Act of 1958 resolving the method of
adjustment on the change.

-13As stated by a number of courts, the RRB method is based
on an accounting theory of equalization through the law of
averages. The theory of the RRB method is that in a mature
industry, such as railroads, annual retirements and
replacements of property tend to become uniform in amount each
year, and consequently, the deductions under the RRB method
will approximate the results if straight-line depreciation
were used. For example, if, on the average, a railroad
replaces its track every 25 years and, therefore, on the
average replaces one twenty-fifth a year, the deduction for
depreciation will be the same, on average, under the RRB
method and the straight-line method.
That the RRB method has been an acceptable method for tax
purposes has been confirmed by numerous court decisions and
the Internal Revenue Service's acquiescence in 1960. It is
our understanding that the reason the railroad industry is now
asking for legislation to codify the method is due to the fact
that the ICC is currently reexamining its accounting rules for
railroad track property, and the railroads fear that if the
ICC changes the method of depreciation from RRB to
straight-line, the IRS will similarly disallow RRB.
The railroads obviously are concerned that the denial of
RRB depreciation will result in an increased tax burden on the
industry. The concern arises in part because ratable
depreciation based on the basis of existing book accounts
under RRB (which could relate to property acquired many years
ago) would likely be less than ratable depreciation based on
the current cost of replacement property. However, two issues
should be kept separate. First, we should ask ourselves
whether it is sound policy to freeze the RRB method for tax
purposes when it is no longer used for regulatory or financial
purposes. Second, if a change in depreciation practices is
warranted except for the increased tax burden that accompanies
it, we should consider whether there are better or more
logical ways to mitigate that burden.
Thus, we believe Congress should reexamine the RRB
method. Although a practice has been accepted over a long
period of time, it should be examined periodically to
determine if it continues to be appropriate in light of
changes in economic conditions and financial practices. Based
on such a reexamination, the Treasury Department opposes the
enactment of S. 1467 as introduced. The Treasury Department
believes that RRB should be discontinued for tax purposes if
the ICC disallows it. We can assure you, however, with the
concurrence of Commissioner Kurtz, that the Internal Revenue

-14Service will not mandate any change in depreciation for track
until an alternative has been developed and fully explored by
this Subcommittee during the 96th Congress. We propose that
this bill be revised to provide for an appropriate transition
from the RRB method to ratable depreciation should the IRS
require the change for tax purposes. The objective of such
transitional rules should be the minimization of the revenue
cost to the railroads of the change during a transition
period.
We believe that the RRB method is not appropriate because
1) it is, in effect, indexing, 2) it is subject to various
abuses, 3) if the ICC were no longer to allow it, its
continuance would be administratively burdensome, and 4) it
does not clearly reflect income.
First, as I previously stated, the courts have
historically accepted the RRB method based on the theory that
in a mature industry, annual depreciation and the cost of
replacement will on average be identical. However, the
initial court decisions that accepted the method dealt with
taxable years prior to 1943. There is a major distinction
between those years and today—namely, inflation. The "law of
averages" theory works only in terms of constant dollars.
That is, if one twenty-fifth of track is replaced each year,
straight-line depreciation of the historical cost of the track
in place will be the same as the amount currently spent on
track, only if there has been no change in the cost of the
track. However, if, for example, the cost of track in the
current year is 7 5 percent greater than the average historical
cost of the track in place, an immediate deduction for the
cost of the current year's replacement will be 7 5 percent
greater than the deduction based on straight-line depreciation
of the track in place. Thus, in a period of inflation, RRB
amounts to indexation of depreciation. Regardless of what one
concludes about indexing depreciation generally, we submit
that indexing depreciation only for a single industry or group
of taxpayers cannot be justified.
The second reason for our opposition is that a number of
existing or possible abuse situations have come to our
attention regarding the use of the RRB method. The IRS is
currently considering a situation where a railroad has been
purchased at a price that was less than the book value of its
gross assets. In this case, at the time of purchase a low
amount was allocated to track. Since the taxpayer then
elected to use the RRB method, the amount of the purchase
price allocated to the track would not be relevant until the
track was retired. This is unlike normal purchase situations

-15where the portion of the purchase price allocated to
depreciable assets is relevant in determining the future
depreciation deductions. When the RRB method is used, the
future depreciation deductions are based on replacements, not
the historical cost of track in place. In a separate
situation, we understand that in a prospectus it is stated
that the company acquiring the subject railroad would use the
RRB method and could assign a zero basis to the railroad
track. It is clear that in these situations, even assuming
constant dollars, the deduction under the RRB method will be
much greater than that under straight-line depreciation and is
therefore inappropriate since.the courts have based
allowability of RRB on the theory that deductions under it
equal the deductions under straight-line depreciation.
Further, such abuse situations will be more difficult to
detect if RRB is used solely for tax purposes and the
allocations in question are not subject to review by the ICC
or independent accountants.
Third, we believe that if the ICC changes the method of
depreciating track for regulatory purposes, it would be less
of an administrative burden for both taxpayers and the IRS if
for tax purposes the method is also changed from the RRB
method to a ratable method. Since 1913, the accounting for
railroad track has been similar for the ICC and the IRS. At a
minimum, a change to ratable depreciation by the ICC and not
the IRS would require the keeping of two sets of books. No
doubt there would be complaints of excessive paper work if the
law imposed the additional burden. Reconciliations between
records for ICC and IRS purposes would be difficult and it
would certainly make IRS audits more complex and
time-consuming. While reconciliation between ICC and IRS
computations would still be required if both were to disallow
the use of RRB, such reconciliation between straight-line
depreciation and double declining balance depreciation would
certainly be less of a burden than between straight-line
depreciation and RRB. We believe it would be a step backward
if you were to allow the continued use of the RRB method if
the ICC were to change. In addition, we believe that a change
from the RRB method to ratable depreciation would result in
fewer tax disputes than now exist. For example, for all other
taxpayers there is some natural tension between treating an
item (such as repairs) as an ordinary and necessary business
expense and treating it as a capital expenditure. While the
benefit of the former is a current deduction, the benefit of
the latter may be the availability of a 10 percent investment
tax credit. When the RRB method is used, taxpayers naturally
tend toward treating more items as "capital expenditures"
because they obtain both a current deduction with respect to
replacements as well as an investment tax credit. Other

-16existing issues often contested which are peculiar to RRB
accounting involve whether an item is a replacement or a
betterment and whether salvage value equals fair market value.
Maintaining RRB for tax purposes would mean these difficult
questions would be resolved only for tax purposes without
consideration of their complementary effect for regulatory or
financial purposes.
^
Fourth, we believe that the RRB method does not clearly
reflect income. We understand this is the major reason for
the ICC's reexamination. It is our understanding that it is
common practice in the industry that in years of high revenue,
railroads incur high capital expenses and replace higher than
average amount of track, whereas in low revenue years
railroads replace lower than average amount of track. Such
practices are not uncommon in other industries. However, in
high revenue years, railroads are able to increase capital
expenditures and to immediately reduce their tax liability,
while other taxpayers, consistent with the requirement to
clearly reflect income, must spread the deductions over the
years the assets are used. Thus, railroads have a clear
advantage in timing their tax liability over other taxpayers
who must use ratable depreciation. While the accounting
profession allows the use of RRB as a generally accepted
accounting principle, I would like to point out that one can
assume that such allowability is based more on the method
having been generally accepted over many years rather than
that it clearly reflects income.
While we believe that it is no longer appropriate for
railroads to use the RRB method, we are not unmindful of
transitional problems which could, absent legislation, result
in substantial immediate revenue cost to the railroad
industry. We therefore propose that S. 1467 be revised to
provide for appropriate transitional rules with the objective
of minimizing the transitional cost. It seems reasonable to
assume that the real question here is the tax burden of the
industry and not the theoretical correctness of the RRB
method.
A short-term tax increase can arise because in the past
the RRB method has resulted in larger depreciation deductions
than would have been allowed under ratable depreciation; for
example, double declining balance. Normally, in such a
situation the larger deductions in the past would be offset by
lower deductions in the future. Thus, the taxpayer changing
to the new method would not be entitled to as large future
deductions for depreciation as a similarly situated taxpayer
electing to use double declining balance from the beginning.

-17However, because of the very unusual circumstances of this
case, we do not object to allowing the same deductions to a
railroad switching from RRB as would have been allowed as if
it had originally used ratable depreciation.
Toward that end, we propose the following as a general
framework for transition. As of the beginning of the year of
change, the book value of the track would be restated to
reflect (a) the original cost of the track actually in place,
and (b) the accumulated depreciation to such date that would
have resulted had the straight-line method been used. It is
our understanding that this is the method that would probably
be used for book purposes if the ICC decides that the method
should be changed. We would expect to work with the ICC to
develop and agree on the detailed methodology to be used in
making such restatement with the objective that the same
restatement be applicable for both the ICC and for tax
purposes. This restatement of the book value of the track
assets would result in the allowance of a double deduction
since the cost of most of the existing track (except
betterments) has previously been deducted under the RRB
method. The excess of the cost of the existing track (less
accumulated straight-line depreciation) over the capitalized
basis under RRB would be deducted again as part of ratable
depreciation. A double deduction of this type is common when
a method of accounting is changed. To avoid windfalls,
section 481 of the Internal Revenue Code provides that the
amount duplicated is to be taken into account as an adjustment
to taxable income in the year of the change. Normally, to
reduce distortions, such adjustment, which in this case would
increase taxable income, is taken into account over a ten-year
period. However, because of the very unusual circumstances
involved, we propose that such adjustment not be taken into
income at the time of the change, nor spread over a period of
years, but that it be placed in a suspense account, and
deferred until a later time; for example, when the taxpayer is
no longer in the railroad business. This type of suspense
account has been enacted in situations involving reserves for
guaranteed debt obligations, accrued vacation pay, paperback
and record returns, and discount coupons. In those situations
the suspense account was used by Congress to allow the
taxpayers to change to a more generous method of accounting
without a resulting revenue loss to the Treasury due solely to
double deductions in the period of transition. We believe it
is appropriate to apply similar principles to the very unusual
circumstances here.

-18With respect to future ratable depreciation, we propose
that railroads be allowed the same method as other taxpayers.
At present this is the use of the ADR (asset depreciation
range) system including accelerated depreciation. Any
difference in depreciation between ADR-double declining
balance and RRB would be due to the effect of the current
levels of inflation. Congress, as indicated by the earlier
testimony this morning, will likely consider the possibility
of liberalizing depreciation for taxpayers generally.
Railroad depreciation practices should certainly be a part of
this study. If depreciation is liberalized this may eliminate
any revenue cost to the railroads from a change in method. If
the effect of inflation is not otherwise mitigated by the
adoption of changes in the depreciation system generally, we
would consider the use of other benefits, such as additional
first-year depreciation, to reduce the cost during the
transition period to an acceptable level. Any such benefits
would be phased out over the transition period.
We believe that these proposals are both generous and
easy to administer. We presented these proposals on September
27 in testimony before the Subcommittee on Select Revenue
Measures of the House Committee on Ways and Means. We have
not as yet had an opportunity to discuss these proposals with
representatives of the railroad industry. We believe,
however, that with these proposals as a framework, the details
could be developed into a legislative proposal to correspond
to the similar objectives of the industry and the Treasury.

department of theJREASURY
&SHINGTQN, D.C. 20220

TELEPHONE 566-2041

FOR IMMEDIATE RELEASE

October 22, 1979

RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $3,100 million of 13-week bills and for $3,101 million of
26-week bills, both to be issued on October 25, 1979,
were accepted today.
13-week bills
RANGE OF ACCEPTED
COMPETITIVE BIDS: maturing January 24, 1980
Discount Investment
Price
Rate
Rate 1/
High
Low
Average
a/ Excepting 3
b/ Excepting 1
Tenders at
Tenders at

26-week bills
maturing April 24, 1980
Discount Investment
Price
Rate
Rate 1/

,a/
96.75812.825%
13.48%
93.620^12.620%
13.70%
96.701
13.051%
13.72%
93.590 12.679%
13.77%
96.731
12.932%
13.59%
93.604 12.651%
13.74%
tenders totaling $190,000
tender of $20,000
the low price for the 13-week bills were allotted 38%.
the low price for the 26-week bills were allotted 40%.
TENDERS RECEIVED AND ACCEPTED
(In Thousands)>
Received
Accepted
Received
:
$
50,590
$
47,710
$
47,710
4,019,935
3,723,015
2,522,665 '
18,610
31,235
31,235
:
40,625
65,640
65,640
39,570
67,045
39,570 '
53,690
53,900
51,820 •
355,135
387,270
82,015 :
29,880
29,880
22,710
6,225
6,225
8,620
47,545
47,545
21,645
23,845
23,845
12,745
225,860
99,660
222,535
52,520
52,520
62,620

Accepted
$
40,590
2,592,390
18,610
28,015
42,045
47,250
101,770
18,175
7,120
21,645
12,745
107,535
62,620

$4,701,870

$3,100,330

$4,988,850

$3,100,510

$2,926,295
702,115

$1,324,755
702,115

$3,112,935
512,545

$1,324,595
512,545

$3,628,410

$2,026,870

$3,625,480

$1,837,140

Federal Reserve
and Foreign Offici al
Institutions
$1,073,460

$1,073,460

$1,363,370

$1,263,370

$3,100,330

$4,988,850

$3,100,510

Location
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Treasury
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public

TOTALS

$4,701,870

1/Equivalent coupon -issue yield?.

* M-134

•••••••••••BBHHnMai

yartmentaftheTREASURY
SHINGTON, D.C. 20220

TELEPHONE 566-2041
L \ © r\ M i ^»
fftOM Si®"1'

FOR RELEASE ON DELIVERY
EXPECTED A T 9:30 A.M.
October 22, 1979

'-••- J S ' I J
Ulil tJ l

T i'U:- .••••'•

STATEMENT OF THE HONORABLE ROGER C. ALTMAN
ASSISTANT SECRETARY OF THE TREASURY (DOMESTIC FINANCE)
BEFORE THE SUBCOMMITTEE ON ECONOMIC STABILIZATION
OF THE HOUSE BANKING, FINANCE AND URBAN AFFAIRS COMMITTEE
i
Mr. Chairman and Members of the Committee:
I welcome this opportunity to discuss H.R. 3905, the
National Alcohols and Alcohol Fuel and Farm Commodity
Production Act of 1979, as reported by the House Agriculture
Committee. I will comment on the new Federal credit program
which would be created by section 2 of the bill. The
Subcommittee has specifically requested the Department's
assessment of any possible inflationary or anti-inflationary
effects of the bill.
The total volume of credit in our economy at any time is
limited by a number of constraints, including the constraints
of monetary policy and the level of interest rates. Federal
credit programs have the effect of changing the allocation of
these limited credit resources by lowering the cost of credit

M-135

- 2 to preferred borrowers.

Indeed, that is their purpose.

Federal credit programs reflect determinations by Congress
that the credit markets in their normal functioning do not
supply the amount of credit deemed desirable to the class of
borrowers made eligible for assistance under the program.
Yet, given a limited supply of credit available to the
economy, the increased demands of Federal credit programs
add to the pressures on interest rates, tending to raise
interest costs for all borrowers including the Federal
Government. For these reasons, proposals to create new
Federal credit programs or to expand existing programs
should be carefully scrutinizedLet me turn now to the importance of the structure of
a Federal credit program. The existence of a Federal credit
program will generate a demand for it, whether it is needed
or not. Thus, it is important that a Federal credit program
be structured to minimize unnecessary spending and inflationary
pressures. As I will develop, the structure of a credit program —
that is, the eligibility requirements, terms and conditions,
manner in which the credit assistance would be provided, inadequate
provision for Congressional control over the program, etc. —
can contribute to unnecessary spending and costs to the Federal
Government.

- 3 Duplication of programs
Enactment of a credit program, absent a demonstration of
clear need, would result in confusion on the part of potential
applicants as to Federal agency responsibility, duplication of
Federal agency activities, and inefficient use of Federal
resources. In this regard, I understand that loans for alcohols
plants and alcohol fuel plants are available under programs now
conducted by the Farmers Home Administration in the Department
of Agriculture, the Economic Development Administration in the
Department of Commerce, and the Small Business Administration.
In addition, there are pending proposals, such as Chairman
Moorhead's bill, H.R. 3930, which would provide a variety of
financial incentives for synthetic fuels production, including
alcohol fuels.
Credit needs test
Most credit programs are intended to facilitate the
flow of credit to borrowers who are unable to obtain credit
in the private market. The needs of more creditworthy
borrowers are expected to be met in the private market
without Federal credit aid. Accordingly, we believe it is
essential that an applicant for a direct loan demonstrate
that credit is not otherwise available on reasonable terms.
Such a requirement would help direct Federal credit assistance
to cases of demonstrated need, minimize unnecessary demands
for Federal credit assistance, reduce Federal competition

- 4 with and duplication of the activities of private lenders
which would otherwise make the loans, and provide a built-in
control over program growth. There is no such requirement
in section 2 of H.R. 3905.
Interest rate subsidies
In H.R. 3905, the interst rate on direct loans would be
determined by the Secretary of Agriculture, except that the
rate could not exceed the current average yield on outstanding marketable obligations of the United States of
comparable maturities plus one percent. We believe that
provision for a statutory ceiling on the interest rate which
may be charged on direct loans should also be accompanied by
a floor on such rates. Otherwise, a sub-market rate of
interest would stimulate increased demands for loans, and
this problem would be exacerbated by not requiring the
borrower to demonstrate that credit is not otherwise available on reasonable terms. Without such an interest rate
floor, there will be inevitable demands to charge lower
interest rates for particular projects or preferred borrowers.
Unless the interest rate actually charged is sufficient to
cover the Treasury's borrowing costs, as measured by current
market yields on outstanding obligations of comparable
maturities, and program administrative expenses and probable
losses, the result will be hidden subsidies to program borrowers

-5and costs to the Federal Government. In this regard, it is
not clear that the additional charge of up to one percent
would be sufficient to cover program administrative expenses
and losses.
With respect to the interest rate formula in section 2,
we believe that a determination of the current average market
yield on outstanding obligations of the United States should
be made by the Secretary of the Treasury and certified to the
Secretary of Agriculture. The actual interest rates charged
would then be determined by the Secretary of Agriculture
under the authority which permits the Secretary of Agriculture
to charge more than the current average market yield.
Federal guarantees of tax-exempt obligations
The interest on obligations of public bodies is generally
exempt from Federal income taxation. The authority in section 2
to guarantee loans to public bodies would result in Federal
guarantees of tax-exempt obligations. The Treasury opposes
Federal guarantees of tax-exempt municipal bonds. They create
a class of securities which is stronger than the Federal
Government's own securities. Like Treasury securities, they
would be backed by the full Federal credit but, unlike Treasuries,
they would be exempt from Federal taxes. In addition, such
guarantees would convey the benefits of both the Federal credit
and the tax exemption to high income taxpayers — the principal

- 6 buyers of tax-exempt securities.

Also, tax-exempt guarantees

are an ineffective means of delivering Federal aid to local
governments, since much of the benefit goes to high income
investors and since the financing of Federal programs in the
municipal market competes directly with other State and local
bond issues for essential local public facilities and increases
the cost of financing the facilities. For these reasons, we
believe that municipal bonds should only be guaranteed if they
are taxable securities. On at least 19 occasions in recent
years, Congress has enacted legislation which specifically
prohibits Federal guarantees of tax-exempt obligations and
provides other more efficient means of financing credit
assistance to public bodies, including assistance to public
bodies under other provisions of the Consolidated Farm and
Rural Development Act of 1972.
Coordination with Treasury financing
There is no provision for Treasury coordination of
the financing of obligations guaranteed under the bill.
Requiring the approval of the Secretary of the Treasury of
the interest rate, timing, and other terms and conditions
of guaranteed obligations helps assure more efficient financing
of these obligations and coordination with the financing of
other government and government-backed obligations in the
securities market. Also, in this regard, limiting the guarantee

- 7 to private lenders, as proposed in section 2, could result
in excessive financing costs because the Federal Financing
Bank would be precluded from purchasing the guaranteed
obligations. The Federal Financing Bank was created in 1973
for the stated purpose of reducing the cost of Federal and
Federally-assisted borrowings from the public.
Other loan terms and conditions
There is no authority in the bill for the Secretary of
Agriculture to charge a guarantee fee. Failure to charge a
guarantee fee in an amount sufficient to cover administrative
expenses and probable losses will result in hidden subsidies
to guaranteed borrowers and costs to the Government. Requiring
an affirmative finding of reasonable assurance of repayment
prior to making or guaranteeing a loan, limiting the maximum
maturity of the loan to less than the useful life of the project,
and requiring the borrower to have an equity stake in the project
will help minimize Federal exposure to loss under the program.
Congressional control
In the 1980 Budget the Administration proposed the
establishment of a system of control over Federal credit
programs based on annual limitations on gross loan activity
for both direct lending and loan guarantee programs. Under
the Administration's proposal, annual limitations on gross
lending for direct and guaranteed loans would be established

- 8 in the regular Budget and appropriations process. Yet, there
is no provision in the bill that would limit annual direct and
guaranteed lending under the program to amounts specified in
annual appropriations Acts. Such a provision would provide a
firm basis for Congressionl control over annual activity under
the program. Firm Congressional control, in turn, would help
to minimize unnecessary pressures on our credit markets.
In conclusion, the Treasury Department believes that the
deficiencies in program structure will generate unnecessary
demands for Federal credit assistance, resulting in unnecessary
spending, and thus tend to contribute to inflationary pressures.
Accordingly, the Department recommends against enactment of
section 2 of H.R. 3905 in its present form.
I would be happy to answer any questions.

oOo

FOR IMMEDIATE RELEASE

October 23, 1979
STATEMENT BY TREASURY SECRETARY G. WILLIAM MILLER
ON OIL COMPANY EARNINGS
This week's reports of major increases in oil company
earnings reinforce the urgent need for the Congress to enact
promptly the Administration's Windfall Profits Tax. The
Windfall Profits Tax proposed by President Carter and passed
by the House of Representatives left ample incentives for oil
companies to explore for new oil. Furthermore, substantial
increases in world oil prices since the House action mean
profits will be higher than previously expected, even after
the Windfall Profits Tax.
These changing circumstances make it even clearer that
there is no justification for diluting the proposed Windfall
Profits Tax. Continuous changes in both price and availability
in world oil markets demonstrate the importance of the Administration's program to diminish our reliance on imported oil.
A substantial Windfall Profits Tax is essential in order to
provide adequate funds for development of domestic sources of
unconventional energy, for major conservation projects such as
expanded public transportation, and to offset economic hardship
on those least able to bear the burden.
The third quarter earnings reports of major U.S. oil
companies dramatize the merits of our proposed Windfall
Profits Tax, which is fair both to the oil companies and to
the American people.

M-136

partmentoftheJREASURY
SHINGTON, D.C. 20220

TELEPHONE 566-2041

FOR RELEASE AT 4:00 P.M.

October 23, 1979

TREASURY'S WEEKLY BILL OFFERING
The Department of the Treasury, by this public notice,
invites tenders for two series of Treasury bills totaling
approximately $6,200 million, to be issued November 1, 1979.
This offering will provide $100
million of new cash for the
Treasury as the maturing bills are outstanding in the amount of
$6,129 million. The two series offered are as follows:
91-day bills (to maturity date) for approximately $3,100
million, representing an additional amount of bills dated
August 2, 1979,
and to mature January 31, 1980
(CUSIP No.
912793 3P 9 ) , originally issued in the amount of $ 3,026 million,
the additional and original bills to be freely interchangeable.
182-day bills for approximately $3,100 million to be dated
November 1, 1979, and to mature
May 1, 1980
(CUSIP No.
912793 4C 7 ) .
Both series of bills will be issued for cash and in
exchange for Treasury bills maturing November 1, 1979.
Federal Reserve Banks, for themselves and as agents of foreign
and international monetary authorities, presently hold $3,184
million of the maturing bills. These accounts may exchange
bills they hold for the bills now being offered at the weighted
average prices of accepted competitive tenders.
The bills will be issued on a discount basis under competitive
and noncompetitive bidding, and at maturity their par amount will
be payable without interest. Both series of bills will be issued
entirely in book-entry form in a minimum amount of $10,000 and in
any higher $5,000 multiple, on the records either of the Federal
Reserve Banks and Branches, or of the Department of the Treasury.
Tenders will be received at Federal Reserve Banks and
Branches and at the Bureau of the Public Debt, Washington,
D. C. 20226, up to 1:30 p.m., Eastern Standard time,
Monday, October 29, 1979.
Form PD 4632-2 (for 26-week series)
or Form PD 4632-3 (for 13-week series) should be used to submit
tenders for bills to be maintained on the book-entry records of
the Department of the Treasury.
M-137

-2Each tender must be for a minimum of $10,000. Tenders over
$10,000 must be in multiples of $5,000. In the case of
competitive tenders the price offered must be expressed on
the basis of 100, with not more than three decimals, e.g.f
99.925. Fractions may not be used.
Banking institutions and dealers who make primary markets in
Government securities and report daily to the Federal Reserve
Bank of New York their positions in and borrowings on such
securities may submit tenders for account of customers, if the
names of the customers and the amount for each customer are
furnished. Others are only permitted to submit tenders for
their own account. Each tender must state the amount of any net
long position in the bills being offered if such position is in
excess of $200 million. This information should reflect positions
held at the close of business on the day prior to the auction.
Such positions would include bills acquired through "when issued"
trading, and futures and forward transactions as well as holdings
of outstanding bills with the same maturity date as the new
offering; e.g., bills with three months to maturity previously
offered as six month bills. Dealers, who make primary markets in
Government securities and report daily to the Federal Reserve
Bank of New York their positions in and borrowings on such
securities, when submitting tenders for customers, must submit a
separate tender for each customer whose net long position in the
bill being offered exceeds $200 million.
Payment for the full par amount of the bills applied for
must accompany all tenders submitted for bills to be maintained
on the book-entry records of the Department of the Treasury. A
cash adjustment will be made on all accepted tenders for the
difference between the par payment submitted and the actual issue
price as determined in the auction.
No deposit need accompany tenders from incorporated banks
and trust companies and from responsible and recognized dealers
in investment securities for bills to be maintained on the bookentry records of Federal Reserve Banks and Branches. A deposit
of 2 percent of the par amount of the bills applied for must
accompany tenders for such bills from others, unless an express
guaranty of payment by an incorporated bank or trust company
accompanies the tenders.
Public announcement will be made by the Department of the
Treasury of the amount and price range of accepted bids. Competitive bidders will be advised of the acceptance or rejection
of their tenders. The Secretary of the Treasury expressly
reserves the right to accept or reject any or all tenders, in
whole or in part, and the Secretary's action shall be final.
Subject to these reservations, noncompetitive tenders for each
issue for $500,000 or less without stated price from any one
respective
bidder
(in three
will
decimals)
issues.
be accepted
of accepted
in full at
competitive
the weighted
bids average
for the price

-3Settlement for accepted tenders for bills to be maintained
on the book-entry records of Federal Reserve Banks and Branches
must be made or completed at the Federal Reserve Bank or Branch
on November 1, 1979, in cash or other immediately available
funds or in Treasury bills maturing November 1, 1979.
Cash
adjustments will be made for differences between the par value of
the 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 these bills 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 these
bills (other than life insurance companies) must include in his
or her Federal 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.
Department of the Treasury Circulars, Public Debt Series Nos. 26-76 and 27-76, and this notice, prescribe the terms of
these Treasury bills and govern the conditions of their issue.
Copies of the circulars and tender forms may be obtained from any
Federal Reserve Bank or Branch, or from the Bureau of the Public
Debt.

FOR IMMEDIATE RELEASE

October 23, 1979

RESULTS OF AUCTION OF 2-YEAR NOTES
The Department of the Treasury has accepted $3,902 million of
$6,775 million of tenders received from the public for the 2-year
notes, Series Y-1981, auctioned today.
The range of accepted competitive bids was as follows:
Lowest yield 12.55%-^
Highest yield
Average yield

12.69%
12.66%

The interest rate on the notes will be 12-5/8%. At the 12-5/8% rate,
the above yields result in the following prices:
Low-yield price 100.129
High-yield price
Average-yield price

99.888
99.940

The $3,902 million of accepted tenders includes $718 million of
noncompetitive tenders and $2,249 million of competitive tenders from
private investors, including 14% of the amount of notes bid for at
the high yield. It also includes $935 million of tenders at the
average price from Federal Reserve Banks as agents for foreign and
international monetary authorities in exchange for maturing securities.
In addition to the $3,902 million of tenders accepted in the
auction process, $470 million of tenders were accepted at the average
price from Government accounts and Federal Reserve Banks for their own
account in exchange for securities maturing October 31, 1979.
1/ Excepting 6 tenders totaling $125,000.

M-138

lepartmentoftheTREASURY
«

HINGTON, D.C. 20220

TELEPHONE 566-20*1
n 9
LI«30H
S®*^

Contact:

Charles Arnold
(566-2041)
tiei
Rush Loving, Jr. (395-4747^/13
L/^TMtUT
i\u.^ w

FOR IMMEDIATE RELEASE
October 25, 1979

JOINT STATEMENT OF
G. WILLIAM MILLER, SECRETARY OF THE TREASURY
AND
JAMES T. McINTYRE, JR.,
DIRECTOR OF THE OFFICE OF MANAGEMENT AND BUDGET
ON
BUDGET RESULTS FOR FISCAL YEAR 1979

SUMMARY
The Treasury Department is today releasing the September Monthly
Statement
of
Receipts
and Outlays of the United States
Government, which shows the actual budget totals for the fiscal
year that ended on September 30, 1979.
— Deficit.—The 1979 actual deficit was $27.7 billion,
$9.7
billion below the January estimate of $37.4
billion, and $2.6 billion below the revised Mid-Session
Review estimate.
This is the smallest deficit since
fiscal year 1974.
— Receipts.—Receipts were $465.9 billion in 1979, $10.0
billion above the January estimate and almost the same
as the revised Mid-Session Review estimate.
Outlays.—Budget outlays were $493.6 billion in 1979,
$0.3 billion above the January estimate, but $3.1
billion below the revised Mid-Session Review estimate.

M-139

-2Table 1.—BUDGET TOTALS
(in billions of dollars)
Receipts Outlays Deficit (-)
1978 Actual 402.0 450.8 -48.8
1979 Estimates and Actual:
January 1/
July 2/
Actual

456.0
466.5
465.9

493.4
496.8
493.6

-37.4
-30.3
-27.7

1/ January 1979 from the 1980 Budget.
2/ Based on the revision of the Mid-Session Review of the
1980 Budget released on July 31, 1979, adjusted to include
revised estimates for the energy security program and Department
of Defense increases.
NOTE:
The administrative expenses and interest receipts of
the Exchange Stabilization Fund, which previously were excluded
from the budget, are now included. Because of the latter.change,
the 1978 and 1979 figures differ slightly from those in the
Monthly Treasury Statement.

RECEIPTS
Receipts in 1979 were $465.9 billion, $10.0 billion above the
January estimate of $456.0 billion. An increase in individual
income tax receipts of $14.2 billion was partially offset by a
decrease in corporation income tax receipts of $4.6 billion.
Higher personal incomes and overwithholding on the part of
individuals account for most of the increase in individual income
tax receipts.
OUTLAYS
Budget outlays for 1979 were $493.6 billion, only $0.3. billion
above the January estimate, although there were many offsetting
changes.
The larger increases were for military procurement
($2.9 billion) and Farmers Home Administration
($1.4 billion).
The largest decreases were for the Commodity Credit Corporation
($1.5 billion) and military assistance programs ($1.4 billion).
Table 2 shows the changes from the January estimates by agency
and major program.
A description of some of the major outlay
changes follows.

-3Funds Appropriated to the President
Almost all the change for military assistance programs
occurred
in the foreign military sales trust fund. Outlays
in that account represent the net effect of disbursements
and receipts.
Actual disbursements in the fund were $7.1
billion, $2.3 billion below the January estimate. They fell
dramatically because of cancellation of major procurement by
Iran. A shortfall in receipts
(which increases outlays)
also
occurred
due
to a combination of the Iranian
cancellation and our effort to reduce billings to Saudi
Arabia in order to use up excess Saudi funds already on
deposit. The net impact of these changes is a $1.3 billion
reduction
in
actual outlays compared
to the January
estimate.
For foreign economic assistance, the major decrease was in
the security supporting assistance programs. The actual
amount for these programs was $1.8 billion, down $0.3
billion from January.
The decrease is primarily because
outlays for the Egyptian aid program, originally estimated
for 1979, are now expected to occur in 1980.
The decrease in outlays for petroleum reserves, from an
estimated $0.2 billion in January to $-0.5 billion, was due
to a changed treatment of receipts. The actual receipts for
the sale of oil were credited to the petroleum
reserves
account rather than to the Department of Energy, as was
assumed in January.
Department of Agriculture
For the Commodity Credit Corporation, sharply higher grain
prices and improved export markets resulted in larger than
expected offsetting collections from
loan
repayments,
reducing actual outlays $1.5 billion from the January
estimate.
For the Farmers Home Administration, outlays increased $1.4
billion from the January estimate of $0.5 billion. This was
primarily because of a five-fold
increase in emergency
disaster loans from the January estimate.
Outlays for the Food and Nutrition Service were $10.5
billion, $0.7 billion higher than estimated in January.
Almost all of the increase was for the food stamp program.
Following
elimination
of the purchase requirement in
January, people came on to the program rolls earlier and at
a slightly higher level than was anticipated.

-4Department of Commerce
Outlays for the local public works program were $1.7 billion,
$0.3 billion lower than projected in January. This decrease was
due partly to lower costs than expected for some projects and
partly to the fact that many grantees are withholding final
payments on completed projects until they are reviewed and
corrections are completed.
Department of Defense-Military
Military procurement increased $2.9 billion from the January
estimate, to $25.4 billion.
The February amendment for U.S.
purchase of equipment, originally ordered by
the
Iranian
government, increased outlays by about $500 million. The balance
of the increase resulted from faster than expected performance by
contractors.
Department of Defense-Civil
The Army Corps of Engineers construction programs, including over
200 individual projects, experienced fewer than expected delays
and greater than expected inflation, increasing 1979 outlays to
$2.9 billion, $0.3 billion above the January estimate.
Department of Energy
Outlays for 1979 were $7.9 billion, $1.1 billion less than the
January estimate. The decline was due primarily to the decision
to halt purchases of oil for the strategic petroleum reserve
program because of the shortage of oil in the world markets
caused by the Iranian crisis. This decrease is a net figure,
reflecting an offset of $0.7 billion attributable to the fact
that receipts from the sale of oil (which increases net outlays),
which were assumed in January to appear in the Department of
Energy, were recorded in the Funds Appropriated to the President
section of the budget.
Department of Health, Education, and Welfare
The increase for social security was primarily due to higher
than expected average benefit payments, more retroactive
payments, and a higher than expected June cost-of-living
adjustment. The January estimate assumed a 9.1% adjustment,
while the actual adjustment was 9.9%.
The increased outlays for medicaid resulted from higher than
anticipated State expenditures under the program.

-5epartment of Housing and Urban Development
Outlays for community development block grants were $3.2 billion
in 1979, an increase of $0.3 billion since the January estimate.
The January estimate was low primarily because it is difficult to
anticipate the rate at which localities will use the funds.
Department of Labor
For employment and training assistance, the actual outlays
were $6.2 billion, $1.0 billion lower than the January
estimate. The January figures were based on preliminary
estimates of the effect of the October 1978 amendments to
the Comprehensive Employment and Training Act
(CETA) and
assumed enactment of a supplemental for the private sector
employment initiative, newly authorized by CETA:Title VII.
The
amendments
caused delays in grantee spending as
administrative systems were
changed
and
new
rules,
especially for public service jobs, went into effect. The
July estimates were based on a better understanding of these
changes and reduced outlay estimates by $779 million.
The
July estimates also recognized that the Congress would not
enact the supplemental. The final shortfall is probably the
result, in part, of uncertainty over the 1980 appropriation
level, leading to conservative use by grantees of available
funds near the end of the year.
For the black lung disability trust fund, the $0.3 billion
increase over the January budget reflects the supplemental
that was needed because the re-examination of previously
denied claims
(required by the Black Lung Benefits Act of
1977) proceeded faster, more claims were approved, and the
average
size of retroactive payments was higher than
previously anticipated.
Department of Transportation
Federal Highway Administration outlays were $7.3 billion,
$0.4 billion higher than estimated in January. The increase
was due to more construction than anticipated in Federal-aid
highways, and to expanded use of State funds for interstate
construction in 1978 and early 1979, thus increasing Federal
outlays in 1979.
Other transportation outlays were down primarily because
Federal Railroad Administration outlays of $1.2 billion were
?0". 3 billion below the January estimate. The shortfall was
largely the result of lower than expected activity for the
Northeast
corridor
rail
project.
This decrease was
partially offset by Urban Mass Transit
Administration
outlays of $2.5 billion in 1979, which were $0.2 billion
higher than the January estimate.

-6Department of the Treasury
The January estimate included $0.2 billion for the^ proposed
targeted
fiscal assistance program
for 1979, but it was not
enacted. The payments to U.S. territories, also $0.2 billion,
were not made because of a ruling by the Comptroller General that
the payments must be appropriated. The ruling was made late in
the year, and no appropriation was requested
for 1979. ^ There
were net increases in offsetting receipts of $0.3 billion,
primarily from earnings on Treasury tax and loan accounts. ^ In
addition, there was a net increase in outlays of $0.6 billion,
resulting from operations of the Exchange Stabilization Fund.
These operations were not projected in the January estimate.
Environmental Protection Agency (EPA)
Outlays for EPA were $4.8 billion in 1979, $0.6 billion higher
than estimated in January. All of the increase is for the sewage
treatment plant construction program, partly because
increased
technical assistance by Federal officials to grantees made it
possible for construction to proceed faster.
Veterans Administration

(VA)

The VA had outlays of $19.9 billion in 1979, down $0.4 billion
from the January estimate. Most of the decrease was due to later
than expected commitment of funds in the medical care program.

Table 2.—1979 BUDGET RECEIPTS BY SOURCE AND OUTLAYS BY AGENCY:
(fiscal years; in millions of dollars)

CHANGE FROM JANUARY

1979
1978
Actual

January
Budget
Estimate*

Change from
January
Estimate

Actual

180,988
59,952

203,602
70,307

217,841
65,677

14,239
-4,630

103,893
13,850

119,749
15,870

120,074
15,387

325
-483

5,668

6,170

6,130

^40

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

Subtotal, Social insurance taxes
and contributions
Excise taxes
Estate and gift'taxes
Customs
Miscellaneous
Total, Receipts

71
123,410
18,376
5,285
6,573
401,997
7,413

141,789
18,395
5,686
7,517
455,989
8,693

141,591
18,745
5,411
7,439
465,940
9,237

-197
350
-275
-78
9,951
544

Table 2

(continued)
1979
1978
Actual

January
Budget
Estimate*

Actual_

Change from
January
Estimate

Outlays by Major Agency
Legislative branch and the Judiciary
Executive Office of the President
Funds appropriated to the President:
Disaster relief
Military assistance programs
Foreign economic assistance
Petroleum reserves
Other
Subtotal, Funds appropriated to the
President
Agriculture:
Commodity Credit Corporation, foreign
assistance, and special export
Farmers Home Administration
Food and Nutrition Service
Other
Subtotal, Agriculture
Commerce:
Local public works program
Other
Subtotal, Commerce
Defense-Military:
Procurement
Other
Subtotal, Defense-Military
Defense-Civi1
Energy

1,484
75

1,736
88

1,557
80

-179
-9

461
96
3,469
162
262

275
424
3,768
239
384

284
-947
3,312
-458
345

9
-1,371
-457
-696
-39

4,450

5,090

2,537

-2,554

c!o
I

6,465
1,638
8,653
3,613

6,103
537
9,832
3,734

4,587
1,897
10,513
3,636

-1,515
1,361
682
-98

20,368

20,205

20,634

429

3,057
2,181

2,051
2,280

1,741
2,331

-310
51

5,239

4,331

4,072

-260

19,976
83,066

22,476
89,424

25,404
89,609

2,928
185

103,042
2,553
6, 286

111,900
2,644
8,946

115,013
2,908
7,889

3,113
265
-1,057

Table 2

(continued)
1979

Health Education, and Welfare:
Social security (OASDI net)
Medicare and medicaid
Education division
Other
Subtotal, Health Education, and Welfare.
Housing and Urban Development:
Community development grants
Other
Subtotal, Housing and Urban Development.
Interior
Justice
Labor:
Employment and training assistance
Unemployment trust fund
Black lung disability trust fund
Other
Subtotal, Labor
State
Transportation:
Federal Highway Administration
Other

Change from
January
Estimate

1978
Actual

January
Budget
Estimate*

Actual

92,242
35,891
8,764
25,959

102,323
40,900
10,794
26,696

102,595
41,564
10,713
26,313

273
664
-81
-383

162,856

180,714

181,186

472

2,464
5,125

2,875
6,087

3,161
6,057

286
-30

7,589
3,821
2, 397

8,962
4,015
2,586

9,218
4,087
2,522

256
72
-64

4,764
11,169
112
6,851

7,110
11,000
314
4,429

6,158
11,173
622
4,697

-952
173
308
268

22,896
1,252

22,854
1, 399

22,650
1,548

-203
149

6,076
7,376

6,885
8,478

7,253
8,232

368
-246

Subtotal, Transportation
Treasury:
Interest on the public debt
Other

13,452

15,363

15,486

122

48,695
7,660

59,800
5,662

59,837
5,179

37
484

Subtotal, Treasury
Environmental Protection Agency

56,355
4,071

65,462
4,194

65,016
4,800

•446
606

vo
•

Table 2

(continued)
1979
1978
Actual

General Services Administration
National Aeronautics and Space Administration...
Veterans Administration
Community Services Administration
Export-Import Bank
Federal Deposit Insurance Corporation
Federal Home Loan Bank Board
Office of Personnel Management
Postal Service payment
Railroad Retirement Board
Small Business Administration
Other
Undistributed offsetting receipts:
Federal employer contributions to
retirement funds
Interest received by trust funds
Rents and royalties on the Outer Continental
Shelf
Total, Outlays
Deficit (-)
*

83
3,980
18,962
768
-106
-567
-403
10,952
1,778
4,075
2,766
6,133

January
Budget
Estimate*
158
4,401
20,315
668
91
-1,121
-390
12,529
1,803
4,382
1,523
7,191

Actual
173
4,187
19,887
779
200
-1,218
-488
12,655
1,787
4,365
1,631
6,972

Change from
January
Estimate
15
-214
-428
111
109
-97
-98
126
-17
-16
109
-219

,
r-»

-4,983
-8,530

-5,388
-9,782

-5,271
-9,951

117
-168

-2,259

-3,500

-3,267

233

450,836

493,368

493,641

273

=======

-37,379

-27,701

-48,839

9,678

January 1979 from the 1980 Budget.

MOTE: Detail may not add to totals due to rounding. The administrative expenses and
interest receipts of the Exchange Stabilization Fund, which previously were
excluded from the budget, are now included. Because of the latter change, the
1978 and 1979 figures differ slightly from those in the Monthly Treasury
Statement.

Erratum to the Final Monthly Treasury Statement
of Receipts and Outlays of the United States
Government for the period October 1, 1978 through
September 30, 1979.
General note B on page 3 should read as follows:
The joint Treasury/Office of Management and Budget
press statement released with this Monthly Treasury
Statement has adjusted these totals to include
operating expenses and interest receipts of the
Exchange Stabilization Fund. The totals in the
press release are $493.6 billion for outlays and
$-27.7 billion for the deficit.

Final1 Monthly Treasury Statement of
Receipts and Outlays of the United States Government
for period *rom October 1,1978 through September 30,1979
TABLE l-TOTALS OF BUDGET RESULTS A N D FINANCING (In millions)
M e a n s of Financing

Budget Receipts and Outlays

Period

Net
Receipts

mparative data:
Actual 1978 (twelve
months)
timated 1979 2
2
tjmated 1980

Budget
Surplus (+)
or
Deficit (-)

Net
Outlays

By Reduction
of Cash
and Monetary
Assets
Increase (-)

By
Borrowing
from the
Public

Total
Budget
Financing

By
Other
Means

$47,295
465,940

$29,625
493,221

+$17,670
-27,281

$4,249
33,641

-$16,562
-408

-$5,358
-5,951

-$17,670
27,281

401,997
466,497
513,865

450,938
496,758
547,092

-48,940
-30,261
-33,227

59,106
31,200
42,887

-3,023
9,944

-7,143
-10,883
-9,660

48,940
30,261
33,227

TABLE ll-SUMMARY OF BUDGET RECEIPTS AND OUTLAYS (In millions)
Classification

Budget
Estimates
Full Fiscal Year 2

Actual
Comparable
Prior Period

Actual
This Fiscal
Year to Date

Actual
This Month

N E T RECEIPTS
ividual income taxes
rporation income taxes
:ial insurance taxes and contributions:
Employment taxes and contributions
Unemployment insurance
Contributions for other insurance and retirement
cise taxes
tate and gift taxes
stoms duties
scellaneous receipts
Total,

$23,341
9,633

$217,841
65,677

$180,988
59,952

$216,642
67,792

10,310
154
344
1,660
434
559
859
47,295

120,074
15,387
6,130
18,745
5,411
7,439
9,237

103,893
13,850
5,668
18,376
5,285
6,573
7,413

119,854
15,296
6,170
18,608
5,380
7,400
9,355

465,940

401,997

466,497

84
34
5

1,077
480
80

1,049
435
75

1,220
511
89

212
84
52
904
278
9,353
347
685
6,413
826
458
191
1,855
122
1,462

-960
-95
-600

839
1,476
222
20,634
4,072
115,013
2,908
7,889
181,186
9,218
4,087
2,522
22,650
1,548
15,486
6,848
59,837
-2,089
4,800
173
4,187
19,887
26,682
-5,271
-9,951
-3,267

2,004
1,523
932
20,368
5,239
103,042
2,553
6,264
162,856
7,597
3,795
2,397
22,951
1,252
13,452
6,823
48,695
939
4,071
117
3,980
18,962
25,339
-4,983
-8,530
-2,259

2,517
1,566
983
21,459
4,123
112,815
2,894
7,554
181,936
8,866
4,004
2,542
23,387
1,479
15,291
6,852
60,100
-1,636
4,386
121
4,239
20,269
27,574
-5,391
-9,783
-3,209

29,625

493,221

450,938

496,758

+17,670

-27,281

-48,940

-30,261

NET OUTLAYS
gislative Branch
e Judiciary
ecutive Office of the President
rids Appropriated to the President:
nternational security assistance
international development assistance.
Dther
partment of Agriculture
partment of C o m m e r c e
partment of Defense - Military
partment of Defense - Civil
partment of Energy
partment of Health, Education, and Welfare.
partment of Housing and Urban Development.
partment of the Interior
partment of Justice
partment of Labor
partment of State
partment of Transportation
partment of the Treasury:
Jeneral revenue sharing
nterest on the public debt
rironmental
Protection Agency
)ther
leral Services Administration
ional Aeronautics and Space Administration
erans Administration
>er independent agencies
listributed offsetting receipts:
federal employer contributions to retirement funds
nterest on certain Government accounts
tents and royalties on the Outer Continental Shelf lands.
Total,
•plus (+) or deficit (-)
footnotes on page 3.
rce: Bureau of Government Financial Operations, Department of the Treasury.

4,360
-329
424
90
387
597
2,384

TABLE III--BUDGET RECEIPTS A N D OUTLAYS-Continued (In thousands)
Current Fiscal Year to Date

This Month
Classification of
Receipts

Gross
Receipts

Refunds
(Deduct)

Net
Receipts

Gross
Receipts

Refunds
(Deduct)

Net
Receipts

Comparable Period Prior Fiscal Year
Gross
Receipts

Refunds
(Deduct)

Net
Receipts

Individual income taxes:
Withheld
Presidential Election Campaign Fund
Other

,
'/.'.

$16,193,722
159
3
7,349,082
23,542,963

Total--FOASI trust fund

Federal disability insurance trust fund:
Federal Insurance Contributions Act taxes.„ .........
Self-Employment Contributions Act taxes

Total--FDI trust fund
Federal hospital insurance trust fund:

Self-Employment Contributions Act taxes
Receipts from railroad retirement account
Deposits by States
P r e m i u m s collected for uninsured individuals
Total--FHI trust fund

$32,070,370

$180,987,774

5,771,288

65,676,588

65,380,145

5,428,280

59,951,866

449,013

70,996,669
3,733,056
8,680,185
83,409,910

62,366,140
3,302,166
7,859,698
73,528,004

387,225

61,978,915
3,302,166
7,859,698

387,225

73,140,779

12,437,815
671,021
1,474,907
14,583,743

10,517,122
471,623
1,312,550
12,301,296

50,900

10,466,222
471,623
1,312,550

50,900

12,250,396

14,213,688
493,668
196,506
1,843,511
12,094
16,759,467

79,600

14,134,088
493,668
196,506
1,843,511
12,094

105,390

17,079,544
629,442
175,600
1,989,592
16,507
19,890,684

79,600

16,679,867

2,190,293

406

2,189,887

1,822,725

719

1,822,006

-17 10,309,774

120,711,065

636,841

120,074,224

104,411,493

518,444

103,893,049

$201,493 $23,341,470

$33,705,011

9,633,126

71,447,876

6.821,238
J 310,179
-865,564
6,265,853

6,821,238
310,179
-865,564
6,265,853

71,445,682
3,733,056
8,680,185
83,858,923

1,198,450
3
53,395
366,934
1,618,779

1,198,450
53,395
366,934
1,618,779

12,519,847
671,021
1,474,907
14,665,775

82,032

1,633,601
3
53,645

1,633,601
53,645

105,390

513,707
921

2,201,875

17,184,934
629,442
175,600
1,989,592
16,507
19,996,074

223,266

10,096,195
Social insurance taxes and contributions:
Employment taxes and contributions:
Federal old-age and survivors ins. trust fund:
Self-Employment Contributions Act taxes

$217,840,966

$165,215,153
39,077
47,803,913
213,058,144

$195,295,203
35,934
56,214,840
251,545,977

' ''M~$ ,''

463,068

449,013

82,032

Railroad retirement accounts:
223,249
Total—Employment taxes and contributions.
Unemployment insurance:
Unemployment trust fund:
Railroad Unemployment Ins. Act contributions

10,309,756

-17

89,115
22,000
45,666

2,387

89,115
19,613
45,666

12,272,625
2,958,000
207,542

51,434

12,272,625
2,906,566
207,542

11,031,805
2,642,000
217,883

42,090

11,031,805
2,599,910
217,883

156,781

2,387

154,394

15,438,167

51,434

15,386,733

13,891,687

42,090

13,849,598

33,867
532

2,373,192
262,813

2,186,489
244,644

34,400

2,636,005

2,431,133

301,315
2,089
132

3,405,596
21,121
1,606

3,153,352
19,311
1,600

303,536

3,428,322

3,174,263

Contributions for other insurance and retirement:
Federal supplementary medical ins. trust fund:

Total--FSMI trust fund
Federal employees retirement contributions:
Civil service retirement and disability fund .,..,.
Foreign service retirement and disability fund...
Total—Federal employees retirement
See footnotes on page 3.

1 H D L L IIl--DUL>^L

1 HtUEIPTS A N D U U 1LAYS—Continued (In thousands)
This Month

Classification of
Receipts—Continued

Social insurance taxes and contributions—Continued
Contributions for other insurance and retirement—
Continued
Other retirement contributions:

Gross
Receipts

Refunds
(Deduct)

Current Fiscal Year to Date
Net
Receipts

Gross
Receipts

Refunds
(Deduct)

Net
Receipts

Comparable Period Prior Fiscal Year
Gross
Receipts

Refunds
(Deduct)

Net
Receipts

$6,476

$66,042

$62,324

344,412

6,130,369

5,667,720

Total—Contributions for other insurance and
Total—Social insurance taxes and contributions

10,810,949

$2,370

10,808,579

142,279,601

$688,275

141,591,326

123,970,900

$560,534

123,410,366

960,453
134,003
567,000
18,200
1,679,656

19,279

941,175
134,003
567,000
18,200
1,660,378

9,977,519
1,528,126
7,322,235
221,614
19,049,494

169,253
1,866
133,422

10,202,959
1,328,058
7,041,882
92,050
18,664,949

149,309
2,008
137,447

304,541

9,808,266
1,526,260
7,188,812
221,614
18,744,953

288,765

10,053,649
1,326,050
6,904,434
92,050
18,376,184

5,381,499

96,097

5,285,402

Excise taxes:

19,279

445,467

11,377

434,090

5,519,090

108,534

5,410,556

582,941

23,680

559,261

7,639,620

201,087

7,438,533

6,728,612

155,894

6,572,718

800,682
57,900

800,682
57,875

8,326,930
912,158

1,841

8,326,930
910,317

6,641,092
772,598

622

6,641,092
771,976

858,582

858,557

9,239,088

1,841

9,237,246

7,413,690

622

7,413,068

48,016,752

721,292

47,295,460

506,720,745

40,780,577

465,940,168

440,597,938

38,600,561

401,997,377

Miscellaneous receipts:

GENERAL NOTES
Throughout this statement, details may not add to totals due to rounding.
The Joint Treasury-Office of Management and Budget Press Statement, released with
this Monthly Treasury Statement, has adjusted these totals to include administrative
expenses and interest receipts of the Exchange Stabilization Fund. The totals in the
press release are $492.5 billion for outlays and -$26.5 billion for the deficit.

FOOTNOTES
This statement contains the final figures showing budget results for the
fiscal year ending September 30, 1979.
Based on the revision of the Mid-Session Review of the 1980 Budget released on July 31, 1979; adjusted to include revised estimates for the Energy
Security Program and Department of Defense increases.
In accordance with the provisions of the Social Security Act, as amended,
"Individual Income Taxes Withheld" have been decreased and "Federal Insurance Contribution Act Taxes" correspondingly increased by $82,688 thousand
to correct estimates for the quarter ended December 31, 1978. "Individual
Income Taxes Other" have been decreased and "Self Employment Contributions Act Taxes" correspondingly increased in the amount of $23,220 thousand to correct estimates for calendar year 1977 and prior.
^Includes $366,934 thousand distributed to the Federal Disability Insurance
Trust Fund and $513,707 thousand distributed to the Federal Hospital Insurance Trust Fund.
5
Represents benefit payments customarily paid in September but were
paid in August as provided by the early check provision in Public Law 95-216.
6
Includes adjustments to amounts previously reported.
7
The Federal Emergency Management Agency was activated on March 25,
1979, in accordance with Reorganization Plan No. 3 of 1978. Activity of F E M A

in this statement represents transactions resulting from appropriations made
to the existing component agencies and functions.
8
The Office of Personnel Management and the Merit System Protection
Board were established on December 29, 1978, pursuant to Reorganization
Plan No. 2 and the Civil Service Reform Act of 1978. These agencies assume
the responsibilities formerly vested in the U.S. Civil Service Commission.
9
Effective November 2, 1978, Treasury implemented investments authority provision of Public Law 94-147, enacted October 28, 1977. The Law permits Federal depositaries to select either a Note or Remittance Option tax
and loan account. The balance of Treasury operating cash at Note Option depositaries is referred to as "Tax and Loan Note Accounts". The balances in
those depositaries choosing the Remittance Option are included in the "Federal Reserve account" category.
10
Effective January 1, 1979, the profit on the sale of Treasury-held gold
was reclassified from a proprietary receipt offset against Treasury outlays
to a transaction not applied to the current year's surplus or deficit.
•"^Represents overstatement in agency reporting in July, corrected this
month.
W

TABLE III--BUDGET RECEIPTS AND OUTLAYS-Contlnued (In thousands)

Outlays
Legislative Branch:
Senate
House of Representatives
Joint Items
Congressional Budget Office
Architect of the Capitol
Library of Congress
Government Printing Office:
Revolving fund (net)
General fund appropriations
General Accounting Office
United States Tax Court
Other Legislative Branch Agencies
Proprietary receipts from the public
Intrabudgetary transactions
Total--Legislative Branch
The Judiciary:
Supreme Court of the United States
Courts of Appeals, District Courts, and other
Judicial Services
Other
Proprietary receipts from the public
Intrabudgetary transactions
Total—The Judiciary
Executive Office of the President:
Compensation of the President and the
White House Office
Office of Management and Budget
Other
Total--Executive Office of the President
Funds Appropriated to the President:
Appalachian Regional Development Programs
Disaster relief
Foreign Assistance:
International Security Assistance:
Military assistance
,
Foreign military credit sales
Security supporting assistance
Advances, foreign military sales
Other
Proprietary receipts from the public:
Advances, foreign military sales
Other
Total—International Security Assistance
International Development Assistance:
Multilateral Assistance:
Contributions to International Financial
Institutions:
See footnotes
on page 3.
International development association...

Applicable
Receipts

Comparable Period Prior Fiscal Year

Current Fiscal Year

This Month

Classification of
OUTLAYS

Net
Outlays

Outlays

Applicable
Receipts

Net
Outlays

Outlays

$158,209
289,318
54,184
9,835
100,256
146,380
1,912
115,469
169,507
8,759
14,000
-388

$169,455
303,720
45,746
10,139
93,025
162,626
11,908
101,525
179,613
8,658
17,698
-26,282
1,077,101
-729

1,067,442

9,736

8,964

441,257
30,363

441,257
30,363
-1,692

401,493
57,311

123

29,989
3,355
-123

34,031

123

33,908

481,357

479,665

436,668

1,545
2,569

(*)

5,083

(*)

969
1,545
2,569
5,083

16,159
29,913
33,642
79,715

16,159
29,788
33,642
79,589

16,822
29,299
28,446
74,567

33,452
49,422

33,444
49,422

304,348
284,220

304,337
284,220

261,729
470,291

17,854
248,338
61,364
845,862
2,347

17,854
248,338
61,364
845,862
2,347
-951,303
-12,316
212,145

139,641
640,259
1,786,014
7,110,679
25,672

169,259
569,549
1,907,872
8,104,016
22,511

$14,166
26,404
472
1,069
7,216
12,890
11,161
1,364
13,851
356
2,274

7,522

91,162

7,529

$169,455
303,810
45,746
10,139
93,025
162,626
11,908
101,525
179,613
8,658
17,698
-729

$14,166
26,397
472
1,069
7,216
12,890
11,161
1,364
13,851
356
2,274
-7,522
83,633
-60

1,103,474

686

29,989
3,355

-60

951,303
12,316
1,175,764

963,619

26,282
26,373

1,692
1,692

125
125

139,641
640,259
1,786,014
7,110,679
25,672
8,544,542
318,541
9,702,265

375,621

8,863,083

Applicable
Receipts

$73

18,592
18,666

1,543

-31,100
1,543

8,445,172
324,389

-318,541
839,182

10,773,207

375,621

323,325

8,769,560

T A B L E M I - B U D G E T RECEIPTS A N D OUTLAYS-Contlnued (In thousands)

Funds Appropriated to the President—Continued
Foreign Assistance—Continued
International Development-Assistance—Continued
Multilateral Assistance--Continued
Contributions to International Financial
Institutions—C ontinued

Applicable
Receipts

Outlays

Net
Outlays

Operating expenses of the Agency for
International Development
Other
Total—Bilateral Assistance
Total—International Development Assistance ....
President's foreign assistance contingency fund
Total—Foreign Assistance

Outlays

Applicable
Receipts

Net
Outlays

Applicable
Receipts

Outlays

Net
Outlays

$21,082

$235,711
71,265

$381,722
153,171

-21

200,102

19,600
210,223

2,102
1,018
-29,423
99,467
856

9,976
10,162
37,134
837,449
25,676

-64,132
9,829
23,311
837,449
25,676

1,891
6,911
75,869
614,269
24,220

229,810
144,179

206,620
117,768

1,294,385

701,327

229,810
144,179
-613,063
593,058

1,047,549

612,577

206,620
117,768
-533,861
434,972

701,327

1,475,757

2,135,589

612,577

1,523,012

46,702
3,031

34,987
3,627

2,364,672

12,947,411

67,568
-525,208
41,029
2,536,618

354,445

14,034,077

Payment to the International Fund for
Bilateral Assistance:
Public enterprise funds:
Overseas Private Investment Corporation .
Inter-American Foundation
Other
Functional development assistance program
Payment to Foreign Service retirement and

Comparable Period Prjor Fiscal Year

Current Fiscal Year to Date

This Month
Classification of
OUTLAYS—Continued

4,174
1,020
-27,763
99,467
856
14,694
26,851

$2,072
1
1,660

$74,108
333
13,823

$67,286
400
11,030

-65,395
6,511
64,840
614,269
24,220

119,299

56,445

14,694
26,851
-52,712
62,854

140,360

56,445

83,914

2,177,084

1,900
44

46,702
3,031

298,003

11,929,082

45,971
-79,440
565
347,965

67,568

12,626,248

3,458
2,945

49,411
32,487

5,664
28,921

12,588
17,989
39,360
916
8,666
4,338
76,430
26,229
19,352
4,385
9,205
349,248
170,002
720
519,970

12,588
17,989
39,360
916
8,666
4,338
76,430
26,229
19,352
4,385
3,519
-297,474
170,002
720
-126,752

330,119
153,069
272,936
14,427
82,579
49,632
805,900
226,082
232,243
49,133
76,717
10,486,691
170,002
39,421
10,696,114

330,119
153,069
272,936
14,427
82,579
49,632
805,900
226,082
232,243
49,133
-7,938
3,572,102
170,002
39,421

310,055
134,724
251,739
16,979
74,198
44,120
922,885
215,124
264,949
42,351
138,600
12,172,787
-64,646
33,037

310,055
134,724
251,739
16,979
74,198
44,120
922,885
215,124
264,949
42,351

3,781,525

12,141,179

2,102

23,923

23,429

52,712

1,900
44
1,318,068

1,020,065

613,063

9,564,410

533,861

34,987
3,627
9,382,137

3,565,273

Petroleum Reserves:
45,971
Other..,

79,440

565
1,447,478

1,099,513

525,208
41,029
10,089,630

192,813

201
9,575,004

354,445
-192,813
201
4,459,073

Department of Agriculture:
Science and Education Administration:

Agricultural Stabilization and Conservation Service:

Commodity Credit Corporation:

5,687
646,722

646,722

84,655
6,914,589

6,914,589

81,164

57,436

6,549,440
50,000

5,623,347
-114,646
33,037

6,599,440

5,541,739

Rural Electrification Administration (salaries and
2,102

23,429

TABLE III--BUDGET RECEIPTS A N D OUTLAYS-Continued (In thousands)

Department of Agriculture—Continued
Farmers H o m e Administration:
Public enterprise funds:
Rural housing insurance fund
Agricultural credit insurance fund
Rural development insurance fund
Other
Rural water and waste disposal grants
Salaries and expenses
Other
Total—Farmers Home Administration »
Soil Conservation Service:
Conservation operations
Watershed and flood prevention operations
Other
Animal and Plant Health Inspection Service
Federal Grain Inspection Service
Agricultural Marketing Service
Food Safety and Quality Service:
Salaries and expenses
Funds for strengthening markets, income, and
supply
(
Expenses and refunds, inspection and grading of
farm products
Food and Nutrition Service:
Food program administration
Food stamp program
Special milk program
Child nutrition programs
Special supplemental food programs (WIC)
Food donations program
Total—Food and Nutrition Service
Forest Service:
Forest management, protection and utilization
Construction and land acquisition
Forest roads and trails
Forest Service permanent appropriations
Cooperative work
Other
Total—Forest Service
Other
Proprietary receipts from the public
Intrabudgetary transactions
Total—Department of Agriculture »
Department of Commerce:
General Administration
Bureau of the Census
Economic and Statistical Analysis
See footnotes on page 3.

Outlays

$648,491
400,911
69,424
-92
26,216
19,599
3,320
1,167,868

Applicable
Receipts

Net
Outlays

Outlays

Applicable
Receipts

Net
Outlays

Outlays

Applicable
Receipts

$183,822
1,017,151
151,990
-2,151
286,989
211,505
46,193
1,897,499

^6,761,435
6,472,529
1,300,595
-764
180,034
188,037
31,955
14,933,820

256,417
228,239
75,534
230,098
18,306
46,526
262,928

242,465
174,628
82,393
200,779
11,273
70,066
261,997

273,889

272,910

48,853

46,107

$449,087
653,451
136,620
-1,363
180,034
188,037
31,955
1,637,821

16,140,443
8,843,078
1,508,919
-1,477
286,989
211,505
48,193
17,037,650

19,189
24,075
7,588
18,108
1,181
2,592
3,692

256,417
228,239
75,534
230,098
18,306
70,781
262,928

5,208

6,840

6,390
610,758
2,779
132,144
51,251
26,684
830,005

71,300
6,821,746
134,086
2,879,668
542,158
64,139
10,513,097

66,851
5,498,775
138,596
2,526,732
370,569
51,686
8,653,210

67,432
25,140
39,526
7,908
40,074
5,038
185,119

927,384
136,869
212,917
364,650
64,018
79,877
1,785,715

782,379
65,719
174,928
327,292
77,261
81,888
1,509,467

3,610
146,109
-20,642
904,380

24,436

17,283

43,820,482

24,436
-1,023,106
-100,230
20,633,725

41,056,112

-24
28,833
1,380

25,858
197,914
16,432

24,096
121,472
14,269

1,591,685

2,000

3,610
-146,109
-20,642
3,004,365
-24
28,833
1,380

2,099,985

15,956,621
7,825,927
1,356,930
673

16,312,348
5,819,078
1,163,975
598

Net
Outlays

-$253,135
-202,791
-16,902
-123
26,216
19,599
3,320
-423,817

19,189
24,075
7,588
18,108
1,181
4,592
3,692

$901,626
603,702
86,326
31

Comparable Period Prior Fiscal Year

Current Fiscal Year to Date

This Month
Classification of
O U T L A Y S - -Continued

15,140,151

1
24,255

1,023,106

-i66!230
23,186,757

13,295,999

(*)
23,909

242,465
174,628
82,393
200,779
11,273
46,157
261,997

687,198

17,283
-687,198
-35,203

20,687,711

20,368,401

-35,203

24,096
121,472
. 14,269

T A B L E D E B U D G E T RECEIPTS A N D OUTLAYS-Continued (In thousands)
Current Fiscal Year to Date

This Month
Classification of
OUTLAYS—Continued

Outlays

Department of Commerce—Continued
Economic Development Assistance:
Economic Development Administration:
Economic development assistance programs ...
Local public works program
Other
Regional Action Planning Commissions
Total—Economic Development Assistance
Promotion of Industry and Commerce
Science and Technology:
National Oceanic and Atmospheric Administration
Patent and Trademark Office
Science and Technical Research
National Telecommunications and Information
Administration
Total—Science and Technology
Maritime Administration:
Public enterprise funds
Ship construction
,
Operating-differential subsidies
Other
Proprietary receipts from the public
Intrabudgetary transactions
Total—Department of Commerce
Department of Defense—Military:
Military Personnel:
Department of the A r m y
,
Department of the Navy
Department of the Air Force
,
Total—Military Personnel
Retired Military Personnel «
Operation and Maintenance:
Department of the A r m y
Department of the Navy
Department of the Air Force
Defense agencies
Total—Operation and Maintenance
Procurement:
Department of the A r m y
Department of the Navy
Department of the Air Force
Defense agencies
Total--Procurement

,
,
•

$40,678
65,461
2,231
5,459
113,829

Applicable
Receipts

1,775
4,775

10,589

Net
Outlays

Outlays

$40,678
65,461
-2,545
5,459
109,054

$435,561
1,740,678
74,952
106,143
2,357,334

10,589

145,037
731,031
97,124
102,946
20,653

Applicable
Receipts

Comparable Period Prior Fiscal Year

Net
Outlays

Outlays

Applicable
Receipts

$435,561
1,740,678
10,863
106,143
2,293,246

$329,856
3,057,363
199,663
103,149
3,690,031

145,037

140,564

2,003

729,028
97,124
102,946
20,653

683,871
91,763
96,027
4,005

1,755

$64,088
64,088

$58,863
58,863

71,381
7,488
11,097
1,605

214

71,167
7,488
11,097
1,605

91,571

214

91,358

951,753

2,003

949,750

875,666

1,755

-964
17,207
23,859
3,951
-3,391
-3,660
278,191

33,332
200,777
300,522
71,693
-48,590

58,909

108,607
156,657
303,194
72,554
-46,179

42,734

4,252,063

180,298

-25,577
200,777
300,522
71,693
-55,297
-48,590
4,071,765

5,460,933

919,438
770,126
683,915
2,373,479

10,943,273
9,117,173
8,346,725
28,407,171

10,450,163
8,688,661
7,936,523
27,075,347

943,379

10,279,058

9,171,474

844,270
1,092,625
777,144
284,962
2,999,000

10,365,093
12,301,979
10,475,850
3,281,383
36,424,304

9,616,754
11,266,342
9,757,321
2,937,554
33,577,971

224,536
920,819
713,312
17,214
1,875,880

4,464,526
11,796,724
8,905,780
237,225
25,404,254

3,223,817
9,197,137
7,334,942
219,657
19,975,554

2,552
17,207
23,859
3,951
'-3*660

3,516

290,088

11,897

3,391

55,297

118,791
222,143

19,975,554

TABLE HI-BUDGET RECEIPTS A N D OUTLAYS-Continued (In thousands)

Outlays
Department of Defense—Military—Continued
Research, Development, Test, and Evaluation:
Department of the Army
Department of the Navy
Department of the Air Force
Defense agencies

Current Fiscal Year to Date

This Month

Classification of
OUTLAYS-Continued

Applicable
Receipts

Net
Outlays

Outlays

Applicable
Receipts

Net
Outlays

Comparable Period Prior Fiscal Year
Outlays

Applicable
Receipts

Net
Outlays

$195,957
391,685
270,686
73,697

$2,408,870
3,826,449
4,079,757
837,101

$2,342,208
3,824,871
3,626,026
714,859

932,025

11,152,177

10,507,964

Military Construction:
Department of the Army
Department of the Navy
Department of the Air Force
Defense agencies

65,045
72,870
62,889
1,425

701,942
759,708
614,786
3,550

737,194
634,045
537,152
23,113

Total--Military Construction

202,229

2,079,987

1,931,504

Family Housing
Revolving and Management Funds:
Public Enterprise Funds
Intragovernmental Funds:
Department of the Army
Department of the Navy
Department of the Air Force
Defense Agencies
Other
Proprietary receipts from the public
Intrabudgetary transactions
Total—Department of Defense—Military

149,073

148,871

1,470,525

$3,007

1,467,517

1,407,960

13,187

1,404,773

3,064

-1,559

1,622

2,216

-593

Total--Research, Development, Test, and
Evaluation

Department of Defense—Civil:
Corps of Engineers:
General investigations
Construction, general
Operations and maintenance, general
Flood control
Other
Proprietary receipts from the public
Total--Corps of Engineers
The Panama Canal:
Canal Zone Government
Panama Canal Company
Proprietary receipts from the public
Intrabudgetary transactions
Other
Proprietary receipts from the public
Total--Department of Defense—Civil
Department of Energy
Department of Health, Education, and Welfare:
Public Health Service:
Food and Drug Administration
Health Services Administration:
Health services
Indian health services and facilities
Emergency health
Center for Disease Control.

123
-18,511
-124,207
31,153
8,259
17,656

$203
208

16,097
4,284

-15,478
9,374,061

13,849
181,380
96,933
39,298
-7,823
323,637
13,539
56,404

20,792

4,910
4,910

-84
-18,511
-124,207
31,153
8,259
1,559
-4,284
-15,478
9,353,270

13,849
181,380
96,933
39,298
-7,823
-4,910
318,727

1,504
108,909
118,784
-9,766
69,227
208,113

191,874
492,493

"*-i6!760
115,703,486

124,293
1,609,906
806,418
252,891
149,567
2,943,075
74,824
363,837

690,439

108,909
118,784
-9,766
69,227
16,238
-492,493
-10,760
115,013,047

71,155
301,273

307
3,246

74,824
-459
-49,239
-23,671
23,971
-3,246

56,850

25
312

390,877

43,457

347,420

3,382,344

473,938

2,908,406

775,129

89,739

685,390

8,743,768

854,976

7,888,792

19,598

432

19,166

307,132

7,299

135,489
50,222

23,554

1,183,174
555,455
3
238,335

-4,473
1,770

-23,671
24,278

103,360,052

96,145
1,428,768
757,278
230,341
99,096

56,850

364,297
49,239

163,431
149,118

-11,050

124,293
1,609,906
806,418
252,891
149,567
-56,850
2,886,226

13,539
25,236
-7,043
-4,473
1,745
-312

31,168
7,043

-180,858
-61,302
69,718
-255,584
149,732

2,611,628

317,951

57,827
57,827

-180,858
-61,302
69,718
-255,584
-13,700
-149,118
-11,050
103,042,101

96,145
1,428,768
757,278
230,341
99,096
-57,827
2,553,801

276
3,275

71,155
-23,613
-46,372
-20,431
21,932
-3,275

2,985,835

432,637

2,553,198

7,115,331

851,232

6,264,099

299,834

283,410

7,439

1,183,174
555,455
3
238,335

1,078,694
467,232
-9
187,982

-20,431
22,209

324,887
46,372

275,971
1,078,694
467,232
-9
187,982

T A B L E III—BUDGET RECEIPTS A N D OUTLAYS-Continued (In thousands)
»<—
Current Fiscal Year to Date

This Month
Classification of
OUTLAYS--Continued
Department of Health, Education, and Welfare--Continued
Public Health Service--Continued
National Institutes of Health:
Intragovernmental
Cancer
Research funds. .
Heart, Lung, and Blood Research
Arthritis, Metabolism, and Digestive Diseases ....
Neurological and Communicative Disorders and
Stroke and Infectious Diseases
,
Allergy
General Medical Sciences

Outlays

Applicable
Receipts

Net
Outlays

Outlays

Applicable
Receipts

Comparable Period Prior Fiscal Year
Outlays

Applicable
Receipts

Net
Outlays

$6,677
94,498
50,370
30,478
23,862
13,156
26,229
12,408
18,880
9,945
5,338
291,841

-$11,099
861,205
453,997
263,015
194,234
167,871
246,509
164,252
250,009
159,255
120,317
2,869,565

-$517
880,517
393,993
223,029
175,092
158,379
215,225
166,715
225,734
129,883
107,653
2,675,703

2,675,703

47,509

1,008,903

1,006,067

1,899
43,677
24,651
638,006

52,376
555,488
181,861
6,952,291

35,911
555,488
181,861
6,928,528

53,353
918,467
116,178
6,787,077

238
1,076,238
566,115
10,392
4,451
1,569,903
33,647

-1,413
12,407,317
7,747,968
101,507
-8,882
19,898,459
444,572

-1,413
12,407,317
7,747,968
101,507
-8,882
19,898,459
444 572

265
10,679,881
7,242,941
58,542
-6,897
17,415,132
44fi r\A}\

17,415,132
446,545

1,603,550

20,343,031

17,861,676

683,869
43,763

8,259,077
554,504

6,852,252

727,632

8,813,581

7,356,491

3,988,616

49,403,109

43,192,900

16,530
23,132
268,115
563
118,290
11,723
58,667
68,231

958,978
34,044
3,133,227
60,581
911,587
317,078
589,120
775,376

897,944
5,605
3,133,227
60,581
911,587
317,078
589,120
775,376

577,838
55,540
2,814,994
58,697
766,349
231,699
327,032
692,967

Alcohol, Drug Abuse, and Mental Health
Health Resources Administration:
Health resources

Net
Outlays

2,001
43,677
24,651
638,540

$102

534

$16,465

23,764

-$517
880,517
393,993
223,029
175,092
158,379
215,225
166,715
225,734
129,883
107,653

$22,111

31,241
918,467
116,178

29,551

6,757,527

Health Care Financing Administration:

Federal hospital insurance trust fund:

265
10,679,881
7,242,941
58,542
-6,897

Federal supplementary medical ins. trust fund:

Education Division:
Office of Education:
Public enterprise funds:

School assistance in federally affected areas
Occupational, vocational, and adult education

22,888
24,623
268,115
563
118,290
11,723
58,667
68,231

6,358
1,491

61,035
28,439

504 9AC\

004,240

32,141
26,467

545,697
29,074
2,814,994
58,697
766,349
231,699
327,032
692,967
(0

TABLE HI-BUDGET RECEIPTS AND OUTLAYS-Continued (In thousands)

Department of Health, Education, and Welfare--Continued
Education Division—Continued
Office of Education—Continued

Applicable
Receipts

Outlays

$257,639
27,106
24,758
11,829
10,515
904,947

$7,849

6,538
2,221
913,706

7,849

Comparable Period Prior Fiscal Year

Current Fiscal Year to Date

This Month
Classification of
O U T L A Y S - - Continued

Net
Outlays

Outlays

Applicable
Receipts

Net
Outlays

Outlays

Applicable
Receipts

Net
Outlays

$2,515,494
294,200
208,989
129,513
59,638

$2,871,316
564,623
255,888
130,781
101,613
10,614,739

$2,515,494
294,200
208,989
129,513
59,638
8,732,950

69,373
28,925

64,293
24,983

10,713,037

8,822,226

756,892
989,387
5,471,126
6,610,490
140,625
24
87,591,968
1,072,373
1,447,532
16,980
90,128,853

740,930
982,230
5,854,560
6,639,462
143,290
24
78,524,092
1,086,238
1,588,664
6,461
81,205,455

13,428,454
406,778
29,906
78,886
13,944,024

12,213,895
327,254
29,797
84,339
12,655,285

12,655,285

$257,639
27,106
24,758
11,829
10,515
897,097

$2,871,316
564,623
255,888
130,781
101,613
10,704,213

6,538
2,221

69,373
28,925

905,857

10,802,511

$89,474

89,474

$58,608

8,674,343
64,293
24,983

58,608

8,763,619

Social Security Administration:
Special benefits for disabled coal miners

Federal old-age and survivors insurance trust fund:
Payment to railroad retirement account

Federal disability insurance trust fund:

H u m a n development services

Total--Human Development Services
Departmental Management
Proprietary receipts from the public

See footnotes on page 3.

757
49,078
556,308
10,270
2
80,489
64,119

976

145,584

Total--FDI trust fund

Special Institutions
H u m a n Development Services:

757
49,078
556,308
10,270
2
5
80,489
64,119

740,930
982,230
5,854,560
6,639,462
143,290

24
78,524,092
1,086,238
1,588,664
6,461
81,205,455

81,553
53,957

7,024

142,534

13,428,454
406,778
29,906
78,886
13,944,024

904,534

118,041,422

108,221,236

14,909

174,278

151,791

243,000
217,540
41,556
309
502,405

3,090,730
2,241,227
385,042
1,599
5,718,598

2,808,723
2,077,621
364,099
1,821
5,252,264

2,808,723
2,077,621
364,099
1,821

23,000
1,958

230,333

230,333
-56,742

174,204

23,000
-1,958

56,742

12,213,895
327,254
29,797
84,339

5,252,264
35,073

174,204
-35.073

TABLE HI-BUDGET RECEIPTS AND OUTLAYS-Continued (In thousands)
Classification of
O U T L A Y S - - Continued
Department of Health, Education, and Welfare--Continued
intrabudgetary transactions:
Payments for health insurance for the aged:
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
Receipts transferred to railroad retirement account..
Interest on reimbursement of administrative and
vocational rehabilitation expenses:
Federal old-age and survivors insurance trust fund.
Federal disability insurance trust fund
Federal supplementary medical insurance trust fund.
Other
Total—Department of Health, Education, and Welfare.
Department of Housing and Urban Development:
Housing Programs:
Public enterprise funds:

Payments for operation of low income housing

Outlays

Applicable
Receipts

Net
Outlays

-$566,116

Applicable
Receipts

Net
Outlays

Outlays

-$733,849
-6,840,785

-$716,941
-6,385,503

-615,229
-141,663
-141,000
-1,477,438

-612,927
-128,003
-142,997
-1,618,461

-435
-1,431
884
-431
-15,549
181,185,638

1,794
-2,098
88
217
-17,239
162,979,627

1,794
-2,098

192,848
459,382
-3,414
65,992
-6,902
3,559,120
653,584
6,152
4,926,762

Outlays

Applicable
Receipts

6,419,594

$6,426

6,413,168

-435
-1,431
884
-431
-15,549
181,355,617

136,822
58,748
13,711
12,915
12,204
311,941
44,954
-11,034
580,261

152,433
3,554
6,106
1,462
73,816

-15,611
55,194
7,605
11,453
-61,612
311,941
44,954
-11,034
342,891

1,622,593
495,340
160,649
82,879
328,183
3,559,120
653,584
6,152
6,908,501

1,429,745
35,958
164,064
16,887
335,085

-127
67,515
1,143
-4,330
11,467
75,668

677,380
1,539,953
73,061
7,253
-11,682
2,285,965

619,848
1,269,220
108,616
61,878

12,737
41,835
307,691
15,003
4,324
167
381,757

149,121
472,001
3,161,229
73,167
61,613
14,535
3,931,666

48,799
190,902

237,370

Comparable Period Prior Fiscal Year

Current Fiscal Year to Date

This Month

$169,980

1,981,739

88
217
-17,239
$123,232

162,856,396

1,728,780
200,144
104,836
968
249,667
2,920,223
691,329
-33,717
5,862,228

1,372,015
23,778
166,094
13,158
229,646

356,764
176,366
-61,259
-12,191
20,021
2,920,223

1,804,691

4,057,536

57,532
270,733
-35,555
-54,625
-11,682
226,402

734,249
1,118,271
72,077
58,323
-20,529
1,962,389

788,877
758,493
114,715
99,716

-54,629
359,778
-42,638
-41,393
-20,529
200,588

100,322
281,099
3,161,229
73,167
61,613
14,535
3,691,965

84,187
543,933
2,464,267
67,083
10,750
3,170,220

691,329
-33,717

Government National Mortgage Association:

Total—Government National Mortgage Association .
Community Planning and Development:
Public enterprise fund:

Total--Community Planning and Development

48,772
94,991
4,567
-48
11,467
159,749

48,899
27,476
3,424
4,282

16,469
72,502
307,691
15,003
4,324
167
416,155

3,732
30,667

84,081

34,398

2,059,562

239,701

1,761,802

37,011
168,255

205,266

47,176
375,678
2,464,267
67,083
10,750
2,964,954

TABLE HI-BUDGET RECEIPTS AND OUTLAYS-Continued (In thousands)
Classification of
O U T L A Y S - -Continued

Department of Housing and Urban Development--Continued
N e w Communities Development Corporation
Other.
Total--Department of Housing and Urban Development
Department of the Interior:
Land and Water Resources:
Bureau of Land Management:
Payments in lieu of taxes
Other
Bureau of Reclamation:
Construction and rehabilitation
Operation and maintenance
Other

Outlays

Applicable
Receipts

Comparable Period Prior Fiscal Year

Current Fiscal Year to Date

This Month
Net
Outlays

Outlays

Applicable
Receipts

Net
Outlays
$31,154
273,938
69,872
-2,003
9,218,091

Outlays

Applicable
Receipts

Net
Outlays

$106,698
222,956
55,953

$8,221
3,653

$98,477
222,956
55,953
-3,653

11,380,443

3,783,633

7,596,810

$1,365
18,407
6,398
-139
826,347

$33,271
273,938
69,872

$2,116

13,503,212

4,285,121

29,085
91,779
11,792
19,626
28,832
9,698
12,284
1,682
204,778

307,445
105,438
387,608
219,921
330,035
80,981
133,219
23,702
1,588,348

43,509

653,737

667,014

16,584
5,731
7,739

197,117
90,762
85,236

167,251
87,584
60,769

32,548
9,761
3,621
119,493

365,416
91,530
26,397
1,510,195

331,454
94,561
22,493
1,431,125

36,663

598,036

501,795

$1,787
18,407
6,398

$421

1,182,757

356,410

29,085
91,779
11,792
30,140
28,832
9,698
12,284
1,682
215,292

139

10,514

2,003

58,014

307,445
105,438^
387,608
161,907
330,035
80,981
133,219
23,702
1,530,335

274,808
97,608
367,447
196,974
323,735
79,266
137,250
17,620
1,494,710

274,808
97,608
367,447
68,631

128,344
323,735
79,266
137,250
17,620

68,631

1,426,079

Fish and Wildlife and Parks:
United States Fish and Wildlife Service:
Recreational resources
Other
National Park Service:

Energy and Minerals:
Office of Surface Mining Reclamation and

Total--Energy and Minerals

4,943
11,745

400

4,943
11,345

47,572
155,040

11,683

47,572
143,357

5,412
135,463

14,051

5,412
121,412

53,351

400

52,951

800,648

11,683

788,965

642,669

14,051

628,619

952
60,785
13,809
71,803
2,507
149,856

432

519
60,785
13,809
71,803
2,507
149,424

8,482
691,559
198,116
292,865
49,099
1,240,121

7,029

1,453
691,559
198,116
292,865
49,099
1,233,092

13,092
643,943
165,843
255,826
63,120
1,141,825

6,442

6,650
643,943
165,843
255,826
63,120

6,442

1,135,383

Bureau of Indian Affairs:
Construction
Indian tribal funds ....
Total--Bureau of Indian Affairs

432

7,029

TABLE HI-BUDGET RECEIPTS AND OUTLAYS-Continued (In thousands)
This Month
Classification of
O U T L A Y S - - Continued
Outlays

Department of the Interior--Continued
1 Office of Territorial Affairs

Net
Outlays

Outlays

Applicable
Receipts

Net
Outlays

Outlays

Applicable
Receipts

Net
Outlays

$226,243
56,176
-1,150,130
-107,868

$176,808
38,738

4,087,007

4,856,266

26,470
387,630
585,991
304,963
184,781
347,399
699,931
-15,450
2,521,715

23,444
340,344
552,001
274,681
177,883
324,113
724,075
2,416,541

90,183
6,158,034
207,832
3,285,210
825,056

89,299
4,763,671
134,333
4,769,404
1,165,356

3,201

65,133

46,356

73,355
1

576,084
2,981

1,109,907
-980

626,833

8,585,261

9,368,307

136,053
2,723
86
200,000

1,562,561
68,877
768
800,000

1,521,606
67,306
1,061

10,524
1,138

142,061
12,698

197,370
10,710

755

2,767

$26,948

$26,948
-4,161
-91,835

$226,243
56,176

103,180

457,599

5,313,864

967

-423
30,646
41,534
28,988
14,150
28,183
52,615
-4,589
191,104

26,470
387,630
585,991
304,963
184,781
359,148
699,931
2,548,913

5,946
569,996
15,122
192,561
93,454
3,201

5,946
569,996
15,122
192,561
93,454

-4,161

560,780
Lfepartment of Justice:
General Administration
Legal Activities

Applicable
Receipts

Comparable Period Prior Fiscal Year

Current Fiscal Year to Date

$91,835

-423
30,646
41,534
28,988
14,150
29,150
52,615

4,589

196,660

5,556

$1,150,130
-107,868
1,226,856

11,749
15,450
27,199

$972,378

$176,808
38,738
-972,378
-69,610

1,061,501

3,794,765

-69,610

12,088
7
7,074
19,169

23,444
340,344
552,001
274,681
177,883
312,025
724,068
-7,074
2,397,372

Department of Labor;
Employment and Training Administration:
Community service employment for older Americans ..
Grants to States for unemployment insurance and
Advances to the unemployment trust fund and other
Unemployment trust fund:
Federal-State unemployment insurance:
Grants to States for unemployment insurance and

Repayment of advances from the general fund
Railroad-unemployment insurance:
Payment of interest on advances from railroad

Total--Employment and Training Administration ..

977,356

11,172,982

11,169,128

1,930,991

22,383,496

23,246,473

3,810

55,138

54,392

8,679
56,291
110,600
620
14,521

151,178
190,392
621,926
7,791
154,915

107,226
191,469
112,143
4,998
147,380

E m p l o y m e n t Standards Administration:

See footnotes on page 3.

TABLE HI-BUDGET RECEIPTS AND OUTLAYS-Continued (In thousands)
Classification of
O U T L A Y S - - Continued

Net
Outlays

Outlays

$10,394
4,202
8,521
-278
-293,355
1,854,995

$131,416
87,615
71,217
-1,200,809
22,654,276

65,842

15,170

Outlays

Applicable
Receipts

Comparable Period Prior Fiscal Year

Current Fiscal Year to Date

This Month

Applicable
Receipts

Net
Outlays

Department of Labor—Continued

669,837

655,217

15,170

107,506

57,283

83,800
10,793
-2,093
173,511

125,369
113,202
8,250
1,024,164

107,407
93,683
4,473
918,063

1,619
821
34,718

1,619
821
34,718
-3,826

494,887
21,722
175,120

494,887
21,722
175,120
-15,576

381,670
21,274
77,154

381,670
21,274
77,154
-14,026

-34
-84,656
-86
122,066

-707
-151,045
-519
1,563,622

-707
-151,045
-519
1,548,046

-453
-131,627
-519
1,265,562

3,725

58,217

41,855

93,070
17,549
16,031
9,510
136,160

980,780
192,058
174,414
93,088
1,440,340

3,840

897,803
131,650
156,465
102,810
1,288,728

4,666

3,840

980,780
192,058
174,414
89,248
1,436,500

897,803
131,650
156,465
98,144

344

93,070
17,549
16,031
9,166
135,817

4,666

1,284,062

22,876
2,520

22,876
2,518

1,691,083
44,442

1,691,083
44,429

1,622,319
40,277

1,622,319
40,262

60,730
13,588

135,681

209,999

556,454
187,932
14
369,740
1,114,140

562,156
211,002
35
342,168
1,115,361

235,392

2,849,665

2,849,651

2,777,957

278

Payment to Foreign Service retirement and

Intrabudgetary transactions:
Foreign Service retirement and disability fund:
Receipts transferred to Civil Service retirement

$109,176
79,809
57,934
-7,210
-1,153,258

669,837

$278

Acquisition, operation, and maintenance of buildings

Other

Net
Outlays

$109,176
79,809
57,934
-1,153,258

1,855,273
Department of State:
Administration of Foreign Affairs:

Applicable
Receipts

$131,416
87,615
71,217
-3,940
-1,200,809
22,650,336

$10,394
4,202
8,521
-293,355

Bureau of Labor Statistics
Departmental Management

Outlays

-34
-84,656
-86
125,893

3,826

$3,940
3,940

15,576

22,957,741

$7,210
7,210

14,026

22,950,532

-453
-131,627
-519
14,026

1,251,536

Department of Transportation:
Coast Guard:

Other

344

federal Aviation Administration:
Airport and airway trust fund:
Facilities and equipment

235,394

562,156
211,002

35
342,168
1,115,361

2,777,941

TABLE HI-BUDGET RECEIPTS A N D OUTLAYS-Continued (In thousands)

I|epartment of Transportation--Continued
Federal Highway Administration:
Highway trust fund:
Other

Outlays

Applicable
Receipts

Grants to National Railroad Passenger Corporation..

Bureau of Government Financial Operations:

Outlays

Applicable
Receipts

Net
Outlays

$6,875,980
72,855
197,983
106,520
7,253,339

$5,866,612
36,079
82,262
90,945
6,075,898

$5,866,612
36,079
82,262
90,945

975
15,800
4,409

50,279
193,400
2,849

61,552
143,700
5,101

5,404
5,182
7,019
17,050
5,985

$2,566

5,404
5,182
7,019
17,050
3,419
38,073

66,247
62,381
-4,601
203,830
716,000
74,698
1,118,556

$43,071

2,566

79,786
57,996
65,373
198,766
779,000
43,782
1,224,703

66,247
62,381
-4,601
203,830
716.000
31,627

40,639

79,786
57,996
65,373
198,766
779,000
80,359
1,261,280

43,071

1,075,485

1,632
4,006

196,858
2,264
-4,006
1,462,447

2,027,529
8,888

10,727
39,494

2,027,529
-1,838
-39,494

15,592,092

106,524

2,457,996
13,602
-54,967
15,485,569

13,549,765

97,974

13,451,791

2,834

31,075

31,072

26,278

264

26,013

266
411
1,527
12,572

6,822,957
1,336,278
17,451

8,733
2,664

6,847,709
6,883
25,740
184,086
533,648
236,413
14,507

6,822,957
1,336,278
17,451
141,051

8,733
2,664

6,847,709
6,883
25,740
184,086
533,648
236,413
14,507

198,306
12,307

23,968

968,654

351,664

8,486
22,561
-3,677
4,291
8,540
80
6,214
26,741
33,557
21,105

8,486
22,561
-3,677
4,291
8,540
-142
6,214
26,741
33,557
21,105

131,162
653,355
-11,351
43,910
163,076
980
128,059
738,449
774,869
437,434

131,162
653,355
-11,351
43,910
163,076
175
128,059
738,449
774,869
437,434

128,110
634,379
-3,361
42,466
121,508
1,316
54,310
904,115
981,878

128,110
634,379
-3,361
42,466
121,508
68
54,310
904,115
981,878

8,550

Total--Bureau of Government Financial

Internal Revenue Service^

Net
Outlays

Applicable
Receipts

$6,875,980
72,855
197,983
106,520
7,253,339

1,470,998

Office of Revenue Sharing:

Outlays

$781,156
14,953
20,969
16,063
833,140

196,858
3,897

Department of the Treasury:

Net
Outlays

$781,156
14,953
20,969
16,063
833,140

National Highway Traffic Safety Administration:

Federal Railroad Administration:
Railroad rehabilitation and improvement financing

Comparable Period Prior Fiscal Year

Current Fiscal Year to Date

This Month
Classification of
O U T L A Y S - -Continued

223

2,457,996
24,727

$36,577
36,577
11,125
54,967

804

6,075,898

141,051

1,248

TABLE lll-BUDGET RECEIPTS AND OUTLAYS-Continued (In thousands)
This Month
Classification of
OUTLAYS-Continued
Department of the Treasury—Continued
Internal Revenue Service--Continued
Payment where credit exceeds liability for tax..
Refunding internal revenue collections, interest.
Internal revenue collections for Puerto Rico
Total--Internal Revenue Service
United States Secret Service
Comptroller of the Currency
Interest on the public debt:
Public issues (accrual basis)
Special issues (cash basis)
Total--Interest on the public debt
Proprietary receipts from the public
Receipts from off-budget Federal agencies
Intrabudgetary transactions
Total—Department of the Treasury
Environmental Protection Agency:
Agency and regional management
Research and development:
Energy supply
Pollution control and abatement
Abatement and control
Enforcement
Construction grants
Other
Proprietary receipts from the public
Total—Environmental Protection Agency
General Services Administration:
Real Property Activities
Personal Property Activities
Records Activities
General activities
Other
Proprietary receipts from the public:
Stockpile receipts
Other
Intrabudgetary transactions
Total—General Services Administration
National Aeronautics and Space Administration:
Research and Development
Construction of facilities
Research and program management
Other
Proprietary receipts from the public
Total--National Aeronautics and Space
Administration

Applicable
Receipts

Outlays

$6,032
28,227
30,004
151,960
8,451
6,239

Net
Outlays

Outlays

129,100
90,273

94,699

129,100
-4,426

48,261,637
11,575,566

39,199,117
9,495,738

59,837,203

48,694,856

139,003
91,347

4,194,792
165,141

4,359,933

4,359,933
-88,949
-396,733
-78,480
4,031,030

-2,427,066

6,155

30,351
427
53,378
7,466
326,298
373

68
29

424,447

30,351
427
53,378
7,466
326,298
305
-29
424,350

218
117,232

767
5
8,091
18,345
27,209

307,909
11,291
67,603
22

292

386,825

292

121,790
-25,947
6,137
10,557
3,704
-8,091
-18,345
218
90,023

Net
Outlays

139,003
-7,762

8,451
5,864

121,790
-25,947
6,905
10,563
3,704

Applicable
Receipts

$1,248

375

486,280

Outlays

$880,890
316,937
187,568
3,325,767

$223

4,517,310

Net
Outlays

$880,890
316,937
187,568
3,327,014

$772,673
357,977
212,543
3,422,983

-78,480

Applicable
Receipts

$772,673
357,977
212,543
3,422,178

$6,032
28,227
30,004
151,738

88,949
396,733

Comparable Period Prior Fiscal Year

Current Fiscal Year to Date

99,109

-1,186,128
-4,041,716
-2,427,066
64,595,923

-1,696,881

95,197

71,089

302,107
11,941
541,660
82,595
3,756,079
11,399

541
668

250,514
31,400
459,614
64,842
3,186,825
8,132

435
509

4,800,978

1,209

302,107
11,941
541,660
82,595
3,756,079
10,858
-668
4,799,768

4,072,416

944

250,514
31,400
459,614
64,842
3,186,825
7,697
-509
4,071,472

-69,771
115,794
75,454
103,731
63,802
-73,497
-33,, 335
-9,417
172,761

-167,885
196,338
79,105
99,986
56,359

3,138,749
132,716
925,007
84
-9,324

2,988,697
124,258
870,164
558

3,655

4,187,232

3,983,677

3,655

69,923,684

-69,771
115,794
84,382
104,398
63,802
-9,417
289,189

1,186,128
4,041,716
5,327,762

8,928
667
73,497
33,335
116,427

307,909
11,291
67,603
22
-292

3,138,749
132,716
925,007
84

9,324

386,533

4,196,556

9,324

60,022,092

-1,839
262,064

701,510
2,767,670
3,565,392

6,421
752
89,811
48,038
145,021

-701,510
-2,767,670
-1,696,881
56,456,699

-167,885
196,338
72,684
99,234
56,359
-89,811
-48,038
-1,839
117,043
2,988,697
124,258
870,164
558
-3,655
3,980,022

T A B L E H I - B U D G E T RECEIPTS A N D OUTLAYS-Continued (In thousands)
Classification of
O U T L A Y S - - Continued

|Veterans Administration:
Public enterprise funds:
Loan guaranty revolving fund
Direct loan revolving fund
Veterans reopened insurance fund
,
Education loan fund
Other
Compensation and pensions
Readjustment benefits
Medical care
Medical and prosthetic research
General operating expenses
Construction projects
Insurance funds:
National service life
Government life
,
Veterans special life
,
Other
Proprietary receipts from the public:
National service lifeGovernme nt life
,
Other
,
Intrabudgetary transactions
,
Total—Veterans Administration ,
Independent agencies:
Action
,
A r m s Control and Disarmament Agency
Board for International Broadcasting
Civil Aeronautics Board
Commission on Civil Rights
Community Services Administration
Consumer Product Safety Commission
Corporation for Public Broadcasting
District of Columbia:
Federal payment
Loans and repayable advances
Equal Employment Opportunity Commission
Export-Import Bank of the United States
Federal Communications Commission
Federal Deposit Insurance Corporation
Federal Emergency Management Agency:4
National flood insurance development fund
Emergency planning, preparedness, and mobilization.
Hazard mitigation and disaster assistance
Federal H o m e Loan Bank Board:
Public enterprise funds:
Federal H o m e Loan Bank Board revolving fund
Federal Savings and Loan Insurance Corp. fund
Interest adjustment payments
Federal Trade Commission
Intergovernmental Agencies:
See Other
footnotes
WashingtononMetropolitan
page 3.
Area Transit Authority ......

Current Fiscal Year to Date

This Month
Applicable
Receipts

Outlays

$34,601
4,772
2,467
387
23,078
56,742
59,496
408,243
9,406
37,953
20,053
53,581
3,896
3,455
6,154

$21,858
35,144
1,562
104
25,513

3,275

-169

31,459
-233
8,252

724,116

126,933

15,597
1,010
2,615
9,688
1,211
41,326
2,892

228
1

Net
Outlays

$12,743
-30,372
906
284
-2,434
56,742
59,496
408,243
9,406
37,953
20,053
53,581
3,896
180
6,154
-31,459
233
-8,252
597,183
-169
15,583
1,010
2,615
9,686
1,211
41,098
2,891

7,991
316,403
7,011
74,086
59,491
6,124
14,462

3
105,750
1
90,823
13,041

7,988
210,653
7,010
-16,737
46,450
6,124
14,462

6,772
-695

3,230
18,500

3,541
-19,195

3,952

"3)947

21,604
798

21,604
588

210

Outlays

$481,498
86,134
25,960
7,226
263,316
10,441,926
2,810,812
5,159,544
117,270
603,295
236,497
785,393
70,841
55,547
113,972
-2,369

Applicable
Receipts

$274,386
151,492
53,859
858
265,350

93,595
451,877
3,894
74,378

21,256,861

1,369,689

211,336
14,653
82,692
99,446
10,257
779,514
39,284
120,200
274,665
140,832
92,490
2,406,809
69,561
639,989
382,801
98,998
67,847
50,957
147,849
54
62,048
84,250
6,506

11
110
620
14

22,346
37
2,206,757
19
1,858,360
132,224

50,231
636,985
""-557
1,845

Net
Outlays

$207,112
-65,358
-27,900
6,367
-2,034
10,441,926
2,810,812
5,159,544
117,270
603,295
236,497
785,393
70,841
-38,049
113,972
-451,877
-3,894
-74,378
19,887,171
-2,369
211,325
14,653
82,692
99,336
10,257
778,894
39,270
120,200
274,665
118,486
92,453
200,052
69,542
-1,218,370
250,577
98,998
67,847
725
-489,136
54
62,605
84,250
4,661

Comparable Period Prior Fiscal Year
Outlays

$525,860
99,408
23,021
34,868
273,806
9,572,817
3,361,716
4,809,318
111,747
558,082
243,262
667,762
66,973
32,229
98,142
-2,472
20,476,537
203,329
13,990
65,616
101,471
10,465
768,216
40,063
119,200
304,116
110,832
74,214
1,993,483
64,084
2,135,878
274,909
81,786
13,370
60,342
182,174
213
59,446
149,337
5,610

Applicable
Receipts

$445,624
138,398
51,645
275
275,101

87,244
476,850
4,382
34,866
1,514,384

166
164
111
298
5

43,979
54
2,099,387
19
2,702,489
110,775

59,878
585,897
631
1,700

Net
Outlays

$80,236
-38,990
-28,624
34,593
-1,295
9,572,817
3,361,716
4,809,318
111,747
558,082
243,262
667,762
66,973
-55,015
98,142
-476,850
-4,382
-34,866
18,962,152
-2,472
203,164
13,990
65,452
101,360
10,465
767,919
40,059
119,200
304,116
66,852
74,161
-105,904
64,065
-566,611
164,134
81,786
13,370
465
-403,723
213
58,815
149,337
3,910

TABLE HI-BUDGET RECEIPTS AND OUTLAYS-Continued (In thousands)
Classification of
OUTLAYS-Continued

Independent agencies--Continued
International Communications Agency
,
Interstate C o m m e r c e Commission
Legal Services Corporation
Merit Systems Protection Board
National Foundation on the Arts and Humanities:
National Endowment for the Arts
National Endowment for the Humanities
National Labor Relations Board
National Science Foundation
National Transportation Safety Board
Nuclear Regulatory Commission,.,
Office of Personnel Management:*
Salaries and expenses
Government payment for annuitants, employees health
benefits
Payment to civil service retirement and disability
fund
Civil service retirement and disability fund
Employees health benefits fund
Employees life insurance fund
Retired employees health benefits fund
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
Other
Total—Office of Personnel Management
Postal Service (payment to the Postal Service fund)
Railroad Retirement Board:
Payments to Railroad Retirement Trust Fund
,
Regional rail transportation protective account
,
Railroad retirement accounts:
Benefits payments and claims
,
Advances to the railroad retirement account from
the FOASI trust fund
Advances to the railroad retirement account from
the FDI trust fund
Disbursements for the payment of FOASI benefits ...
Disbursements for the payment of FDI benefits
Administrative expenses
Interest on refunds of taxes
Proprietary receipts from the public
Intrabudgetary transactions:
Railroad retirement account:
Payment to railroad retirement trust funds
Interest
transferred
federal
insurance
Total--Railroad
See
footnotes
Interest
insurance
trust fund
on
on
Retirement
page
account
advances
3. to
to
Board
railroadhospital
unemployment

Current Fiscal Year to Date

This Month
Outlays

$31,343
5,449
1,897
1,876
14,182
9,481
5,538
91,002
842
27,531
5,199

Applicable
Receipts

$641
1
(*)
(*)
47
14
-1
-7

Net
Outlays

$30,702
5,448
1,897
1,876
14,182
9,481
5,491
90,988
843
27,538
5,199

Outlays

$374,937
67,014
254,307
6,476
136,101
147,542
97,400
870,188
15,522
309,494
115,330

Applicable
Receipts

$1,474
12,217
(*)
13
210
541
8
18

Net
Outlays

$373,463
54,797
254,307
6,476
136,088
147,542
97,190
869,647
15,515
309,475
115,330

Comparable Period Prior Fiscal Year
Outlays

Applicable
Receipts

Net
Outlays

$353,410
65,080
157,429

1,294
180

$352,117
64,900
157,429

121,466
125,810
90,615
803,182
15,542
270,876
119,610

121,452
125,810
90,414
802,783
15,514
270,862
119,610

201
398
28
14

92,870

554,049

506,617

8,817,951
1,071,354
248,731
38,978
952
2,952

8,817,951
1,071,354
-80,033
-12,663
215
2,952
182

8,818,938
12,418,103
3,135,265
488,350
12,907
17,264

8,818,938
12,418,103
-113,191
-309,413
4,502
17,264
-1,172

7,433,828
10,907,627
2,958,770
429,094
14,405
21,951

7,433,828
10,907,627
-84,978
-485,209
5,599
21,951
-1,605

-8,581
-8,818,938
-22,330
12,654,562

-8,544
-7,433,828
-18,409
14,931,120

-589
-8,817,951
-1,639
1,458,808

328,765
51,641
737
-182

380,961

1,333

3,248,456
797,762
8,405
1,172

3,043,748
914,303
8,806
1,605

-589
-8,817,951
-1,639
1,077,847

-8,581
-8,818,938
-22,330
16,710,357

1,333

1,786,509

1,778,240

313,000
71,650

250,000
80,077

4,055,794

3,968,461

-8,544
-7,433.828
-18,409
10,962,658

(*)
2,631
376,376

4,240,906

3,952,463

-2,065

-235,972

-195,818

-487
22,260
3,893
2,751
4

-487
22,260
3,893
2,751
4
23

-29,095
236,392
35,016
31,661
26

-29,095
236,392
35,016
31,661
26
21

-27,933
195,326
27,672
30,918
121

-27,933
195,326
27,672
30,918
121
-1

-313,000

-250,000

15,549

17,239

-755

-5,507

405,362

-23

405,385

4,365,378

-21

4,365,399

4,074,557

4,074,556

TABLE III —BUDGET RECEIPTS AND OUTLAYS-Continued (In thousands)

Outlays
ndependent agencies—Continued
Securities and Exchange Commission.

Comparable Period Prior Fiscal Year

Current Fiscal Year to Date

This Month

Classification of
O U T L A Y S - - Continued

Net
Outlays

Applicable
Receipts

Outlays

Net
Outlays

Outlays

Applicable
Receipts

Net
Outlays

$4,976

$4,975

$66,005

$26

$65,978

$61,328

$25

$61,303

56,586
79,058
2,124
86
13,814
172

35,517
31,604
749
309

937,531
1,453,940
31,535
2,921
181,880
1,701

466,486
496,602
12,251
3,006

432,888
237,629
10,057
1,099

457,887
2,104,509
27,373
2,993
173,285
-19

68,179

2,609,508

978,367

471,045
957,338
19,284
-85
181,880
-22
1,701
1,631,142

890,775
2,342,138
37,430
4,092
173,285

151,840

21,069
47,455
1,375
-223
13,814
-1
172
83,660

3,447,720

681,692

2,766,028

13,164
402,888

5
200,976

13,159
201,913

132,243
4,798,298

61
2,914,157

132,182
1,884,141

125,298
3,726,106

58
2,313,878

125,240
1,412,228

4,425

2,150
21,000
23,351
2,383,750

28,850
708,300
242,599
39,610,064

56,300

28,850
708,300
186,299
26,681,897

19,025
734,700
257,734
37,991,383

80,582

19,025
734,700
177,152
25,339,006

-30

Public enterprise funds:
Surety bond guarantees revolving fund
Other

Total--Small Business Administration
Tennessee Valley Authority

United States Railway Association:
Purchases of Conrail Securities
Total--Independent agencies
Undistributed offsetting receipts:
Federal employer contributions to retirement and
social insurance funds:
Legislative Branch:
United States Tax Court:
The Judiciary:
Tax court judges survivors annuity fund
Department of Health, Education, and Welfare:
Federal old-age and survivors insurance trust fund.
Department of State:
Foreign Service retirement and disability fund .....
Independent agencies:
Office of Personnel Management:
Civilfrom
Service
retirement
and disability
Receipts
off-budget
Federal
agencies: fund.......
Independent agencies:
Office of Personnel Management:
Civil Service retirement and disability fund..».

2,150
21,000
27,776
3,270,776

887,026

12,928,167

12,652,377

-130

-1,641

-1,380

-83,000
-14,000
-21,000
-1,838

-948,000
-166,000
-228,000
-20,477

-906,000
-154,000
-206,000
-19,256

-124,602

-2,511,477

-2,547,468

-715,782

-1,395,335

-1,149,236

-960,351

-5,270,960

-4,983,369

ro
O

TABLE HI-BUDGET RECEIPTS AND OUTLAYS-Continued (In thousands)

Outlays

Undistributed offsetting receipts--Continued
Interest credited to certain Government Accounts:
The Judiciary:
Department of Defense:
Civil:
Soldiers' and Airmen's H o m e permanent fund
Department of Health, Education, and Welfare:
Federal old-age and survivors insurance trust fund .
Federal disability
hospital insurance
insurancetrust
trustfund
fund
Federal supplementary medical insurance trust fund.
Department of Labor:
Department of State:
Foreign Service retirement and disability fund
Department of Transportation:
Airport and airway trust fund
Highway trust fund
Veterans Administration:
Government life insurance fund
National service life insurance fund
Independent Agencies:
Office of Personnel Management:
Railroad Retirement Board:
Railroad retirement account
Subtotal

TOTAL BUDGET

Net
Outlays

Outlays

Applicable
Receipts

Net
Outlays

Outlays

Applicable
Receipts

Net
Outlays

^3,810

-$3,810

-$3,411

-$2,046

-7,965

-6,233

-31,891
-3,284
-3,598
-4,237
-14,907

-1,919,228
-303,126
-868,493
-362,357
-503,104
-122

-2,153,058
-249,190
-780,058
-229,065
-266,286
-1,192

-2,153,058
-249,190
-780,058
-229,065

-215

-30,853

-19,965

-266,286
-1,192

-3,978
-14,558

-282,265
-852,902

-219,207
-662,155

-65
-135

-34,383
-528,560

-31,730
-460,453

-12,794

-4,052,880

-3,236,136

-1,999
-941

-192,014
-8,447

-208,555
-3,618

-94,649

-9,950,510

-8,530,311

$599,540

-599,540

-1,055,001

599,540

-1,654,540

35,609,936

5,984,638

29,625,298

Rents and royalties on the outer continental shelf land ...
Total--Undistributed offsetting receipts

Applicable
Receipts

Comparable Period Prior Fiscal Year

Current Fiscal Year to Date

This Month

Classification of
OUTLAYS--Continued

$3,267,376

-3,267,376

-15,221,470

3,267,376

-18,488,845

557,580,395

64,359,377

493,221,018

$2,258,546

-2,258,546

-13,513,681

2,258,546

-15,772,226

508,291,450

57,353,950

450,937,500

(Net Totals)

47,295,460

465,940,168

401,997,377

Outlays (-)

-29,625,298

-493,221,018

-450,937,500

Budget surplus (+) or deficit (-)

+17,670,162

-27,280,850

-48,940,123

MEMORANDUM
Receipts offset against outlays (In thousands)
Current

Proprietary receipts from the public ,. $18,698,804
Receipts from off-budget Federal agencies
Intrabudgetary transactions
Total receipts offset against outlays 68,030,133

Fiscal Year
to Date

Comparable Period
Prior Fiscal Year

4,041,716
45,289,613

$15,935,494
2,767,670
40,898,728
59,601,893

(Net Totals)

TABLE IV-MEANS OF FINANCING (In thousands)
Classification
(Assets and Liabilities
Directly Related to the Budget)

Net Transactions
(-) denotes net reduction of either
liability or assets accounts
Fiscal Year to Date
This Month
This Year Prior Year

Account Balances
Current Fiscal Year
Beginning of
This Year

This Month

Close of
This Month

LIABILITY A C C O U N T S
Borrowing from the public:
Public debt securities, issued under general financial
authorities:
Obligations of the United States, issued by:
United States Treasury

Agency securities, issued under special financing
authorities (See Schedule B. For other agency

Deduct:
Federal securities held as investments of

$13,378,881 $54,974,618

$72,704,561 $771,544,469 $813,140,207
10
10
-10

$826,519,087

771,544,479 813,140,217

826,519,097

7,245,262

7,231,770

13,378,881 54,974,618

72,704,551

-13,492 -1,648,862

-1,417,194

13,365,388 53,325,757

71,287,357

780,425,110 820,385,478

833,750,867

9,115,733 19,684,882

12,181,491

169,476,652 180,045,801

189,161,534

4,249,655 33,640,874

59,105,866

610,948,458 640,339,677

644,589,333

8,880,631

2,293,550

1,421,168

2,020,988

6,733,414

5,861,032

8,154,582

55,289
1,031,165

1,236,016
973,755

269,623
78,442

2,938,754
3,368,277

4,119,482
3,310,866

4,174,771
4,342,031

-5,168,426

534,135

212,056

8,112,566

13,815,128

8,646,702

2,461,233 37,805,949

61,686,974

632,101,470 667,446,186

669,907,419

2,946,716 -10,158,178
14,278,944 17,686,990
-5,796,587
17,225,660 1,732,225

907,549

16,647,185

2,432,449

5,796,587

3,339,999

Deposit funds:

Miscellaneous liability accounts (Includes checks

A S S E T A C C O U N T S (Deduct)
Cash and monetary assets:
U. S. Treasury operating cash:9
Tax and loan note accounts

Special drawing rights:

See footnotes on page 3.

6,950,337

24,175,997

452,409
-100,000

2,941,684
-1,300,000

2,689,136
-1,800,000

2,725,228
-1,800,000

36,092

-716,457

352,409

1,641,684

889,136

925,228

163,346
-11,000 -2,500,984

8,810,156
1,957,257
-6,922,259
-308,688

8,810,156
2,120,603
-9,412,243
-208,178

8,810,156
2,120,603
-9,423,243

100,510

2,110,156
861,556
-3,262,408
-303,789

-11,000 -2,237,128

-594,485

3,536,466

1,310,338

1,299,338

-706,304

36,928
-112,405

706,304
3,354,769

6,378,826

5,690,273

-208,178

16,562,199

407,840

3,022,446

31,682,995

15,528,637

32,090,836

1,746,073

1,220,054

335,594

4,890,151

4,364,132

6,110,205

18,308,272

1,627,895

3,358,040

36,573,147

19,892,769

38,201,041

+58,328,934 +595,528,323 +647,553,417

+631,706,378

-15,847,039 +36,178,055

Total budget financing [Financing of deficit (+) or

22,443,772

-216,457
-500,000

-688,553

Transactions not applied to current year's surplus or deficit

6,489,007
17,686,990

36,092

Gold tranche drawing rights:
U. S. subscription to International Monetary Fund:

Receivable/Payable (-) for U. S. currency valuation

3,542,291
3,408,046

-1,823,124

-8,897,205

-17,670,162 +27,280,850

-9,388,811

-7,074,081

-8,897,205

+48,940,123 +595,528,323 +640,479,335

+622,809,173

TABLE IV--SCHEDULE A-ANALYSIS OF CHANGE IN EXCESS OF LIABILITIES (In thousands)

Fiscal Year to Date
Classification

Excess of liabilities beginning of period:
Based on composition of unified budget in preceding period
Adjustments during current fiscal year for changes in
composition of unified budget
Excess of liabilities beginning of period (current basis)
Budget surplus (-) or deficit:
Based on composition of unified budget in prior fiscal year
Changes in composition of unified budget:
Profit on sale of gold reclassified from budgetary to
off-budget account 10
Budget surplus (-) or deficit (Table m )
Transactions not applied to current year's surplus or deficit:
Seigniorage
Increment on gold
?
Profit
onMsale
" S. currency valuation adjustment,
Net gain
/ l o sofs gold
for U.
Net gain (-)/loss for I M F loan valuation adjustment
Off-budget Federal Agencies:
Federal Financing Bank
Pension Benefit Guaranty Fund
,
Postal Service
Rural electrification and telephone revolving fund
,
Rural
Telephone Bank
,
Total—transactions
not applied to current year's surplus
or deficit
Excess of liabilities close of period,

This
Month

This Year

Prior Year

$647,553,417 $595,528,323 $537,199,389

647,553,417

595,528,323

537,199,389

-17,864,254

24,915,110

48,760,622

194,092

2,365,740

179,501

-17,670,162

27,280,850

48,940,123

-95,492

-991,909

-194,692

-2,365,740
-94,872
-78,532
13,260,895
-38,848
-890,748
-3,760
100,719

1,382,840
1,855
928,281
-206,504
6,236

-367,156
-702
-179,501
-368,515
-2,232
10,660,478
-31,760
-496,433
61,924
112,710

1,823,124

8,897,205

9,388,811

631,706,378

595,528,323

See footnotes on page 3.

TABLE IV-SCHEDULE B-AGENCY SECURITIES, ISSUED UNDER SPECIAL
FINANCING AUTHORITIES (In thousands)
Net Transactions
(-) denotes net reduction of
liability accounts
Classification

Account Balances
Current Fiscal Year
Beginning of

Fiscal Year to Date
This Month

Agency securities, issued under special financing authorities:
Obligations of the United States, issued by:
Export-Import Bank
Obligations guaranteed by the United States, issued by:
Department of Defense:
Family Housing Mortgages
Department of Housing and Urban Development:
Federal Housing Administration
Department of Transportation:
Coast Guard:
Family Housing Mortgages
Obligations not guaranteed by the United States, issued by:
Department of Defense:
Homeowners' Assistance Mortgages
Department of Housing and Urban Development:
Government National Mortgage Association
Independent Agencies:
Postal Service
Tennessee Valley Authority
Total agency securities
See footnotes on page 3.

This Year

This Month

Close of
This Month

This Year

Prior Year

-$2,024

-$1,207,149

-$717,569

$2,140,605

$935,481

-10,572

-129,316

-117,589

896,001

777,257

766,685

-903

-49,453

21,508

600,638

552,087

551,184

-18

-215

-206

1,638

1,442

1,423

-728

-1,338

749

-162,000

-602,000

3,166,000

3,004,000

250,000
1,825,000

250,000
1,725,000

8,880,631

7,245,262

7,231,770

-1661666
-13,492

-1,648,862

-1,417,194

$933,456

TABLE IV-SCHEDULE C (MEMORANDUM)-AGENCY BORROWING FINANCED THROUGH
ISSUE OF PUBLIC DEBT SECURITIES (In thousands)
Account Balances
Current Fiscal Year

Transactions
Classification
Fiscal Year to Date

Beginning of

This Month
This Year
Borrowing from the Treasury:
Commodity Credit Corporation
D. C. Commissioners: Stadium sinking fund, A r m o r y

$77,000

$2,665,209

-831
Export-Import Bank of United States!..........'...'.
50,000
50,000
Federal Financing Bank
'.'.'.'.'.'.'.'.'.'.'.'.'.'.'.'.'.'.'.
956,458
15,758,467
Federal Housing Administration:
General insurance
,
Special risk insurance
General Services Administration:
1,415
16,726
Pennsylvania Avenue Development Corporation
70,250
275,293
Government National Mortgage Association:
-21,000
Emergency h o m e purchase assistance fund
"4,266
84,820
Management and liquidating functions
Special assistance functions
-238,471
International Communication Agency
75,596
7,897
Rural Electrification Administration.
..'.
-2,500
Rural Telephone Bank
.". ]
Saint Lawrence Seaway Development Corporation .!"!!!!
1,074,000
Secretary of Agriculture, F a r m e r s H o m e Administration:
75,000
Rural housing insurance fund
Agricultural credit insurance fund
110,000
110,000
Rural development insurance fund
.[
Secretary of Energy:
-123,675
Bonneville Power Administration.
65,000
475,000
Secretary of Housing and Urban Development
38,145
215,189
Department:
B03XUj JJ« C

•••••••.,

••«

College housing loans
Housing for the Elderly and Handicapped
National flood insurance fund
N e w communities guaranty:
Title IV.
Title VII
Urban renewal fund
Secretary of the Interior:
Bureau of Mines, helium fund
Secretary of Transportation:
Rail Service Assistance
Regional Rail Reorganization
Total Borrowing
from the Treasury .
Smithsonian
Institution:
John F.
Center
parking
facilities
Borrowing
fromKennedy
the Federal
Financing
Bank:
Tennessee Valley Authority
Veterans
Administration:
Export-Import
Bank of the United States
Veterans
direct loan program
Postal
Service
Tennessee Valley Authority
Total Borrowing from the Federal Financing Bank.

Total Agency Borrowing financed through
issues of Public Debt Securities

...[

1,062

."!."."."!.'!

-2,727

275
29,843
-500,000

-2,726

Comparable
Prior Year

This Year

This Month

Close of
This Month

$5,132,850

$11,261,307

$13,849,516

$13,926,516

832

1,663

832

-3,324
12,659,220

"48J677J563

62 \m, 512

50,000
63,835,970

245,000
195,000

2,156,655
1,812,166

17,212

32,523

33,938

359,793
-15,000
-4,905

175,000

1,076,107
35,000
4,136,597
22,114
7,864,742
319,272
115,476
1,005,718
776,000
440,000
300,000

1,281,150
14,000
4,217,217
22,114
8,103,213
386,971
112,976
1,005,718
1,850,000
515,000
300,000

1,351,400
14,000
4,221,417
22,114
7,864,742
394,868
112,976
1,005,718
1,850,000
515,000
410,000

45,170
82,915

2,811,000
45,170
230,366

2,687,325
455,170
407,410

2,687,325
520,170
445,555

3,487
211,006
800,000

3,762
239,787
300,000

3,762
240,849
300,000

251,650

2,826
2,704

100

20,400
150,000

1,730,078

85,648
-1,000
40,000
100,000
160,000

129
97,929

-49,653
302

2,704

1.140.229

20,254.686

19,323,118

85,676,219

104,790,675

105,930,905

106,600
-365,000
195,000

1,384,600
-527,000
1,905,000

644,800
-67,000
1,340,000

6,568,287
2,114,000
5,220,000

7,846,287
1,952,000
6,930,000

7,952,887
1,587,000
7,125,000

-63.400

2,762.600

1,917,800

13,902,287

16,728,287

16,664,887

1,076,829

23,017,286

21,240,918

99,578,508

121,518,962

122,595,792

Note: Includes only amounts loaned to Federal Agencies in lieu of Agency Debt issuance and excludes Federal Financing Bank purchase of loans m a d e or
guaranteed by Federal Agencies. The Federal Financing Bank borrows from Treasury and issues its o w n securities and in turn m a y loan these
funds to Agencies in lieu of Agencies borrowing directly through Treasury or issuing their own securities.

TABLE IV-SCHEDULE D-INVESTMENTS OF GOVERNMENT ACCOUNTS
IN FEDERAL SECURITIES (In thousands)

Securities Held as Investments
Current Fiscal Year

Net Purchases or Sales (-)
Classification

Beginning of

Fiscal Year to Date

Close of
This Month

This Month
This Year
Federal Funds:
Department of Agriculture:
Agency securities
Department of Commerce
Department of Housing and Urban Development:
Federal Housing Administration:
Federal housing administration fund:
Public debt securities
Agency securities
Government National Mortgage Association:
Emergency mortgage purchase assistance:
Agency securities"
Special assistance function fund:
Agency securities
M a n a g e m e n t and liquidating functions fund:
Agency securities
Guarantees of Mortgage-Backed Securities:
Public debt securities
Agency securities
Participation sales fund:
Public debt securities
Agency securities
Housing Management:
C o m m u n i t y disposal operations fund:
Agency securities
Federal Insurance Administration:
National insurance development fund
Department of Transportation
Department of the Treasury
Veterans Administration:
Veterans reopened insurance fund
Independent Agencies:
Emergency Loan Guarantee Board
Export-Import Bank of the United States
Federal Savings and Loan Insurance Corporation:
Public debt securities
Agency securities
National Credit Union Administration
Other
Total public debt securities
Total agency securities
Total Federal funds
Trust Funds:
Legislative Branch:
United States T a x Court
Library of Congress
•
T h e Judiciary:
Judicial Survivors Annuity Fund
Department of Agriculture •
Department of Commerce •
Department of Defense

Prior Year

-$6,000

$23,215

$17,215

$2,450

30,655

-65,344

73,366

101,571

50,502
-1

149,434
-3,728

100,452
-30

1,842,868
190,990

2,742

4,570

-1,284

-10,268

-226

-4,609

-2,598

33,201

28,818

4,355

52,437
2,727

11,874
29,106

69,452
35,482

117,534
38,208

32,964

107,907

-238,468
-74,365

1,271,266
12,380

1,346,209
12,380

388

52,037

62,037

17,285
1,763,009

18,014
3,377,180

409,957

438,766

1,941,800
187,264
1,828

-1,298

106,881

97,897

10,000

-36,195

786
888,936

1,515
2,503,107

1,930
-286,556

-816

27,993

28,151

-56,200

-7,700

-31,510
-4,900

7,700

56,200

951,239
1,231

496,894
-7,760
26,020
72,665
3,470,927
-25,068

449,913
-46,190
12,980
58,950
1,277
-101,374

4,986,073
85,975
102,264
371,465
10,966,742
488,511

5,463,774
78,215
127,814
435,530
13,486,430
462,212

952,470

3,445,858

-100,098

11,455,253

13,948,641

75
80

42
175

641
1,515

706
1,595

6,733

2,943

44,412

51,863

1,495

150

470
8,600

-718

-1,345

Department of Health, Education, and Welfare:
Federal old-age and survivors insurance trust fund:
Public debt securities
Agency securities
Federal disability insurance trust fund
Federal hospital insurance trust fund:
Public debt securities
Agency securities
•
Federal supplementary medical insurance trust fund
Other

This Month

-$6,000

19,193

•

This Year

715

-25
217

15
414

60
3,007

35
2,509

533,604

-3,638,468

-4,443,012

674,880

"l, 236^320

""ii6i39i

30,411,815
555,000
4,352,301

26,239,743
555,000
4,907,741

1,406,233

783,566

11,707,306
50,000
4,020,692
1,736

12,705,773
50,000
5,010,215
2,620

407,766
'•^36! 193

953,330
884

1,788,614
550

TABLE IV--SCHEDULE D-INVESTMENTS OF GOVERNMENT ACCOUNTS
IN FEDERAL SECURITIES (In thousands)-Continued
Net Purchases or Sales (-)
Classification

Fiscal Year to Date

Securities Held as Investments
Current Fiscal Year
Beginning of

This Month
This Year
Trust Funds--Continued
Department of the Interior
Department of Labor:
Unemployment trust fund

other

!!!!!!!.'.'!!!

Department of State:
Foreign service retirement and disability fund
Other
Department of Transportation:
Airport and airway trust fund
Highway trust fund
Other
Department of the Treasury
General Services Administration
Veterans Administration:
Government life insurance fund
National service life insurance fund:
Public debt securities
Agency securities
Veterans special life insurance fund
General Post Fund National H o m e s
Independent Agencies:
Office of Personnel Management:
Civil service retirement and disability fund:
Public debt securities
Agency securities
Employees health benefits fund
Employees life insurance fund
Retired employees health benefits fund
Federal Deposit Insurance Corporation
Japan-United States Friendship Commission
Harry S. T r u m a n Memorial Scholarship Trust Fund
Railroad Retirement Board
Total public debt securities
Total agency securities
Total trust funds
Off-budget Federal agencies:
Federal Financing Bank
Pension Benefit Guaranty Corporation
Postal Service
Rural electrification and telephone revolving fund"..'.'.
Total public debt securities

Prior Year

This Year

This Month

Close of
This Month

-$1,770

-$525

$5,531

$12,126

$13,371

$11,601

-778,314
-555

4,275,806
-555

3,530,142
-46

9,517,307
4,661

14,571,427
4,661

13,793,113
4,106

77,779

120,764
160

103,916
500

371,864
980

414,849
1,140

492,628
1,140

-73,418
-251,233

690,889
890,575

440,556
1,499,395
10

3,686,537
11,578,082
20

4,450,844
12,719,890
20

4,377,426
12,468,657
20

-5,000

7,505

4,450

57,320

69,825

64,825
4,510

-1,274

420

260

4,090

5,784

-4,933

-33,085

-30,230

495,642

467,490

462,557

-17,858

206,911

""-593
-470

"37',735

367,752
-100,000
55,011
890

7,618,041
135,000
583,400
2,365

7,842,810
135,000
621,728
2,835

7,824,952
135,000
621,135
2,365

55,884,840
275,000
513,316
3,016,488
7,629
8,031,768
18,671
32,979
3,077,888
155,060,993
1,015,000

54,820,198
275,000
546,956
3,313,165
3,234
9,235,002
18,002
34,979
3,215,610
161,296,768
1,015,000

63,734,226
275,000
590,095
3,315,132
3,079
9,252,006
18,655
34,854
3,054,496
170,634,591
1,015,000

8,914,028

7,849,386

"*43", 139
1,967
-155
17,004
653
-125
-161,114
9,337,823

"**76*, 779
298,644
-4,550
1,220,238
-16
1,875
-23,392
15,573,598

6,663,472
-100,000
89,154
486,686
-5,600
569,310
-454
1,816
-104,220
11,921,119
-200,000

9,337,823

15,573,598

11,721,119

156,075,993

162,311,768

171,649,591

9,765
-2,225
-1,182,100

78,690
31,935
449,900
-55
560,470

116,895
103,400
1,721,100
4,011
1,945,406

216,535
144,150
3,420,816
3,891
3,785,392

226,300
141,925
2,238,716
3,891
2,610,832

-1,174,560

109,405
38,525
517,616
-120
665,426

Total Off-budget Federal agencies

-1,174,560

665,426

560,470

1,945,406

3,785,392

2,610,832

iGrand Total

9,115,733

19,684,882

12,181,491

169,476,652

180,045,801

189,161,534

Note: Investments are in public debt securities unless
otherwise noted.

TABLE V-COMPARATIVE STATEMENT OF BUDGET RECEIPTS AND OUTLAYS
BY MONTHS OF CURRENT FISCAL YEAR (In millions)

Classification

Oct.

Nov.

Dec.

Jan.

Feb.

March

April

May

June

July

Aug.

Sept.

Fiscal
Year
To
Date

N E T RECEIPTS
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 duties
Miscellaneous receipts
Total—receipts this
year

$15,922 $16,609 $16,066 $23,667 $14,509 $8,255 $25,029 $14,575 $25,568 $17,086 $17,215 $23,341 $217,841
1,368 9,633 65,677
2,020
9,767 1,403 15,640
2,146 1,281 9,301
1,684 1,048 10,386

6,595
722

9,762
1,662

7,059
174

8,439 11,850
478 1,286

9,636
198

12,044 13,250
1,608 4,864

8,696
188

8,857
1,204

13,577 10,310 120,074
154 15,387
2,847

488
1,635
477
621
602

499
1,712
460
646
829

483
1,597
386
594
732

512
478
1,520 1,436
485
426
630
527
486
846

540
1,434
449
621
712

513
538
1,529 1,601
323
559
623
645
794
852

491
1,464
414
637
811

504
1,659
463
647
828

6,130
344
740
1,498 1,660 18,745
5,411
434
534
7,439
559
689
9,237
859
886

28,745 33,227

37,477

38,364 32,639 31,144

52,230 38,287

53,910

33,268

39,353 47,295 465,940

27,598

32,796

42,545

47,657

29,194

35,040

24,130

33,201

26,922

25,233

35,091

42,591

Total—receipts prior year...

NET OUTLAYS
Legislative Branch
The Judiciary
Executive Office of the
President
Funds Appropriated to the
President:
International security
assistance
International development
assistance
Other
Department of Agriculture:
Foreign assistance, special
export programs and
Commodity Credit
Corporation
Other
Department of C o m m e r c e
Department of Defense:
Military:
Department of the Army..
Department of the Navy...
Department of Air Force .
Defense agencies ........
Total Military
Civil
Department of Energy
Department of Health,
Education, and Welfare:
H u m a n Development
Services
Health Care Financing
Administration:
Grants to States for
Medicaid
Federal Hospital Ins.
Trust Fund
Federal Supp. Med. Ins.
Trust Fund
Other
Social Security Adm.:
Assis. Pmts. Program...
Federal Old-Age and
Survivors Insurance
Trust Fund
Federal Disability Ins.
Trust Fund
Other
Other

104
1

1,077
480

95
32

-55

-292

-27

210

314

361

-24

488

-17

-647

311

212

839

121
207

89
33

281
19

155
-11

20
-1

130
6

144
4

91
-23

121
-28

114
8

125
-40

84
52

1,476
222

969
727
487

1,150
1,504
475

1,515
1,344
418

1,528
1,824
354

329
,383
315

236
1,487
299

117
1,882
288

-97
1,275
323

-336
886
301

-507
1,599
276

-267
1,179
258

-50
955
278

2,214
3,376
2,333
1,237
9,160

2,282
2,880
2,702
1,353
9,216

2,425
2,956
2,730
1,269
9,380

2,348
2,872
2,541
1,443
9,205

2,363
2,837
2,502
1,218
8,920

2,452
3,379
2,778
1,370
9,979

2,380
3,101
2,690
1,159
9,329

2,424
3,183
2,873
1,351
9,830

2,538
3,115
2,751
1,434
9,838

2,546
3,550
2,793
1,365
10,256

2,562
3,450
3,052
1,483
10,547

223
529

289
631

245
670

218
562

170
676

174
710

197
582

212
707

246
750

282
645

305
740

347
685

2,908
7,889

484

465

505

540

445

479

441

477

435

410

535

502

5,719

1,038 952

980

1,064 997

1,620 1,582

1,537

712
526

742
512

605

555

4,587
16,045
4,072

2,237 28,770
3,114 37,815
2,534 32,277
1,468 16,150
9,353 115,013

1,038

1,063

973

1,271

1,076 12,407

1,677 1,610 1,824

1,674 1,821

1,753

1,763 1,877

1,604 20,343

628
857

739
600

677
555

752
1,332

744
589

778
550

718
558

744
580

852
597

728
581

8,813
7,838

580

451

559

572

506

602

533

471

622

556

6,610

7,052 7,061

7,134

7,174 7,206 7,250

7,422 7,246

8,691

7,964 15,783 146

90,130

1,160 1,117
159
562
745
964

1,128
1,810
-141

1,117 1,121 1,132
67
589 1,087
987
824
331

1,137 1,141
78
597
1,184 1,135

1,166
1,104
-739

1,230 2,352
85
1,160
835
880

13,944
7,358
8,024

1,002

953

143
60
1,018

TABLE V-COMPARATIVE STATEMENT OF BUDGET RECEIPTS AND OUTLAYS

BY MONTHS OF CURRENT FISCAL YEAR (In millions)--Continued

Classification

Oct.

Nov.

Dec.

Jan.

Feb.

March April

May

June

July

Aug.

Sept.

Fiscal
Year
To
Date

Comparable
Period
Prior
F. Y.

OUTLAYS-Continued
Department of Housing
and Urban Development
$758
$487
Department of the Interior
204
317
Department of Justice
210
255
Department of Labor:
642
632
Unemployment trust fund
669
833
Other
153
136
Department of State
764
634
Department of Transportation:
884
658
Highway trust fund
Other
3,822 4,146
Department of the Treasury:
1,704
2
Interest on the public debt
188
-156
General revenue sharing
392
342
Other
Environmental Protection
-161
75
Agency
300
350
General Services
Administration
773
838
National Aeronautics and
27
22
Space Administration
6
5
Veterans Administration:
839
800
Compensation and pensions.
National service life
1,048
973
Government service life
,
1,785
Other
,
131
448
Independent agencies:
182
134
Office of Personnel Manage443
917
ment
,
Postal Service
-199
-364
Small Business Administration ,
-103
-231
Tennessee Valley Authority
Other ind. agencies
,
-95
-117
Undistributed offsetting receipts:
Federal employer contributions
42,691 39,134
to retirement fund
,
36,866
38,792
Interest credited to certain
accounts
Rents and Royalties on Outer
-13,946 -5,907
Continental Shelf Lands
,
-14,663
•9,269
Total outlays--this year
Total outlays—prior year

Surplus (+) or deficit (-) this
year
,
See
footnotes on page 3.
Surplus (+) or deficit (-) prior year

$9,218
4,087
2,522

$7,597
3,795
2,397

977 11,173
878 11,477
122
1,548
796 6,949
8,537

11,169
11,781
1,252

-430
414

4,301 4,671 4,360 59,837
1,714
(**) (**) 6,848
-329 -2,089
-458
-89
461
424
4,800
456

48,695
6,823
939

112

-56

173

117

341

413

387

4,187

3,980

1,729 57
28
22
5
4
795
514

10,442
334
67
9,045

9,573
191
63
9,136

1,106 1,041 1,078
1
"**87 "243
84
201
203
202
721 1,019
752

12,655
1,787
1,631
1,884
8,726

10,963
1,778
2,766
1,412
8,420

-373

-565

-960

-5,271

-4,983

-222

-95

-9,951

-8,530

-387

-316

-600 -3,267

-2,259

$801
$623
255
472
229
183
1,058 1,049
985
847
107
139
487
416
808
518

$552
306
203
1,195 958
1,126 1,015
116
116
442
389
751
792

$818
$933
491
212
237
204
1,112 922
878
903
96
82
494
537
656
639

$779 $1,009
506
269
215
210
1,000
1,210
1,241
102
348
713
747
806
697

8,138 4,112 4,320
14
(**) 1,699
-741
138
-659
367
430
366

4,281 4,385
(**) 1,713
268
123
379
374

4,663
1
55
396

8,638

116

-192

128

-147

333

354

365

389

198

$835
273
176
743
893
30
529
662

325
210

(**)

366

389

1,673 128
858
24
32
17
5
6
4
946
589
742

1,664 85
38
30
6
6
1,007
716

880
41
8
763

1,695
19
4
777

1,109

1,026 984

1,002

1,119

1,016 1,152

'"40
130
914

""96

" 109
71
885

""eo

"lTO ""80
159
168
667
992

-508

-378

-362

-383

-427

-211

-104

-121 -232 -4,429

-4,219

""91
98
169
122
585

-369

-384

-143

-147

41,392

41,095 37,739

43,725 40,752 41,618 40,687

37,648

36,918

40,206

-958

-116

169
709

-116 -154 -118

34
8
559

458
191

40,482

54,279 29,625 493,221

38,643

36,470

39,615 38,987

3,915

-2,731 -5,100 -12,581 +11,478 -3,331 +13,223

-7,214

14,926 17,670 -27,281

-4,852

-3,717

33,914

•6,991

-14,973

36,080

+6,465

36,800

-1,709

+9,014

-7,276

-4,575 +3,604

5,903
7,549

4,071

450,938

-48,940

TABLE VI-TRUST FUND IMPACT ON BUDGET RESULTS AND INVESTMENT HOLDINGS (In millions)
Current Month

Fiscal Year to Date

Securities held as Iinvestments
Current Fiscal Year

Classification
Receipts

Outlays

Excess

Receipts

Outlays

Excess

Beginning of
This Year This Month

Trust receipts, outlays, and investments held:
Federal Deposit Insurance Corp....

-172
1
17
1,494
92
8,982
623
6,235

$1,526
222

6,266

$206
17
-17
125
-92
-8,672
1,579
31

157

-123

567

""781
-105
400
962
17
103

-214
105
-177
-808
-17
-99

2,636
6,855
7,189
2,190
15,387

-4,508

16,039

$134
18
1,619

Federal employees life and health

Federal old-age and survivors

310
2,202

14,584
3,494
19,891
83,410

Close of
This Month

$832
221
-1,218
13,302
-418
-4,485
18,324
85,198

$694
1
1,218
1,282
418
7,979
1,567
-1,788

$3,687
13
8,032
4,352
3,537
56,532
11,757
30,967

$4,451
5
9,235
4,908
3,863
55,510
12,756
26,795

$4,377
4
9,252
5,583
3,908
64,502
13,164
27,328

1,610
6,848
6,201
-1,434
3,789
10,670
-287
-61

1,026
7
988
1,434
-1,599
4,717
287
104

4,021

5,010

4,974

11,578

12,720

12,469

3,078
9,517
8,832
173

3,216
14,571
9,067
207

3,054
13,793
9,044

139,090

18,335

Federal supplementary medical

223
154
4
Trust fund receipts and outlays
on the basis of Table m and
investments held from
Table IV-D
Interfund receipts offset against

11,532

157,426

156,076

162,312
—

11,292

-0-

34,343

-0-

22,824

6,784

16,039

191,769

173,433

18,335

35,763

34,133

1,631

315,369

360,986

-45,616

-0-

174

-0-

35,774

34,143

1,631

315,544

361,160

-45,616

-11,302

-0-

-41,372

-0-

47,295

29,625

+17,670

465,940

493,221

-27,281

199

—

•

—

171,650
•

Total trust fund receipts and
Federal fund receipts and outlays on
the basis of Table m
Interfund receipts offset against
Federal fund outlays
Total Federal fund receipts and
Total interfund receipts and outlays...

Note: Interfund 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, interfund receipts are
shown as an adjustment to arrive at total receipts and outlays of trust funds and Federal funds respectively. Included in total interfund
receipts and outlays are $6,855 million in Federal funds transferred to trust funds for general revenue sharing.

TABLE VII-SUMMARY OF RECEIPTS BY SOURCE AND OUTLAYS BY FUNCTION (In thousands)
Budget Receipts and Outlays
Classification

This Month

Fiscal Year
T o Date

Comparable Period
Prior Fiscal Year

N E T RECEIPTS
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 receipts
Total
NET OUTLAYS

$23,341,470
9,633,126

$217,840,966
65,676,588

$180,987,774
59,951,866

10,309,774
154,394
344,412
1,660,378
434,090
559,261
858,557
47,295,460

120,074,224
15,386,733
6,130,369
18,744,953
5,410,556
7,438,533
9,237,246
465,940,168

103,893,049
13,849,598
5,667,720
18,376,184
5,285,402
6,572,718
7,413,068
401,997,377

National defense
International affairs
General science, space, and technology
Energy
Natural resources and environment
Agriculture
Commerce and housing credit
Transportation
Community and regional development
,
Education, training, employment and social services,
Health
Income security
Veterans benefits and services
Administration of justice
.
General government
General purpose fiscal assistance
Interest
Undistributed offsetting receipts
Total

9,199,853
747,597
964,602
458,919
1,233,780
-28,394
-46,365
1,589,024
1,003,318
2,340,821
4,109,032
4,545,918
599,238
280,710
333,157
130,619
3,818,011
29,625,298
-1,654,540

116,491,219
5,419,411
5,620,055
7,855,482
12,346,193
6,410,382
2,592,025
17,013,324
9,735,031
28,523,718
49,613,712
160,496,073
19,915,770
4,137,657
4,671,466
8,234,392
52,633,953
493,221,018
-18,488,845

105,191,764
6,083,384
4,721,239
5,900,896
11,166,717
7,617,820
3,319,391
15,462,417
11,262,652
25,890,294
43,676,146
146,503,382
18,987,495
3,786,230
3,723,346
9,376,959
44,039,594
450,937,500
-15,772,226

For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, D . C . 20402
Subscription price $62.20 per year (domestic), $15.55 per year additional (foreign mailing), includes all issues of Daily Treasury Statements,
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GPO 861-643

FOR IMMEDIATE RELEASE
October 24, 1979

Contact: Alyij&i M. Hattal
%\ 602/^66-8.381

TREASURY FINDS SPUN ACRYLIC
YARN FROM JAPAN IS SOLD HERE
AT LESS THAN FAIR VALUE
The Treasury Department today said it has determined
that spun acrylic yarn imported from Japan is being sold
in the United States at "less than fair value."
The case is being referred to the U. S. International
Trade Commission, which must decide within 90 days whether
a U. S. industry is being, or is likely to be, injured by
these sales.
If the decision of the Commission is affirmative,
dumping duties will be collected on sales found to be at
less than fair value.
Appraisement has been withheld since the tentative
decision issued on July 13, 1979. The weighted average
margin of sales at less than fair value in this case was
23.2 percent, computed on all sales.
Interested persons were offered the opportunity to
present oral and written views before this determination.
(Sales at less than fair value generally occur
when imported merchandise is sold in the United States
for less than in the home market.)
Imports of this merchandise during 1978 were valued
at about $4.6 million.
Notice of this determination will appear in the
Federal Register of October 25, 1979.
o

M-140

epartmentoftheJREASURY
&SHINGT0N, D.C. 20220

TELEPHONE 566-2041

FOR RELEASE UPON DELIVERY
Expected at 10:00 a.m.

STATEMENT OF THE HONORABLE DONALD C. LUBICK,
ASSISTANT SECRETARY FOR TAX POLICY
BEFORE THE HOUSE COMMITTEE ON WAYS AND MEANS
THURSDAY, OCTOBER 25, 1979
I am pleased to have the opportunity today to discuss
the Administration's views on the appropriate tax treatment
of capital gains on the sale of U.S. real property by
foreign persons. Congressional expressions of dissatisfaction with our present law were first made during Senate
consideration of the Revenue Act of 1978. The Treasury
asked for and received six months time to prepare a study
and make appropriate recommendations to the Congress.
Because the Report was submitted to the Congress in early
May, and because my time this morning is limited, I would
like to submit the Report for the record and summarize only
its principal findings.
Under present law, the United States does tax capital
gains of foreign taxpayers — nonresident alien individuals
and foreign corporations — if such gains are effectively
connected with a U.S. trade or business. Most foreign
investment in U.S. real estate either constitutes a U.S.
trade or business or, at the election of the taxpayer, is
taxed as if it were a U.S. trade or business.
The problem with present law is that a well advised
foreign taxpayer can avoid our capital gains tax upon the
sale of his U.S. real property even though that real
property has been used in a U.S. trade or business. The
Report notes five ways of achieving that result; other ways
may also be available. The Report indicates the sorts of
changes in present law we believe would be appropriate to
limit these opportunities for tax avoidance.
M-141

-2When I testified in June before the Subcommittee on
Taxation and Debt Management of the Senate Finance
Committee, I outlined a more detailed proposal for taxing
capital gains of foreign persons. I noted at the time that
the proposal was intended to help focus the discussion of
this subject, and not as the Administration's final view.
In fact, our thinking on the taxation of sales of U.S. real
property by foreigners has continued to evolve since June.
Let me begin with the highlights of the Administration's
proposal as set forth last June. In the Administration's
view, present law should be changed insofar as all U.S. real
property is concerned. Thus, we believe that the scope of
proposals to change the taxation of sales of agricultural
land is too narrow, while proposals to tax sales of all U.S.
property are too broad.
Present law distinguishes between capital gains which
are effectively connected with a U.S. trade or business, and
capital gains which are not. I see no reason to question
that basic distinction. The problem highlighted in our
Report is the manipulation of that distinction to avoid
capital gains tax on sales of real property which has been
used in a trade or business. This manipulation appears to
be a problem with respect to real property generally, and
not just with respect to agricultural land. On £he other
hand, such manipulation does not appear to be a significant
factor in the case of foreign investment in manufacturing or
other non-real-estate investments. Accordingly, our
proposal is structured to limit the manipulation, rather
than to make more fundamental changes in the way we tax
foreigners investing in the United States.
As for the way in which present law would be changed, we
favor the approach of treating capital gains on sales of
U.S. real property as being effectively connected with a
U.S. trade or business and thus subject to tax on a net
basis. This position places us in accord with most of the
suggestions that have been made both in the House of
Representatives and the Senate. The more difficult question, however, is the extent to which this basic tax on
direct sales of U.S. real property should be "backstopped"
by a tax upon the sale of shares and other interests in
entities holding U.S. real property.
The bills introduced to date in both houses of Congress
provide that foreign persons would be subject to taxation on
the sale of shares in any corporation, or the sale of an

-3interest in any partnership, trust, or estate, to the extent
the gain is attributable to unrealized appreciation of
underlying real property, or to gain not recognized to the
corporation pursuant to the special provisions of section
337 of the Internal Revenue Code. The Secretary of the
Treasury would determine what part of the total gain is
attributable to the corporation's real property holdings.
This approach reaches a number of transactions which do
not raise the kinds of issues which this legislation should,
in our view, address, and which we believe are not of
primary concern to the sponsors of the legislation. For
instance, a foreign person who holds shares of a public
corporation — even a U.S. public corporation — would be
liable for tax on the sale of its shares, if the corporation
held U.S. real property which had appreciated in value.
This would embroil the Treasury in a highly complex administrative task. It would also create a very complicated,
perhaps impossible, enforcement task of trying to find all
transactions by foreign persons in shares of U.S. companies
which held U.S. real property. Equitable enforcement would
probably be impossible to achieve, and any attempt at it
would in all likelihood have the effect of disrupting
investment by foreign persons in U.S. equity securities
generally, to the detriment of our efforts to stabilize our
balance of payments position.
The basic objective of a tax on the sale of shares, in
our view, is to ensure that foreign persons are not able to
avoid capital gains taxes on direct sales of U.S. real
property by the simple expedient of placing the realty in a
corporation and selling shares. The central concern, in our
understanding, is with the "real property holding company"
— the closely held company whose principal assets constitute realty which the foreign person or persons might
hold directly, but for the capital gains tax on direct sales
of real property.
Accordingly, we believe that the tax on share sales
should be limited to real property holding companies, and,
moreover, that the tax should apply to all gain on such
shares, not simply that attributable to unrealized appreciation of real property. Such a tax would be at once simpler
to administer and enforce, and more carefully tailored to
meet the essential objectives of the policy of taxing share
sales .

-4We also have some difficulties with the proposals,
embodied in the bills now pending, to enforce the taxes
on real property and share sales though the ordinary
"withholding" method usually applied to enforce taxes on
foreign persons. There are three problems with this
approach.
1. A purchaser of real property, or of shares in a
company, may not know whether the seller is a
foreign person. In the real estate industry, it is
commonplace for transactions to be effected through
nominees; shares of closely held companies may be
so traded as well; and in trades of shares of
public companies, a purchaser only very rarely
knows the party from whom he makes his purchase.
Therefore, the purchaser, who has a withholding
liability, may not be in a position to know whether
to withhold or not.
2. There is no way for a purchaser to know how much
gain a seller derives on a sale. The ordinary
statutory withholding obligation is 30 percent of a
gross payment, which ordinarily constitutes income
in the full amount of the payment. This is true,
for instance, where the payment is interest,
dividends, or royalties. But where the payment is
a purchase price for real property, a large part of
it, and in some cases all of it, may not be capital
gain, but simply a return of capital.
3. Many purchasers, "withholding agents" under the
legislation, may themselves be foreign persons.
Withholding taxes are imposed because collecting
tax from foreign persons is very difficult once the
income to which the tax attaches is out of the
country. Withholding taxes contemplate that in the
ordinary case the income will be paid by a U.S.
person with U.S. assets subject to lien, attachment, or the like, in the event of nonpayment. But
in the situation addressed by this legislation, the
purchaser will often himself be a foreign person.
In order to meet these difficulties, we believe that
legislation to impose tax on capital gains derived by
foreign persons should provide special mechanisms for withholding by purchasers of real property interests. We
believe that someone purchasing a real property interest,
whether real property itself or shares in a real property

-5holding company, and any other party having custody of funds
going to the purchase price of the property should be required to withhold 28% of the full purchase price. The 28%
figure represents the maximum possible liability for capital
gains tax upon a sale of real property. We think that
amount should be withheld unless there are other satisfactory arrangements made for payment of the tax.
In order to avoid withholding of 28% of the proceeds,
the seller should be permitted to provide a certificate to
the purchaser either to the effect that the seller was not a
foreign person or that he had made arrangements satisfactory
to the Internal Revenue Service for payment of the tax due.
Thus, a seller would be able to go to the IRS before the
sale, identify himself to the Service, demonstrate his cost
basis in the property to be sold, the proceeds he expected
to derive from the sale, and other relevant information, and
to make satisfactory arrangement for payment of any tax
which would be due. In addition, the seller would have to
establish to the Service that he had satisfied any withholding obligation he might have had upon acquisition of the
property. This would protect against avoidance of tax by
successive transfers of property among different foreign
persons .
We believe that enforcement measures of this kind — a
special withholding obligation, coupled with a "tax
clearance" process — would be adequate to enforce a tax on
real property gains derived by foreigners, without unduly
burdening other real property transactions.
Finally, I would like to comment on the relationship of
present statutes and proposed changes to our bilateral tax
treaties. The United States presently has in force
bilateral tax treaties with 38 foreign countries and 8
overseas territories. Two of those treaties would preclude
taxation of capital gains from the sale of U.S. real property when such gains were not attributable to a "permanent
establishment" in the United States. Approximately one half
of the treaties contain articles exempting residents of the
treaty country from U.S. taxation on capital gains on the
sale of corporate shares. All the treaties contain nondiscrimination articles which would, for example, prevent
the United States from imposing a tax applicable to
corporations owned by residents of the treaty country but
not to corporations owned by U.S. taxpayers. In the absence
of specific statutory provisions overriding these treaty
provisions, the treaties take precedence over present and
future tax statutes.

-6The process of negotiating and ratifying a tax treaty is
long and arduous. This process would be rendered all the
more difficult, if not altogether impossible, if the United
States were to begin overriding specific treaty provisions
that a foreign country had negotiated in good faith.
However, most of our treaty partners are sympathetic to
considering treaty changes necessary to prevent tax evasion
and unintended tax avoidance. Accordingly, we are opposed
to any statutory changes which would immediately override
our tax treaty obligations, but are willing to contemplate
provisions which would allow the Treasury sufficient time to
implement appropriate modifications in those treaties before
statutory changes become effective.
In summary, the Administration endorses the basic
objective of the pending proposals to ensure taxation of
capital gains derived by foreign persons from sales of U.S.
real property. We believe those proposals can be
strengthened by making them apply to all U.S. real property
interests, by targeting their application to sales of
corporate shares, by ensuring that they contain a workable
enforcement mechanism, and by delaying their effect on
existing treaty provisions. 0O0

FOR IMMEDIATE RELEASE AT 11:15 AM EDT
October 24, 1979

Contact: Robert Nipp
202/566-5328

TREASURY ANNOUNCES DM SECURITY SALE
The U.S. Department of the Treasury, the Ministry of Finance
of the Federal Republic of Germany and the Deutsche Bundesbank
(German Central Bank) announced today that the Treasury will
offer securities denominated in Deutsche Marks in two issues
of up to 2 billion DM each. The first offering will be made
in early November and the second one is planned for January,
1980.
The securities will be offered exclusively to residents
of the Federal Republic of Germany. The offerings will be
made through the Deutsche Bundesbank acting as agent on behalf
of the U.S. Treasury.
Further details on these offerings will be announced at
a later date.

M-142

FOR RELEASE UPON DELIVERY
EXPECTED AT 10:00 AM EST
OCTOBER 25, 1979

STATEMENT BY THE HONORABLE C. FRED BERGSTEN
ASSISTANT SECRETARY OF THE TREASURY
FOR INTERNATIONAL AFFAIRS
BEFORE THE
SUBCOMMITTEE ON AFRICA
COMMITTEE ON FOREIGN AFFAIRS
HOUSE OF REPRESENTATIVES
U.S. ECONOMIC INTERESTS AND POLICIES IN AFRICA
Africa plays an increasingly important role in the global
economic relations of the United States. Today I will outline
briefly the growing economic interdependence between Africa
and the United States, and discuss a number of ways the United
States is assisting African countries to pursue their economic
and social development objectives.
Africa is an extremely diverse region. There are, however,
certain characteristics that most of its countries share: severe
poverty, endemic hunger, curtailed lifespans marked by rampant
disease, and massive illiteracy are the most prevalent.
Most of Africa belongs clearly within the "Fourth World"
of least developed countries. It does not include any advanced
developing countries, such as Brazil or Korea, whose rapid progress

M-143

- 2 has thrust them into the forefront of the "Third World" and
enables them to play an increasingly important role in the global
economy.

Growth in real per capita GNP for sub-Saharan Africa

has been consistently the lowest of any region, at less than
1 percent per year from 1975 thru 1977.

Now the painstaking

advances of many African countries during the last few years may
well be partially or entirely erased by the escalating cost
of their oil imports.
In addition, the economies of many African countries are
characterized by serious structural problems:
Near absence of oasic infrastructure.
Lack of economic diversification, which often perpetuates
dependence on exports of a few primary commodities.
Shortages of economic institutions and expertise.
A bias against agriculture.
Lingering suspicion and restriction of the private
sector and foreign investment, often combined with an
inordinate amount of bureaucratic red tape.
Combined with frequent political instability, these factors
result in a shortage of investment capital, which in turn tends
to perpetuate the vicious circle of slow growth and continued
structural deficiencies.
The best way for the richer countries, including the United
States, to help the African countries break this circle is through
concessional assistance, including technical assistance.

Such

help can be extended both bilaterally and through such multilateral

- 3 development institutions as the International Development
Association (IDA), the International Bank for Reconstruction
and Development (IBRD), the International Finance Corporation
(IFC), the African Development Fund and soon, we hope, the
African Development Bank.

In the charged atmosphere of African

politics, the neutrality of institutions such as the World
Bank Group enables them to assist not only the development
of each country but regional cooperative efforts as well.
The United States has direct economic, humanitarian, and
political interests in assuring a strong and viable Africa
where poverty is reduced, the pace of economic growth improved,
and serious financial problems avoided.

A wide range of U.S.

economic policies contributes to these objectives and enhances
the positive effects of global concessional assistance to
the nations of Africa.

I would like to take this opportunity

to comment specifically on U.S. economic interests in Africa,
and the policies we have pursued to benefit the African nations.
I will stress the areas where Congress itself needs to act,
either now or within the next year or so, to play its full role
in these efforts to enhance U.S. economic relations with Africa.
U.S. Economic Interests in Africa
U.S. policy toward Africa must be seen in the context
of U.S. policy toward all developing countries, which seeks
to promote U.S. interests toward that overall group of nations.
The developing countries as a whole, including OPEC, are

- 4 becoming increasingly important to U.S. economic interests
because:
—

The United States sells more than one-third of its
total exports to developing countries, equivalent to
$53 billion in 1978.

—

More U.S. manufactured exports go to the developing
countries than to Western Europe, Japan, and the nonmarket
economies combined.

—

Nearly half of U.S. industrial machinery, electrical
machinery and aircraft exports go to LDCs.

—

'Developing nations account for 85 percent of U.S.
imports of fuel and 30 percent of U.S. imports of other
raw materials.

—

Approximately one-fourth of U.S. direct investment
abroad is absorbed by LDCs.

U.S. economic policies toward Africa reflect the importance
of these interests, as well as our more specific interests
in Africa:
—

The African nations purchased nearly $6 billion in
U.S. exports and supplied almost $17 billion in U.S.
imports during 1978.

—

The bulk of this trade is in energy:

U.S. imports of

fuels and lubricants from Africa amounted to $12.5 billion
last year, nearly 30 percent of our total energy imports.

- 5 Libya, Algeria and Nigeria are important U.S. sources
of energy.

Since the Iranian unrest, Nigeria alone has

accounted for 17 percent of total U.S. crude oil imports.
Nigerian high quality low sulphur crude is particularly in
demand by U.S. refiners because of its high gasoline
component.

Four other countries are minor energy producers:

Angola, the Congo, Gabon, and Zaire.

Much exploration is

also taking place off the west coast of Africa between the
Ivory Coast and Angola, with American companies actively
involved.
Other major imports from Africa include unfinished
metals ($1.8 billion) and agricultural commodities,
mainly coffee and cocoa ($1.5 billion).
Africa supplies substantial shares of U.S. imports of
a number of key commodities:

almost one-fourth of U.S.

coffee imports, more than half of our cocoa imports,
one-fifth of U.S. tea supplies, one-fifth of our copper
imports, more than one-third of our imports of precious
metals (mainly gold), and 60 percent of our imports of
industrial diamonds.

Sub-Saharan Africa provides 80 percent

of U.S. imports of cobalt and one-third of our processed
manganese imports.

South Africa alone supplies one-third of

U.S. chromite imports, 75 percent of U.S. imports of
processed chrome, and 40 percent of U.S. platinum imports.
Guinea accounts for about 20 percent of U.S. imports of
bauxite, and possesses the world's largest known reserves.

- 6 On the export side, Africa takes one-eighth of U.S.
wheat exports, one-fourth of our rice exports, onefifth of our tallow exports, and a substantial amount of
machinery and transport equipment ($2.6 billion in 1978).
Our major African markets are South Africa, Nigeria,
and Egypt (about $1 billion in U.S. exports to each
country) which together account for half of our total
exports to Africa. Major suppliers of goods to the U.S.
market are Nigeria, Libya, and Algeria ($3 to 6 billion
each) for a combined share of nearly three-fourths of
total U.S. imports from Africa.
At year end 1978, U.S. direct investment in Africa
(excluding South Africa) totaled $3.4 billion, almost
double the level of a decade earlier. This investment was
concentrated in a few industries and a few countries.
Direct investment in petroleum accounted for about 60
percent of the 1978 total, with mining and smelting
accounting for another 15 percent and manufacturing
investments 8 percent. About 60 percent of all direct
investment in Africa (excluding South Africa) was located
in four countries — Egypt, Liberia, Libya and Nigeria.
African countries also play a significant and expanding
role in many economic and political multilateral forums.
The United States has encountered both cooperation and
opposition from various African countries at the World

- 7 Bank, IMF, MTN, commodity negotiations, and North/South
conferences. Whether opposing or supporting our views, it
is clear that African countries are now players. African
countries control one-third of the votes in the United
Nations General Assembly and have been making their
influence felt.
All of these factors argue strongly for U.S. policies which take

full account of African concerns and provide a sound basis for future
economic and political cooperation. The United States has already

undertaken a number of initiatives which directly benefit the African
nations. I would like to summarize these efforts in five major
areas: concessional aid, commodities, general trade policy, monetary
affairs and energy policy.
Concessional Aid
The amount of U.S. assistance now going to Africa is
substantial. It is also increasing, particularly that part
which is channeled through the multilateral development banks.
In its most recent fiscal year, the World Bank Group
approved 70 loans for sub-Saharan countries totalling more than
$1.2 billion — up by $130 million from the previous year and by
more than $300 million since 1976. Of the total amount approved
last year, $619 million (slightly more than half) was lent on
highly concessional terms from IDA, the Bank's soft loan window.

- 8 IDA is by far the largest single source of concessional financing
in the world for Africa.

The United States is of course a major

contributor to IDA, and I hope that Congress will in the near
future finalize approval of the Administration's request for
just under $1.1 billion to complete our contributions to the
fourth and fifth replenishments of that extremely important
institution.
U.S. policy initiatives within the World Bank have pointed
toward the most effective use of these resources, by shifting
sectoral concentrations so as to place greater emphasis on
lending which directly reaches the poor and helps meet basic
human needs.

Lending in support of agriculture and rural

development now accounts for 31 percent of total lending in
West Africa and 41 percent in East Africa.

More attention

is also being given to lending for water supply and sewage
and for innovative projects to assist small-scale African
enterprises.

Africa also provides an example of the Bank's

new energy program —

$9 million to help develop the geo-

thermal potential of the Rift Valley of Kenya.
In addition, we feel that the continued use of World
Bank resources to support the development of economic
infrastructure is particularly critical in the poorest developing
countries, such as sub-Saharan Africa.
need basic road and power projects.

These countries still

In view of the total

focus of our bilateral assistance program on basic human needs,
the development banks are the only mechanism through which
we can contribute to these priority areas of African development.

- 9 Increasing amounts of U.S. assistance to Africa are
also being channeled through the African Development Fund.
This concessional lending facility was established in 1973
under the aegis of the African Development Bank, with financial
support from non-regional developed countries. Last year, the
Fund approved loans totalling $186 million, up from $142 million
in 1977 and $80 million in 1976.
During the recently negotiated replenishment agreement,
the United States — after extensive consultations with the
Congress — pledged $125 million to the Fund's resources over
the next three years. This was the first time for the United
States to participate in a negotiated expansion of African
Fund resources, as the previous Administration had elected
not to contribute to the original funding of the ADF or its
first replenishment in 1975. The African countries were extremely
pleased with this pathbreaking U.S. contribution, which was
announced personally by President Carter during his visit
to Africa in early 1978 and which I had the personal pleasure
to deliver to the Annual Meeting of the African Development
Bank in Libreville later that year. I believe that U.S. economic
and political interests in Africa will be significantly advanced
by our participation in this uniquely African institution.
The first year's installment of $41.7 million has been included
by both the House and Senate in the FY 1980 appropriation
for Foreign Assistance and Related Programs, now in Conference.

-10In addition, the United States participated very actively
during 1979 in international negotiations leading to the proposed
expansion of membership of the African Development Bank. Under
Charter provisions adopted when the Bank was established in
1964, membership has been limited to African countries. These
charter provisions are now being amended to provide for membership
by countries outside the region, including those from Western
Europe, Canada, Japan, and the United States. When this process
is completed, probably by January 1980, we expect to submit
legislation to authorize (and subsequently appropriate) U.S.
capital subscriptions of $360 million.
This would give the United States a capital share of
5.68 percent of the Bank's total capital ($6.3 billion)
and 17.04 percent of the $2.1 billion non-regional capital
subscription. It would make the United States the largest
single non-African member of the Bank, giving African countries a further tangible and highly visible signal of our
commitment to promoting their growth and development —
through an institution which is thoroughly African, and which
therefore is a major source of pride and interest throughout
the Continent.
Commodity Policy
Price instability has long been a problem for both consumers
and producers of key commodities. Recurring boom and bust
cycles are detrimental to all nations:

- 11 —

During periods of rapidly rising prices, they fuel
inflationary tendencies in consuming countries.
To the extent these price increases become embedded
in wages, they can help perpetuate inflationary
spirals.

—

For producing countries heavily dependent upon
commodity production and exports, excessive price
volatility can lead to erratic investment and
development in both the agricultural and raw
materials sectors.

It can also disrupt economies

through large shifts in domestic employment, savings,
tax revenues and foreign exchange earnings.
The fragile economic and social structures of African
countries are probably the most susceptible to these disruptions;
at the same time, they are least able to cope with the consequences thereof.

More than most areas, therefore, Africa

stands to benefit significantly from cooperative commodity
policies between producing and consuming nations.
To help remedy this price volatility, the United States has
supported, wherever feasible, the negotiation of stabilization
agreements to dampen commodity price fluctuations.

To ensure

that such agreements balance the costs and benefits to all
parties, we prefer stabilization arrangements which rely on
buffer stocks, buying when prices are low and selling when
prices are high.

The United States belongs to the International

Tin Agreement, and is seeking early ratification of the newly

- 12 negotiated Rubber Agreement, both of which rely on buffer
stocks. The International Cocoa Agreement is now being renegotiated and, if negotiations are successful, will rely on
buffer stocks to stabilize prices. The United States has also
suggested a similar mechanism to stabilize copper prices.
Where buffer stocks are not feasible, agreements relying
on national stocking and export quotas, while less desirable
than buffer stock arrangements, can also be effective. Examples
of this second type of stabilization agreement are the Sugar
Agreement, the Coffee Agreement and the proposed Wheat Agreement.
The United States either currently is a member, or plans to
join, all three of these agreements.
Several African countries — notably Cameroon, Ghana,
Ivory Coast, and Nigeria — have a vital interest in the
Cocoa Agreement. Liberia has participated in the recent
rubber negotiations and Nigeria is a member of the Tin
Agreement. Membership in the Coffee Agreement, the largest
of the existing agreements, includes a long list of African
countries headed by Ivory Coast, Angola, Uganda, Ethiopia,
and Zaire.
The Sugar Agreement, which is still in the process of
ratification by the United States, has been joined by South
Africa, Mauritius, Mozambique, and Swaziland, together with
a number of smaller producers who are nevertheless heavily
dependent on sugar exports.

- 13 Only two countries in Africa are major copper producers,
but both Zaire and Zambia are leading exporters to Europe, Japan
and the United States.
Of particular importance to Africa is the strong U.S.
support for separate implementation of the Food Aid Convention,
presently part of the International Wheat Agreement, under
which donor countries commit to an increase in food aid.

The

United States has said it will unilaterally meet a new annual
commitment of 4.5 million tons of grain, up from 1.9 million
tons under the present agreement.
A number of other commodity arrangements are also under
consideration to expand market opportunties through production
and utilization research, market promotion, and the exchange of
market information.

Products for which such agreements may

emerge are jute, tropical timber, hard fibers and tea.
The last three commodities are of particular interest to
Gabon, Kenya, and Tanzania.
The other major commodity initiative is the Common
Fund.

The United States believes that consolidating the

assets of individual commodity agreements can make the individual
agreements more efficient financially and save money for
participating countries.

The United States has supported a

Common Fund which would pool the financial resources of agreements
but which would not interfere with the operation of the
agreements themselves, nor duplicate activities of the development banks.

- 14 The Common Fund Negotiations are entering the final
stages and should be completed late this year or early
in 1980. The United States would seek ratification in 1980
and entry into force would probably occur late next year or
in 1981. We would expect to request an authorization for
appropriation in FY 1981, accompanied by a request for an
initial appropriation of $1 million. A later appropriation
of at least $60 million would be sought, at a time and under
terms yet to be negotiated.
Trade
Trade is one of the most important areas of U.S. economic
interaction with developing countries. As members of the
Fourth World, the .majority of African nations remain largely
dependent upon exports^of agricultural and other raw materials,
including energy,L to earn the essential foreign exchange to pay
for food and industrial imports crucial to their domestic needs
and the development process. Access to foreign markets for
their exports.is therefore an important objective of the African
nations. It will become even more important as their economies
develop and trade expands.
The United States remains a strong proponent of open
markets for the benefit of all nations. Our focus has been
essentially three-fold:
— rejection of proposals to restrict U.S. imports from
developing countries;

- 15 — continued preferential trading treatment in our market
for developing countries; and
— active participation in the recently concluded Multilateral Trade Negotiations, which will significantly
reduce tariff and non-tariff barriers to international
trade for all countries.
U.S. trade statistics provide the clearest indication
of the openness of our markets. Our imports of manufactured
goods from the developing countries have grown from $3
billion in 1970 to about $24 billion in 1978. Developing countries
now supply half of our imports of consumer goods and onefourth of all our manufactured imports. The majority of
African nations are not yet in a position to take advantage
of these markets in the area of manufactured goods, although
they will be over the longer term.
African access to the U.S. market through our system of
generalized market preferences (GSP) is also in a nascent stage.
Approximately $125 million in African goods entered the United
States under GSP in 1978. Ivory Coast, Ghana, and Mauritius
were principal beneficiaries.
The U.S. system offers preferential duty-free access
to products from developing countries on a competitive need
basis. When a specific product from a country eligible for
GSP becomes competitive in the U.S. market, that product reverts
to normal tariff treatment on the grounds tnat special help
is no longer needed — and that its continuation would unfairly

- 16 hamper less competitive countries from getting an opportunity
to enter the market. This policy is designed to especially
benefit the developing nations which most need special access.
It will directly benefit the African nations as they begin
to produce and export manufactured and semi-manufactured goods,
and as developing countries elsewhere "graduate" to MFN status.
At present, however, the vast majority of Africa's
non-oil exports to the United States are primary commodities
which already enter our markets duty free. Access for these
products should remain unrestricted in the future. In addition,
as a result of the MTN, industrial nations will make tariff
cuts averaging more than 30 percent on over $140 billion of
our imports in coming years.
Finally, on the export side, the United States Export
Import Bank and U.S. Public Law 480 and other bilateral
concessional aid programs have given substantial assistance
to U.S. exports destined for Africa. Eximbank exposure in
Africa as of August 31, 1979, totalled $3.1 billion. Bilateral
U.S. concessional aid to Africa in fiscal year 1978 also
totalled nearly $600 million.
International Monetary Policy
The International Monetary Fund (IMF) is the central
monetary institution for the world economy and the principal
source of official balance of payments financing for its
members. The Fund is not an aid institution, and its

- 17 resources do not finance development projects.

However,

by promoting a sound, stable world economy and helping
members implement corrective macroeconomic programs to
deal with temporary payments problems, the IMF fosters the
healthy world economic environment and the domestic economic
stability essential for development. This is an important
function for all member countries, including the African
developing nations.
The IMF has recently strengthened its capacity to meet
official balance of payments financing needs through increases
in the amounts of Fund resources and members' access to these
resources:
— The Supplementary Financing (Witteveen) Facility,
of $10 billion, for which the Congress voted last
year a U.S. contribution of $1.8 billion, is now
in operation and will provide additional funds to
countries experiencing severe payments problems. The
first drawing under the SFF was made by an African
country, Sudan, and Kenya has joined other countries
making use of the facility.
— A fifty percent increase in IMF quotas scheduled
for next year will be a timely addition to Fund resources.
The quotas of African members will increase by nearly $2
billion as a result.

- 18 —

SDR allocations have also been resumed in an
effort to promote the use of the SDR as an international
reserve asset and to supplement other reserves.

The

African nations are scheduled to receive allocations of
SDR 929 million (about $1.2 billion) over the period
1979-1981.
—

The Compensatory Financing Facility, a valuable
source of balance of payments financing to many countries
during the cyclical downturn of the mid-70's, has recently
been liberalized substantially and accounts for a large
proportion of current IMF financing for Africa, equivalent
to approximately $1.1 billion in outstanding drawings.

—

A Trust Fund administered by the IMF, which provides
concessional balance of payments loans to eligible
countries, has extended $797 million of financing to the
poorest African countries.

—

Further modification of the existing IMF facilities
is under consideration.

Over the coming months, the IMF

Executive Board will consider extending the repayment
period under the Extended Fund Facility from 8 to 10 years,
and will study ways of lowering interest costs of the
Supplementary Financing Facility.
Large shifts in current account balances will occur over
the next two years, including a deterioration on the order
of $20 billion in the current account deficit of the developing
countries as a group.

While we do not expect a general financing

- 19 problem to arise for the developing countries as a group,
some countries, including some in Africa, may experience balance
of payments difficulty.

The availability of IMF resources

and programs in such instances will be an important source
of stability and strength.
Energy Policy
Increased costs of energy have a particularly serious
impact on the developing nations of Africa, which can least
afford it.
(1)

U.S. energy policy is two-fold in nature:

to improve domestic conservation, reduce oil imports,
and increase alternative energy production; and

(2)

to improve international cooperation in energy and
assist nations especially hurt by the increased
cost of oil.

The United States has sought to alleviate the problems
of the African nations and other LDCs through support of IMF
credits to assist in meeting their short-term payment imbalances
and World Bank loans to meet their development needs.

specifically to meet their energy problems in the longer
run, the United States has supported the World Bank's expanded
energy program.
In July 1977, the Bank Board approved a lending program
which for the first time included oil and gas development projects.
In January 1979, it expanded this program further to include
exploration.

While the World Bank has not as yet made any

- 20 loans to African nations under this program, an IFC loan for
$4 billion was extended to assist in further exploration and
development of existing offshore oil fields in Zaire. Over
the next two years, however, applications for petroleum projects
totalling $206 million are expected from 13 African countries,
out of a total of 24 expected applications amounting to $814
million worldwide.
Over the next five years, World Bank lending for oil,
gas, coal and hydroelectric development is projected to
total $7.7 billion, or at least 15 percent of total Bank
lending in five years. When these projects reach fruition,
energy production equivalent to between 2 and 2.25 million
barrels of oil a day should result, thus reducing the potential
demand for OPEC oil. World Bank activities in the energy
sector will thus help to improve materially the world energy
supply and demand picture. Energy deficient countries in
Africa can be expected to benefit significantly from this
important new program.
Under its new energy program, our own Overseas Private
Investment Corporation (OPIC) has also provided political
risk coverage for an offshore oil exploration, development,
and production project in Ghana. The first oil ever produced
in Ghana is now flowing from this project's platform and is
providing a significant share of the country's total needs.
All these programs, of course, help our own energy situation

- 21 by improving the world's supply/demand balance as well as
addressing directly a critical development bottleneck of most
poor countries.
Conclusion
The United States thus has a wide array of major economic
interests in Africa, and is pursuing a wide array of policies
in pursuit of those interests. Our basic strategy is to
work cooperatively with the African countries themselves to
provide concessional assistance, through both bilateral and
multilateral channels; to offer them access to our markets
for goods, capital and technology wherever possible; and to
maintain a general world economic environment conducive to
economic growth and development.
The Congress has many opportunities to participate
actively in this effort. It has already voted for trade
liberalization which helps the African countries, and has
supported maintenance of a strong IMF. Within the next few
days, it needs to take its final vote on the Foreign Assistance
Appropriations for FY 1980 — including U.S. funding
(without restrictive amendments) for the World Bank Group,
the world's largest assistance channel for Africa, and
the African Development Fund. The Administration will soon
submit legislation for an increase in the U.S. quota in the IMF.
Several commodity agreements of importance to African countries
are pending in the Congress, or will be submitted next year.
Also next year, the Administration will seek initial support

- 22 for U.S. participation in the African Development Bank and
probably the Common Fund. I look forward to continuing to
work closely with the Congress, and particularly with this
Committee, on all these issues.

TOTAL
TOTAL AFRICA
OIL EXPORTING
Algeria
Libya
Nigeria
Egypt
South Africa

OUTSTANDING IMF CREDITS TO AFRICA
AS OF AUGUST 31. 1979
(sailIons of 6DRa)
GENERAL ACCOUNT
OIL
CREDIT TRANCHES
CFF
FACILITY
ORDINARY
err

121x1 "

245.7
232.0

—

iH2

IMF
TRUST
FUND

BUFFER
1TOCK

aTlTo'

?»-»

122.5

29.7

75.0

626.9

296.2

12.8

13.1

13.2

7.9
14. S

4.3
6.5

4.3
1.3

5.4
S.4

5B.0
72.0

345.8
1.289.2
OTHER AFRICA
Benin
Botswana
Burundi
26.3
Caneroon
8.6
Capa Varde
7.8
Central African tapir*
Chad
4.6
11.1
Co«oroa
Congo
18.0
Djibouti
15.0
15.0
Equatorial Guinea
0.8
5.3
Ethiopia
26.1
55.1
Gabon
1.1
7.5
Gambia
9.7
Ghana
12.0
109.4
Guinea-Bissau
—
—
Guinea
9.2
9.2
Ivory Coast
6.0
11.1
Kenya
1.7
14.5
Leaotho
6.6
4.7
Liberia
16.0
19.0
8.0
Madagascar
170.3
40.9
Malawi
—
•^
Mali
Mauritania
38.8
Mauritiua
Morocco
22.5
2.6
Niger
Rwanda
110.8
8.5
Sao Tome a Principe
89.6
13.7
Senegal
Seychelles
24.0
Sierra Leone
30.2
Somalia
175.9
Sudan
29.8
283.3
Swaziland
154.7
Tanzania
To go
Souice;
T
u n i til a IMF, International Financial Statistics
Uganda
Upper Volta
Zambia
Zaire

7.5

495.5

1.5

6.5
18.0
4.5
1.1
-

29.0
2.2

69.0
_
9.5
6.5
11.0
112,5
21.0
12.5
54.0
—
41.3
24.0
25.0
84.7
101.9

23.1
—
5.1
3.3
6.6
4.8
_
16.9
17.8
7.4
33.3
34.6
_
5.2
bl.4
26.7

17.6
2.9
20.6
15.6
21.6
31.3
3.3
18.9
10.8
6.2
14.3
7.1
10.5
73.6
5.4

5.3

22.2
10.4
7.5

7.5

46.9
1.9
27.4
9.8
5.4
46.8
18.0

AFRICAN COUNTRIES INCLUDED IN
PROVISIONAL PROGRAM OF PETROLEUM PROJECTS
TO BE PRESENTED TO THE BOARD IN THE NEXT TWO YEARS

Project

Country

Amount
(millions of $)

Pre-Development
Exploration
Technical Assistance
Technical Assistance
Oil Exploration
Pre-Development
Oil/Gas Exploration
Oil Exploration

Madagascar*
Congo*
Yemen, PDR
Morocco
Liberia*
Tanzania*
Yemen, A.R.

5
4
5
35
3
5
5

Development
Chad 1/*
Egypt
Tunisia
Ivory Coast*
Benin*
Nigeria 1/*

Oil Production
Gas Distribution
Onshore Gas
Oil Distribution
Oil Development
Gas Pipeline
Total for Africa:

14
30
10
35
10
45
206

•Subtotal for Sub-Saharan Africa: 121

*
1/

Sub-Saharan countries
Subject to changes in the political situation or decisions
of government

Source:

World Bank

September 11, 1979

FOR RELEASE WHEN AUTHORIZED AT PRESS CONFERENCE

October 24, 1979

TREASURY NOVEMBER QUARTERLY FINANCING
The Treasury will raise about $1,400 million of new cash
and refund $5,390 million of securities maturing November 15,
1979, by issuing $2,750 million of 3-1/2-year notes, $2,000
million of 10-year notes and $2,000 million of 30-year bonds.
The $5,390 million of maturing securities are those held
by the public, including $ 759 million held, as of today, by
Federal Reserve Banks as agents for foreign and international
monetary authorities. In addition to the public holdings,
Government accounts and Federal Reserve Banks, for their own
accounts, hold $1,831 million of the maturing securities that
may be refunded by issuing additional amounts of new
securities. Additional amounts of the new securities may also
be issued to Federal Reserve Banks, as agents for foreign and
international monetary authorities, to the extent that the
aggregate amount of tenders for such accounts exceeds the
aggregate amount of maturing securities held by them.
Details about each of the new securities are given in
the attached "highlights" of the offering and in the official
offering circulars.

oOo
Attachment

M-144

(over)

HIGHLIGHTS OF TREASURY
OFFERINGS TO THE PUBLIC
NOVEMBER 1979 FINANCING
TO BE ISSUED NOVEMBER 15, 1979
Amount Offered;
TO the public

$2,000 million
$2,000 million

$2,750 million

Description of Security
Term and type of security
Series and PTIQTD A U L i u y :
eries and CUSIP designation
Maturity date
Call date
Interest coupon'rate

•* I /•>
3-1/2-year notes
Series G-1983
(CUSIP No. 912827 KB 7)
M a v l5
' 1983
N
rovision
° P
To be determined based on
the averac e of
Investment yield
3
accepted bids
To be determined at
Premium or discount
auction
T
Interest payment d a t «
° b e d e t e r m i n e d a f t e r auction
Minimum dllnSminattS^IOiiiibie 1". 11 I I I :S?%So ™* ^ " ^
"
Terms of Sale:
Method of sale.
Yield Auction
Accrued interest'payabie'by
y
investor....
None
Preferred allotment
ent
Noncompetitive bid for
Deposit requirement
$1,000,000 or less
Deposit nn-,™!
w
5% of face amount

^stUutionr^

October 24, 1979

by desi

^ated

Acceptable
Key Dates;
Deadline for receipt of tenders
Tuesday, October 30, 1979,
_J
by 1:30 p.m., EST
Qoffln
Settlement date (final payment due)
a cash or Federal funds
Thursday, November 15, 1979
b) check drawn on bank
within FRB district where
submitted
Friday, November 9, 1979
c) check drawn on bank outside
FRB district where submitted....Thursday, November 8, 1979
Delivery date for coupon securities...Thursday, November 15, 1979

10-year notes
cpries B—1989
fcUSIP No. 912827 KC 5)
November 15, 1989
No provision
To be determined based on
T H * average of accepted bids
on
G
T o b e determined at auction
?o be determined after aucti
May 15 and November 15
$1,000
Yield Auction
None ,. , f-y.
Noncompetitive bid for
$1,000,000 or less
5% of face amount
Acceptable
Wednesday, October 31, 1979,
by 1:30 p.m., EST
Th ursday, November 15, 1979
Friday, November 9, 1979
Thursday, November 8, 1979
Thursday, November 15, 1979

30-year bonds
Bonds of 2004-2009
(CUSIP NO. 912810 CK 2)
November 15, 2009
November 15, 2004
To be determined based on
the average of accepted bids
To be determined at auction
To be determined after auction
May 15 and November 15
$1,000
Yield Auction
None .
Noncompetitive bid tor
$1,000,000 or less
5% of face amount
Acceptable
Thursday, November 1, 1979,
by 1:30 p.m., EST
Th ursday, November 15, 1979
Friday, November 9, 1979
Thursday, November 8, 197
Tuesday, November 20, 1979

TALKING POINTS
FOR THE
FINANCING PRESS CONFERENCE
October 24, 1979
This afternoon we are announcing the terms of our
regular November quarterly refunding. I will also
discuss the Treasury's financing requirements for
the balance of the calendar year and our estimated
cash needs for the January - March quarter.
Our refunding will consist of a short-term note, an
intermediate-term note and a long-term bond.
We are offering $6-3/4 billion of new securities to
refund $5.4 billion of publicly-held securities
maturing on November 15 and to raise approximately
$1.4 billion of new cash.
The three new securities are:
— First, a 3-year, 6-month note
in the amount of $2-3/4 billion
maturing on May 15, 1983. This security
will be auctioned on a yield basis on
Tuesday, October 30. The minimum
denomination will be $5,000.
— Second, a 10-year note in the amount of
$2 billion maturing November 15, 1989.

- 2 The note will be auctioned on a
yield basis on Wednesday, October 31.
The minimum denomination will be
$1,000.
— Third, a 30-year bond in the amount of
$2 billion maturing on November 15, 2009
and callable beginning November 15, 2004.
This bond will be auctioned on a yield basis
on Thursday, November 1. The minimum
denomination will be $1,000.
On each of the three issues, we will accept noncompetitive
tenders of up to $1,000,000.
For the current October - December quarter, we estimate our
net market financing will total about $13-1/2 billion, assuming
a $12 billion cash balance at the end of December.
Thus far, not including this refunding, we have raised
about $2-1/4 billion in new cash in marketable borrowing
during this quarter. This was accomplished as follows:
$1/2 billion in connection with the
2- and 4-year note cycles which settled
on October 9 and 10, respectively.
$1-1/2 billion in the 15-year, 1-month
bond which settled on October 18.

- 3 $1/4 billion of new cash in the additions
to weekly bills.
The $1.4 billion new cash raised in this refunding will
bring the total new cash raised for the quarter to date
to approximately $3-1/2 billion, leaving a balance of about
$10 billion still to be done. This remaining cash need
could be met by continued additions to the regular weekly
bills, longer-dated cash management bills, a possible
intermediate note in early December in the 5-6 year
range, possible additions to the 2- and 4-year notes in
December and the proceeds of the first DM security.
Shorter-dated cash management bills, maturing within
the quarter, to accommodate temporary cash needs may also
be utilized.
Our net market borrowing need in the first quarter of
calendar year 1980 is currently estimated in the range of
$19 - 22 billion, assuming an $8 billion cash balance at
the end of March.

TREASURY FINANCING REQUIREMENTS
July—September 1979

$Bil.

Sources

Uses
36V4
i--

Gov't Acc't Investment ^

4 Special Issues u
30

20 —

Coupon Maturities ^

4 Coupon Refundings

Foreign
Nonmarketables
10

4 Increase in Cash
Balance
4 Cash Deficit

1/4

-_-

Other
Nonmarketables
Net Market Borrowing t

10 1 /4

0
±f Net of exchanges for maturing marketable securities of $ % billion.
Office of the Secretary of the Treasury
Office of Government Financing

October 23, 1979-18

TREASURY FINANCING REQUIREMENTS
October-December 1979^
K 2 h K 2 * 1* 51 1 * | Special Issues*

USeS

Sources

$Bil.

Coupon
Refundings

Coupon ^
Maturities T

30
3/4

Done
Nonmarketables
Net Market 13%<
11V 2 ^To Be Done
Borrowing

^ C a s h Deficit
10

10
Decrease in ii
Cash Balance T

0
Office of the Secretary of the Treasury
Office of Government Financing

1/Assumes $ 1 2 billion December 31, 1979 cash balance.
2/Net of exchanges for maturing marketable securities of $V* billion.

^m
0
October 23, 1979-19

TREASURY NET MARKET BORROWING*/
Calendar Year Quarters
$Bil

$Bil.

23.9 24.7

22.8

COUPONS
III! Over 10 yrs.
K20-10 yrs.
BILLS

-10

-3.9
I

II HI
1975

II III IV
1976

II III IV
1977

II III IV
1978

-10
J
III IV

II
1979

\J Excludes Federal Reserve and Government Account Transactions.
Office of the Secretary of the Treasury
Office of Government Financing

October 23, 1979-2

TREASURY MARKET BORROWING^
Calendar Year Quarters
$Bil.

$Bil.
1 C o u p o n Refunding
• Net Borrowing

III
1975

Office of the Secretary of the Treasury
Office of Government Financing

IV I

II III IV
1976

II III IV
1977

III

1978

I VI

II III I V e

1979

J/Excludes Federal Reserve and Government Account Transactions.
e estimate.
October 23, 1979-25

TREASURY NET BORROWING FROM NONMARKETABLE ISSUES
$Bil.

$Bil.

10
|Savings Bonds & Other
| State & Local Series
[Foreign Nonmarketables

™-1.4
II

III I V

1975
Office of the Secretary of the Treasury
Office of Government Financing

II III I V

1976

III I V

1977

II III I V

1978

_-2

I II

1979
October 23, 1979-3

QUARTERLY CHANGES IN FOREIGN AND INTERNATIONAL
HOLDINGS OF PUBLIC DEBT SECURITIES
$Bil.|

201

mm Nonmarketable
Marketable
^
Add-ons^
• • Other Transactions

17.0

14.9

6.2

4.9
^

4
1.0

3.5
1.4

1.6 , U L .3JL

0
-4

$Bil.

^^N

Ittiftft!

-0.5

--4

-8

-12
-14.3

-16
III
1975
Office of the Secretary of the Treasury
Office of Government Financing

II
III IV
1976

II III IV
1977

II
III IV
1978

-16

1979

_7 F.R.B. Purchases of marketable issues as agents for foreign and
international monetary authorities for n e w cash.
October 23, 1979-11

U Partly estimated.

TREASURY OPERATING CASH BALANCE
Semi-Monthly

Jan

May

Office of the Secretary of the Treasury
Office of Government Financing

Jul
1978

May

Jul
1979

Sep

Nov
October 23, 1979-15

SHORT TERM INTEREST RATES
Monthly Averages
%

Federal Funds
12

10
Prime Rate
8-

Through
week ending -d
October 17, 1979

^Commercial Paper

vpSS*^

3 Month
Treasury Bill

J S N J M M J S N J M M J S N J M M J S N J M M J S N J M M J
S
1974
1975
1976
1977
1978
1979
Office of the Secretary of the Treasury
Office of Government Financing

October 23, 1979-4

SHORT TERM INTEREST RATES
Weekly Averages
%
Week ending
October 17, 1979

15
14
13
Prime Rate

12
11 Commercial Paper
/

••••••

^
,
•
•
•
•
•
••••••••'
,«•••••••••••....••• ..••••••••
,••••

3 Month Treasury Bill
8
Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

1979
Office of the Secretary of the Treasury
Office of Government Financing

October 23, 1979-5

LONG MARKET RATES
Monthly Averages
%

11 —

•

N e w A a Corporates

V'V

-9
A

8 -—

N e w Conventiona
Mortgages

-8
Treasury
20-Year

, / ^ .....

-7

V
N e w 20-Year \
Municipal Bonds '

6I III I i M 1 1 1 1 M 1 1

„/
•**S

I I I 1 I 1 1 1 1 II 1 1 1 1 II 1 1 1 1 1 I

Through week ending
October 19, 1979

II II I IIII II I I I

J S N J M M J S N J M M J , S N J M M J S N J M M J , S N J M M J S
1974
1975
1976
1977
1978
1979
Office of the Secretary of the Treasury
Office of Government Financing

October 23,1979-7

INTERMEDIATE AND LONG MARKET RATES
Weekly Averages
%

Week ending
October 19, 1979

New Conventional
Mortgages ^

New Aa
Corporates

.*.-,%**'"" ""^'**'«*.

^-L-ii__.. _«.—g^^3*^ Treasury 10-Year
Treasury 20-Year * *—*i
Treasury 7-Year
8

Municipal Bonds
New 20-Year
6
5

Jan

Feb

Mar

Apr

May
June
1979

July

Aug

Sep

Oct

^ Monthly, weekly data not available.
Office of the Secretary of the Treasury
Office of Government Financing

October 23, 1979-6

MARKET YIELDS ON GOVERNMENTS
Bid Yields

Years to Maturity
Office of the Secretary of the Treasury
Office of Government Financing

October 23, 1979 2 2

$Bil

TRADING VOLUME AND OPEN INTEREST IN 90 DAY
TREASURY BILL FUTURES CONTRACTS

500

$Bil
500

Open Interest
400

400

TRADING V O L U M E

300

I II III I V I II III I V I II III I V I II II

1976

1977

1978 1979

200

100

0
III
1976
Office of the Secretary of the Treasury
Office of Government Financing

I
III
1977

II
III
1978

I
I
1979

0
October 23, 1979-14

DELIVERABLE BILLS AND DELIVERIES ON 90 DAY
TREASURY BILL FUTURES CONTRACTS
$Bil.

$Bi
6 mo.
3 mo.

Mar

Jun Sep
1976

Office of the Secretary of the Treasury
Office of Government Financing

"| Estimated
> Deliverable
J Supply^

Dec

Mar

Jun Sep
1977

Dec

Mar

Jun Sep
1978

Dec

Mar

Jun Sep
1979

1/ Consists of the amount of accepted competitive tenders for the n e w
3 month bill and the 6 month bill issued 3 months earlier.
October 23, 1979-13

NEW MONEY FROM NONCOMPETITIVE BIDS IN
TREASURY BILL AUCTIONS AND AVERAGE AUCTION YIELDS
%.

May
Jun
1979 Auction Dates
Office of the Secretary ot the Treasury
Office of Government Financing

1/ Discount basis.
2 / N e w money is the difference between noncompetitive bids on the
n e w issues and maturing bills previously bid noncompetitively.

October 23. 1979 24

GROWTH IN MONEY MARKET CERTIFICATES &
6 MONTH BILL AVERAGE AUCTION YIELDS

6 Month Bill Average Auction Yields

11
10

10
9

8
i i i T f y r i ih i i ill i i i 1 1 i i ih i i 11

7
$Bil.

i ili i i ill i 1 1 1 i

11 i 11

ill i 11 li i i i i 7
$Bil.

Money Market Certificates
Savings & Loan

Office of the Secretary of the Treasury
Office of Government Financing

S
0
1978

M J
1979

J 7 Discount Basis
October 23, 1979 23

PRIVATE HOLDINGS OF TREASURY MARKETABLE DEBT
$BII
BY MATURITY
400

Sept. 30, 1979 »J80.6
38.8

COUPONS
V//A Over 10 yrs
7-10 yrs

350
300

2-7 yrs
2 yrs & under

250

84.3

I
I

BILLS

200

127.0

116.9

1969

1970

Office of the Secretary of the Treasury
Office of Government Financing

1971

1972

1973
1974 1975
As of December 31

1976

1977

1978 1979

October 23, 1979-10

AVERAGE LENGTH OF THE MARKETABLE DEBT
Privately Held
| June 1967
5 Years
1 Month

September 30, 1979
3 Years
8 Months

1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977
Office of the Secretary of the Treasury
Office of Government Financing

1978 1979

October 23, 1979 1

OWNERSHIP OF MATURING COUPON ISSUES
October 1979-March 1980^
(In Millions of Dollars)
Savings Institutions

Total
Privately
Held

Maturing Issues

6 1/4%
6 5/8%
7 % Nt.
7 1/8%
7 1/2%
7 1/8%
7 1/2%
4 % Bd.
6 1/2%
7 5/8%
7 1/2%

Nt. 11/15/79
Nt. 11/15/79
11/15/79
Nt. 11/30/79
Nt. 12/31/79
Nt. 12/31/79
Nt. 1/31/80
2/15/80
Nt. 2/15/80
Nt. 2/29/80
Nt. 3/31/80
Total

Office of the Secretary of the Treasury
Office of Government Financing

Commercial
Banks

State &
Other
CorporaPrivate
LongIntermediate- Local
Foreign
term 11
term 5/
General tions Domestic
Holders
Investors
Investors
Funds

3,095
460
1,804
4,285
1,850
3,349
3,544
1,559
3,107
3,507
5,343

879
140
604
1,114
736
1,000
1,229
158
1,238
1,229
2,114

61
1
52
38
6
66
51
219
50
25
53

422
61
181
281
248
258
327
263
312
367
541

263
32
63
340
163
460
343
197
230
295
230

170
32
222
400
98
144

515
216
674
858
502
602
1,025
500
253
694
1,069

31,903

10,441

622

3,261

2,616

1,916

6,908

340
10
212
288
*

Jj Amounts for investor classes are based on the August 1979 Treasury Ownership Survey.
U Includes State and local pension funds and life insurance companies.
2/ Includes casualty and liability insurance companies, mutual savings banks, savings and loan
associations, and corporate pension trust funds.

615
18
1,366
195
793
537
444
799
1,192
5,959

October 23, 1979-21

TREASURY MARKETABLE MATURITIES
Privately Held, Excluding Bills and Exchange Notes

$Bil.
6

1979

4
2

1984

3.4
2.5
KN

0
6

4.7
3.4 3.4

5.1

5.2

2.9 g 3.4 3.1
0 t M
* 10

1980

5.3

5.0

5.4^

5.0

1981 5^5
4.7

5'4

1986
4.1

3.3

4.6

4.2

4.3
2.6

2.5

i
F

2.7

2.4

2h
5.8

1983
2

2.5

2.2

S3! 1.0
M

H Securities issued prior to 1977
[ ] N e w issues calendar year 1977
Office of the Secretary of the Treasury
Office of Government Financing

4.6

1982

6
4

7.5

2 h

1.2

5.2
2.9 Ki 3.2

2.812.5

1985

2.7

3.4M2.9

5.7

1987
1.8

2.4 1988

2 -

2.3

2.2 1989

2 J

£ 2 0 N e w issues calendar year 1978
[::;:;:;:J Issued or announced through October 19, 1979
October 23, 1979-8

TREASURY MARKETABLE MATURITIES
Privately Held, Excluding Bills and Exchange Notes
$Bil
2
0,
21
0
6
4
2

1.7

1992

•
2001

2002

2003

2h
1993 2.3

1.9

3.0

1994

1991

0
2

2000 2.5

2.2

2
2-

$Bil
2

3.0

0
2

1990

1.4

1.5

1995
.3

1996

0
2
0
20
20
20

2004
2.1 2005

2006
2007

i2.7

3.7

2008 1.4

1997

1.2

3.9

2009

1998
1.1

2010
1999

2011

IB Securities issued prior to 1977
ice of the Secretary of the Treasury
ice of Government Financing

[23 N e w issues calendar year 1977

8 0 N e w issues calendar year 1978
F~1 Issued or announced through October 19, 1979
October 23,

AGENCY MATURITIES^
Privately Held
$Bil.

$Bil.
14

1979

13
12

1980

1982

1981

- 1987
1 1 1.3

8.6

9
8

3 JL -4

7.2

-a.
" 1995

6.3

4.44.7

1 3

1.0

• i l . I.I.
1992
" 1991

11.2

4
3
2

1990

1989

1988

•LL

•

. .

1993

_1
1994

1997

1996

1998

1.1

4.9
<.

4.0

1999

2.5

• --• -1--.1

2000

2002

2001

2003

2004

2005

2006

1986

1985

2.4

" 2007

1.7

•ill 1
I

II III IV

I II III IV

.8 .9 1_1

III

I II III IV
I II III IV
C a l e n d a r Y e a r s Quarterly

2008
.3

I II III IV

J.
2009

2010

I II III IV

\J Issued or announced through October 19. 1979
* Less than $50 million.
Office ot the Secretary of the Treasury
Office of Government Financing

October 23. 1979 20

NET NEW MONEY IN AGENCY FINANCE, QUARTERLY
$Bil

Privately Held
$Bil

FCA

2
1
0

FNMA

In Hi i iII

0
-1
5
4

I II III I V I II III I V I II III IV I II III I V I II III IV

1975
Office of the Secretary of the Treasury
Office of Government Financing

1976

1977

1978

1979

GNMA
Mortgage Backed
Securities

I II III I V I II III I V I II III I V I II III I V I II III I V

1975

1976

* Less than $ 5 0 million.
1/ Includes F H L B discount notes, bonds, and F H L M C certificates,
mortgage-backed bonds, and mortgage participation certificates.

1977

1978

1979
October 23, 1979-12

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: 21

Author(s):
Title:

Department of the Treasury - Financing Press Conference

Date:

1979-10-24

Journal:

Volume:
Page(s):
URL:

Federal Reserve Bank of St. Louis

https://fraser.stlouisfed.org

HINGTON, D.C. 20220

TELEPHONE 566-2041

FOR IMMEDIATE RELEASE
October 25, 1979

Contact:

George G. Ross
202/566-2356

AMENDMENTS TO TECHNICAL EXPLANATION OF THE UNITED STATES
AND UNITED KINGDOM INCOME TAX TREATY
The United States Treasury Department today released
amendments to the Technical Explanation of the proposed
Income Tax Convention between the United States and the
United Kingdom. The text of the Technical Explanation was
released on March 9, 1977 and revised on July 25, 1977.
At the time of the discussions concerning the Third
Protocol to the proposed Convention the United Kingdom
delegation pointed out to the United States delegation that
a statement in the United States Technical Explanation
concerning Article'2 (Taxes Covered) was in error. That
statement provided that social security taxes are taxes
covered for the purposes.of the Convention. The Department
of the Treasury pointed out this error on June 6, 1979 when
it testified before the Senate Committee on Foreign
Relations with respect to the Third Protocol. Accordingly,
the fourth sentence in the second paragraph of the
discussion of Article 2 in the Technical Explanation is
deleted.
The Technical Explanation also contains technical errors
in certain computations concerning the United States indirect foreign tax credit under Article 23 (Elimination of
Double Taxation) of the proposed Convention. These errors
are contained in the sixth and seventh paragraphs of Example
5 in the discussion of Article 23 in the Technical Explanation. Those paragraphs are revised to read as follows:
"Thus, of the $12.75, $8.75 is deemed distributed as
offset refunded ACT; $0.85 is non-offset unrefunded ACT;
$0.85 is non-offset refunded ACT deemed distributed; and
$2.30 is the remaining actual distribution considered to
have been made from year 3.
"In year 2, the accumulated profits available for distribution before adjustment for year three non-offset ACT
are $49.75 (from line thirteen of Example 4 calculation of

M-145

-2-year -3 taxes). Of that amount, $1.75 is deemed distributed
as offset refunded ACT. The non-offset unrefunded ACT
attributable to the remaining $48.00 is $10.18 ($48.00 x \1-\) .
Thus, the accumulated profits available for actual dis- B '^
tribution in year 2 are $27.64 ($49.75 less $1.75 (deemed
distribution) less $10.18 (non-offset refunded ACT deemed
distributed) less $10.18 (non-offset unrefunded ACT)); and
the U.K. corporate tax is $27.43 ($17.25 + $10.18)."
o

HNTHONY n, &0LOMON

OCTOBER

27, 1979

EBERT FOUNDATION
TALKING POINTS
PORT CHESTER, HEW YORK

1. THIS SESSION IS DEVOTED TO EUROPEAN AND AMERICAN
PERSPECTIVES ON ECONOMIC POLICY ISSUES FOR THE 1980'S.

LET

ME FIRST MENTION A FEW SPECIFIC POINTS ON U.S. DOMESTIC
AND INTERNATIONAL ECONOMIC POLICY, AND THEN MOVE TO A SOMEWHAT
BROADER SUBJECT IN THE CONTEXT OF U.S./EUROPEAN RELATIONS.
2.

DOMESTICALLY, THE NEED TO GET INFLATION UNDER

CONTROL HAS BECOME THE DOMINANT U.S. ECONOMIC OBJECTIVE.

THE

ADMINISTRATION RECOGNIZES THAT CONTAINMENT OF INFLATION IS
FUNDAMENTAL TO RESTORATION OF SOUND ECONOMIC GROWTH.

SIGNIFICANT PART OF THE UNFAVORABLE PRICE FIGURES IN RECENT
MONTHS IS DIRECTLY ATTRIBUTABLE TO ENERGY AND FOOD. THESE
SOURCES OF INFLATION WILL DISSIPATE IN COMING MONTHS, AS THE
RECENT OIL PRICE INCREASES WORK THROUGH THE ECONOMY AND WITH
THE PROSPECT OF GOOD HARVESTS.

BUT AFTER TAKING ACCOUNT OF

ALL THE SPECIAL FACTORS, THE UNDERLYING RATE OF INFLATION IS
INTOLERABLE.
3.

ALL PRINCIPAL ELEMENTS OF U.S. ECONOMIC POLICY ARE

DIRECTED AT CONTAINING INFLATION.

THE ADMINISTRATION HAS

SUCCEEDED IN REVERSING THE TREND OF EXPANDING FEDERAL DEFICITS
AND EXPANDING FEDERAL CLAIMS ON THE NATIONAL ECONOMY, THE
DEFICIT HAS DROPPED FROM 3 PERCENT OF RHP IN 1976 TO 1 PERCENT

-2THIS YEAR.

OVER THE SAME PERIOD, FEDERAL SPENDING HAS BEEN

REDUCED FROM 22.6 PERCENT OF GNP TO 21.5 PERCENT.

WE INTEND

TO MAKE FURTHER PROGRESS, WITH THE OBJECTIVE OF REDUCING,
OVER TIME, THE DEMANDS OF THE FEDERAL GOVERNMENT ON THE
ECONOMY AND RELEASING SUBSTANTIAL RESOURCES TO THE PRIVATE
SECTOR.
4. THE FEDERAL RESERVE IS MOVING AGGRESSIVELY TO REDUCE
THE RATE OF GROWTH IN MONEY AND CREDIT.

THE STEPS ANNOUNCED

BY THE FED EARLIER THIS MONTH ARE STRONG AND WILL BE
EFFECTIVE.

THEY HAVE ALREADY HAD A VERY NOTICEABLE EFFECT

ON PUBLIC ATTITUDES AND EXPECTATIONS.

THEY'WERE

NEEDED AND

APPROPRIATE.
5.

OUR VOLUNTARY PAY/PRICE PROGRAM HAS BEEN MUCH MORE

EFFECTIVE THAN IS WIDELY RECOGNIZED IN MODERATING PRICE
DECISIONS AND WAGE SETTLEMENTS IN THE AREAS COVERED BY THE
PROGRAM.

WE ARE PROVIDING FOR GREATER PARTICIPATION BY

MANAGEMENT AND LABOR IN ESTABLISHING AND APPLYING PAY STANDARDS
DURING THE SECOND YEAR, WHICH WILL HELP AVOID INEQUITIES
THAT COULD OTHERWISE DEVELOP OVER TIME.

A TRIPARTITE PAY

COMMITTEE (TO BE CHAIRED BY JOHN DUNLOP) IS BEING ESTABLISHED,
WITH A FIRST TASK OF RECOMMENDING PAY STANDARDS FOR THE
PERIOD AHEAD.

IN THIS CONNECTION, THE ADMINISTRATION HAS

WORKED OUT A NATIONAL ACCORD WITH AMERICAN LABOR LEADERSHIP,
IN SUPPORT OF THE FIGHT AGAINST INFLATION AND PROVIDING FOR
LABOR INVOLVEMENT IN THE PAY-PRICE PROGRAM.

I AM PERSONALLY

MORE CONFIDENT NOW THAN.IN THE PAST THAT THE VOLUNTARY

- 3GUIDELINES CAN BE AN EFFECTIVE COMPLEMENT TO DEMAND RESTRAINT.
THE PERVASIVE AND DESTRUCTIVE EFFECTS OF INFLATION THROUGHOUT
THE ECONOMY ARE BEING ACUTELY FELT BY THE AMERICAN PEOPLE.
PUBLIC FEELINGS ABOUT THE OVERRIDING NEED TO CONTROL INFLATION
HAVE BECOME GENERAL AND DEEPLY HELD.
THE GREATER SENSE

PARTICULARLY WITH

THAT NOW EXISTS THAT THE ADMINISTRATION

IS DETERMINED TO DEAL WITH INFLATION —

AND WITH A

CONSEQUENT

MODERATION OF INFLATION EXPECTATIONS ~

THE VOLUNTARY PROGRAM

CAN HAVE TANGIBLE AND POWERFUL EFFECTS.
6.

THE TEN-FOLD INCREASE IN WORLD OIL PRICES HAS BEEN

A PRINCIPAL CONTRIBUTOR TO ACCELERATION OF INFLATION IN THIS
DECADE, IN THE UNITED STATES AS ELSEWHERE.

THE U.S. OBJECTIVE

OF SECURING ENERGY INDEPENDENCE HAS OBVIOUS NATIONAL SECURITY
MOTIVATIONS.

BUT IT IS ALSO AN IMPORTANT ELEMENT OF OUR

EFFORT TO CONTAIN INFLATION AND STRENGTHEN THE U.S. EXTERNAL
POSITION.

PRESIDENT CARTER HAS SOUGHT SUPPORT FOR A BROAD

AND COMPREHENSIVE ENERGY PROGRAM FOR 2 % YEARS.

THE DIVERSITY

OF CIRCUMSTANCES AND INTERESTS IN A COUNTRY AS VAST AS THE
UNITED STATES HAS MADE IT EXCRUTIATINGLY DIFFICULT TO HAMMER
OUT A NATIONAL ENERGY PROGRAM.

SOME IMPORTANT PARTS OF THE

PROGRAM HAVE ALREADY BEEN PUT INTO PLACE.
RECENTLY TAKEN TWO MAJOR STEPS ~

THE PRESIDENT HAS

ON DECONTROL OF DOMESTIC

CRUDE OIL PRICES AND ON LIMITING OIL IMPORTS —
POWERS.

UNDER HIS OWN

REMAINING CRITICAL ELEMENTS OF THE PROGRAM ARE UNDER

ACTIVE CONSIDERATION IN THE CONGRESS.

- Z| .
7. FULLY IN PLACE, OUR PROGRAM IS EXPECTED TO CUT OIL
IMPORTS BY ABOUT 50 PERCENT ~

4-5 MILLION BARRELS PER DAY

—

FROM PRESENT LEVELS, AND BY ABOUT 8-9 MILLION BARRELS PER DAY
FROM LEVELS THAT WOULD HAVE BEEN REACHED IN THE ABSENCE OF
A COMPREHENSIVE ENERGY PROGRAM.
8.

MAINTENANCE OF STABILITY IN THE EXCHANGE MARKETS IS

AN IMPORTANT COMPLEMENT TO OUR EFFORTS TO REDUCE INFLATION
AND MAINTAIN SOUND GROWTH AND INVESTMENT.

THE DOMESTIC

POLICIES WE ARE FOLLOWING ARE ALSO THE POLICIES NEEDED TO
ASSURE A STRONG U.S. EXTERNAL POSITION AND A SOUND AND STABLE
DOLLAR.
RAPIDLY.

THE U.S. CURRENT ACCOUNT POSITION IS STRENGTHENING
DESPITE A $16 BILLION INCREASE IN OUR OIL IMPORTS,

WE WILL HAVE A DEFICIT OF ONLY A FEW BILLION DOLLARS THIS
YEAR, AND EXPECT TO MOVE INTO SUBSTANTIAL SURPLUS IN 1980.
9.

IN COOPERATION WITH THE MONETARY AUTHORITIES OF

SEVERAL KEY COUNTRIES —

GERMANY, SWITZERLAND, AND JAPAN

—

WE ARE OPERATING FORCEFULLY IN THE EXCHANGE MARKETS TO
SUPPLEMENT ACTION ON THE FUNDAMENTALS.
10.

THE MAJOR POSITIVE SHIFT IN THE U.S. BALANCE OF

PAYMENTS; WELCOME SHIFTS IN THE BALANCE OF PAYMENTS POSITIONS
OF GERMANY AND JAPAN; OUR CONCERTED ATTACK ON INFLATION;
AND EFFECTIVE INTERNATIONAL MONETARY COOPERATION; ALL COMBINE
TO PROVIDE A FIRM BASIS FOR EXCHANGE MARKET STABILITY AND

DOLLAR STRENGTH IN THE PERIOD AHEAD.
PERSEVERE.

WE INTEND TO

- 511.

WITH RESPECT TO THE INTERNATIONAL ECONOMIC

SITUATION, THE PICTURE IS ONCE AGAIN DOMINATED BY THE IMPACT
OF OPEC OIL PRICE INCREASES.

THE OECD POSITION IS LIKELY

TO DETERIORATE BY ABOUT $38 BILLION THIS YEAR, FROM A SURPLUS
OF $8 BILLION TO A DEFICIT OF ABOUT $30 BILLION.

THIS

AGGREGATE SHIFT, OF COURSE, OBSCURES THE VERY MAJOR IMPROVEMENT
THAT IS TAKING PLACE IN THE PATTERN OF IMBALANCES AMONG
THE MAJOR COUNTRIES.
12.

THE NON-OIL LDC CURRENT ACCOUNT POSITION IS LIKELY

TO DETERIORATE BY $10 BILLION THIS YEAR AND ANOTHER $10
BILLION IN 1980, TO DEFICITS OF $30 BILLION IN 1979 AND $40
BILLION IN 1980.

OUR E S T I M A T E S INDICATE THAT T H I S

DETERIORATION WILL BE HIGHLY CONCENTRATED —

FORTUNATELY,

IN THE POSITIONS OF A FEW RELATIVELY ADVANCED COUNTRIES WITH
COMFORTABLE RESERVES AND ACCESS TO THE PRIVATE MARKETS.
FOR MOST

LDCs, THE DETERIORATION IS LIKELY TO BE WITHIN THE

RANGE OF EXPECTED INCREASES IN OFFICIAL DEVELOPMENT ASSISTANCE.
13.
PROBLEM.

IN SHORT, WE DO NOT EXPECT A GENERALIZED FINANCING
THERE PROBABLY WILL BE SOME INDIVIDUAL PROBLEM

C A S E S , A N D WE

NEED TO A N T I C I P A T E I N C R E A S E D D E M A N D S ON THE

IMF FOR BALANCE OF PAYMENTS FINANCING.

THE FUND IS IN A

VERY STRONG POSITION TO MEET LARGER DEMANDS, AND ITS
RESOURCES WILL BE EXPANDED SIGNIFICANTLY THROUGH A 50 PERCENT
QUOTA INCREASE LATE NEXT YEAR.

THE U.S. WILL BE SUBMITTING

LEGISLATION FOR THE INCREASE IN ITS QUOTA VERY SHORTLY.

- 614. THOUGH WE BELIEVE THE INTERNATIONAL FINANCIAL EFFECTS
OF THE RECENT OIL PRICE INCREASES ARE LIKELY TO BE MANAGEABLE
WITHOUT SERIOUS DIFFICULTY, THE REAL EFFECTS — DEPRESSED
GROWTH AND ACCELERATED INFLATION —

REMAIN.

U.S. EMPHASIS

ON CONTROLLING INFLATION AND STABILIZING ITS ECONOMY IS THE
SINGLE MOST IMPORTANT CONTRIBUTION WE CAN MAKE TO RESTORATION
OF A SOUND WORLD ECONOMY.

BUT, PARTICULARLY GIVEN THE

PROSPECT OF A U.S. SLOWDOWN, IT IS ALL THE MORE ESSENTIAL THAT
OTHER MAJOR COUNTRIES DIRECT THEIR POLICIES TO SUSTAINED
ECONOMIC EXPANSION, WITHIN THE CONSTRAINTS OF CONTAINING
INFLATION.

IT IS EQUALLY IMPORTANT THAT WE ALL MAINTAIN

THE THRUST OF THE RECENT HTN AGREEMENT AND RESIST
PROTECTIONIST MOVES, AND THAT WE PERMIT ACCESS TO OUR
CAPITAL MARKETS BY OTHER COUNTRIES WITH FINANCING NEEDS.
15.

WE NEED ALSO TO CONTINUE TO PRESS FOR LONGER TERM

IMPROVEMENT IN THE INTERNATIONAL ECONOMIC AND MONETARY SYSTEM.
THREE MAIN LINES OF EFFORT ARE UNDER WAY.
—

IMF SURVEILLANCE OVER THE BALANCE OF PAYMENTS
ADJUSTMENT PROCESS.

-- DISCUSSIONS OF A POSSIBLE SUBSTITUTION ACCOUNT,
TO PROMOTE THE ROLE OF THE SDRS IN THE
INTERNATIONAL MONETARY SYSTEM.

- 7-- DISCUSSIONS ON SURVEILLANCE OVER, AND POSSIBLE
STEPS FOR BETTER MANAGEMENT OF, THE EUROCURRENCY
16.

MARKET.

THE U.S. is PARTICIPATING ACTIVELY IN EACH OF THESE

AREAS, AND WILL CONTINUE TO PRESS FOR PROGRESS.
17.

THIS BRING ME TO WHAT I REGARD AS THE CENTRAL POLICY

ISSUE FOR THE 1980'S.

THAT IS WHETHER THE WORLD WILL LEARN TO

STRENGTHEN ITS PROCESSES OF INTERNATIONAL ECONOMIC POLICY
COORDINATION —

MANAGING INTERDEPENDENCE —

OR SLIP BACK TOWARD

A NATIONALISTIC APPROACH TO DEALING WITH SPECIFIC PROBLEMS.

I BELIEVE THE
WORLD IS BEING FORCED BY EVENTS TOWARD A CHOICE OF THAT IMPORTANCE
AND MAGNITUDE, AND IT IS CRITICAL THAT WE RECOGNIZE THE EXISTENCE
OF THE LARGER QUESTION AS WE APPROACH INDIVIDUAL ISSUES,
18.
SHIPS

T H E U.S.-EUROPEAN R E L A T I O N S H I P , A N D OUR J O I N T

RELATION-

WITH OTHER MAJOR COUNTRIES, ARE CENTRAL TO HOW THIS QUESTION

IS TO BE ANSWERED.

IF WE CAN'T LEAD THE WAY, THROUGH MEANINGFUL

POLICY COORDINATION BETWEEN THE U.S. AND WESTERN EUROPE, THERE
IS LITTLE REASON TO EXPECT BROADER SUCCESS.

- 819.

UNDERSTANDING OF EACH OTHERS' PERSPECTIVES IS

PREREQUISITE TO BUILDING A STRONGER RELATIONSHIP.
ACKNOWLEDGE AND BUILD ON OUR MUTUAL SUCCESSES.

WE SHOULD

CLOSE U.S.-

EUROPEAN COOPERATION DOMINATES THE POST-WAR RECORD.
THERE ARE ALSO IRRITANTS AND SOURCES OF TENSION ~
BUT OTHER LARGER AND POTENTIALLY IMPORTANT —
BE AIRED AND UNDERSTOOD.

BUT
SOME SMALL,

THAT NEED TO

I WILL MENTION A FEW OF THESE FROM

A FRANKLY AMERICAN PERSPECTIVE.

MY INTENTION ISfc[QITO

MAKE A BALANCED PRESENTATION, BUT TO VOICE A PARTICULAR
PERSPECTIVE IN HOPES THAT THIS WILL CONTRIBUTE TO'UNDERSTANDING
AND ULTIMATELY SOLUTIONS.

I EXPECT AN EQUALLY FRANK EUROPEAN

PRESENTATION OF PROBLEMS IN DEALING WITH THE AMERICANS.
20.

FIRST, I SEE A PROBLEM OF TONE AND ATTITUDE IN THE

OVERALL U.S.-EUROPEAN ECONOMIC RELATIONSHIP, AN AMBIGUITY
IN EUROPEAN VIEWS ABOUT THE NATURE OF THAT RELATIONSHIP.

THAT

AMBIGUITY IS ILLUSTRATED BY A QUOTE FROM ANOTHER AREA,
RAYMOND ARON, IN A RECENT ARTICLE, SAID "EUROPEANS NO LONGER
PUT THEIR TRUST IN

NATO OR IN THE AMERICAN NUCLEAR UMBRELLA,

WHAT THEY TRUST NOW-A-DAYS IS THE CAUTION OF THE BOLSHEVIKS,
AWARE AS THEY MUST BE OF THE INCALCULABLE DANGER OF AN ATTACK
ON WESTERN EUROPE."

THE POINT, OF COURSE, IS THAT THE CAUTION

IS DICTATED BY THE EXISTENCE OF NATO AND THE NUCLEAR UMBRELLA,
BUT THE POINT IS LOST IN THIS PARTICULAR EUROPEAN PERSPECTIVE
OF THE U.S.-EUROPEAN RELATIONSHIP.

- 921.

THERE IS A SIMILAR AMBIGUITY OVER QUESTIONS OF

INITIATIVE AND LEADERSHIP IN THE ECONOMIC AREA.

THE UNITED

STATES CONTINUALLY HEARS EUROPEAN CALLS FOR STRONGER U.S.
LEADERSHIP IN THE ECONOMIC AREA, AND SPECIFICALLY IN THE
MONETARY AREA.

AND WE HEAR REPEATED EUROPEAN CRITICISM OF

U.S. FAILURE TO EXERCISE LEADERSHIP, U.S. FAILURE TO PROPERLY
MEET ITS WORLD RESPONSIBILITIES.

YET WHEN THE UNITED STATES

DOES ATTEMPT TO EXERCISE LEADERSHIP, THERE IS FREQUENTLY A
NOTABLE ABSENCE OF EUROPEAN WILLINGNESS TO FOLLOW.
22.

THIS IS NOT A RECENT PHENOMENON.

IT CHARACTERIZED

THE DISCUSSIONS IN THE LATE 1960'S ON THE EXCHANGE RATE SYSTEM,
COMPELLING THE U.S., VERY RELUCTANTLY, TO RESORT TO UNILATERAL
ACTION TO BRING ABOUT A CHANGE WHICH ULTIMATELY BECAME UNAVOIDABLE.
AND IT DOMINATED THE NEGOTIATIONS ON MONETARY REFORM EARLIER
IN THIS DECADE.
23.

IT IS UNDERSTANDABLE IF THERE ARE DIFFERENCES OF

VIEW OVER THE SUBSTANCE OF SUCH QUESTIONS.
WILL BE.

THE SUBSTANCE CAN BE DEBATED.

THERE INEVITABLY

BUT EUROPE ITSELF

HAS AND SHOULD ACKNOWLEDGE A GROWING RESPONSIBILITY TO EXERCISE
LEADERSHIP, NOT ONLY IN THE EXPRESSION OF ITS VIEWS, BUT IN
CONTRIBUTING TO THE SOLUTION OF COMMON PROBLEMS.

THE RESPONSBILITY

CANNOT BE ONE-SIDED, AND EUROPE COLLECTIVELY HAS MAJOR POTENTIAL
FOR LEADERSHIP OF ITS OWN.

WHAT IS NOT CONSTRUCTIVE —

AND CAN

- 10 EVEN BE POISONOUS TO THE RELATIONSHIP AND EXACERBATE SPECIFIC
PROBLEMS "

IS FOR EUROPE TO CLOAK ITS SUBSTANTIVE DISAGREEMENTS,

AND AVOID ACCEPTING ITS OWN RESPONSIBILITIES, BY RESTING ON
ACCUSATIONS OF FAILURE OF U.S. WILL AND LEADERSHIP.
24.

MUCH OF THE PROBLEM MAY WELL RELATE TO THE PARTICULAR

PHASE OF EUROPEAN EFFORTS TO UNIFY THROUGH THE COMMUNITY.

IS IN A UNIFIED EUROPE THAT REAL AND CONSTRUCTIVE LEADERSHIP
BECOMES POSSIBLE.

BUT THE PRESENT DEC ISION-MAKING PROCESSES

MAKE THAT POSSIBILITY DIFFICULT TO REALIZE.
25.

THERE IS A WIDE VARIETY OF MULTILATERAL ISSUES ON

WHICH WE ATTEMPT TO COORDINATE WITH THE EC —

FOR EXAMPLE,

ISSUES ARISING IN UMCTAD OR OTHER U:L FORUMS, ISSUES ARISING
IN THE IMF OR WORLD BANK, AND SO FORTH.
SEEM TO FIND IS ONE OF THREE THINGS.

WHAT WE FREQUENTLY

IN SOME CASES, THE EC

COUNTRIES HAVE ALREADY TAKEN AN INTERNAL DECISION, AND THERE
IS NO SCOPE FOR NEGOTIATION OF A POSITION THAT IS MORE BROADLY
ACCEPTABLE TO THE U.S. AND OTHER INDUSTRIAL COUNTRIES.

IN SOME

CASES, THE EC COUNTRIES ARE UNABLE TO AGREE AMONG THEMSELVES,
AND THERE IS BASICALLY NO EC VIEW TO TRY TO WORK WITH.

IN STILL

OTHER CASES, EC EFFORTS TO REACH AN INTERNAL VIEW TEND TOWARD
THE LEAST COMMON DENOMINATOR —
MOVES TOO FAR —

OR IN SOME CASES A VIEW THAT

AND PRODUCE RESULTS THAT ARE ONLY MARGINALLY

ACCEPTABLE TO THE MAJORITY OF EC COUNTRIES THEMSELVES AND
UNACCEPTABLE TO THE U.S. AND OTHERS.

-11 26.

IN ESSENCE, THERE IS AT TIMES AN INFLEXIBILITY IN

EUROPEAN DECISION-MAKING THAT IS NOT ONLY DIFFICULT TO WORK
WITH, BUT MAKES IT DIFFICULT FOR EUROPE TO EXERCISE THE
RESPONSIBILITY AND LEADERSHIP THAT ITS OWN COLLECTIVE ECONOMIC
POSITION WARRANTS.

HOPEFULLY, THIS PROBLEM WILL EVAPORATE AS

THE UNIFICATION PROCESS EVOLVES ~

IT IS GENERALLY LEAST EVIDENT

IN THE TRADE AREA, WHERE THE EC HAS FORMAL COMPETENCE —

BUT IT

DOES REPRESENT A REAL IMPEDIMENT TO MEANINGFUL POLICY COORDINATION
ON A GLOBAL SCALE.
27.

ON SOME MORE SPECIFIC POINTS, THOUGH THEY OBVIOUSLY

RELATE TO THE MORE GENERAL PROBLEM:
28.

THE DOLLAR CONTINUES TO PLAY AN EXTREMELY LARGE ROLE

IN OFFICIAL RESERVES AND PRIVATE INTERNATIONAL TRANSACTIONS.
TO AN EXTENT, THIS ROLE FOR THE DOLLAR MAY BE A CONTRIBUTING
FACTOR IN EXCHANGE MARKET PROBLEMS, AND IT IS CERTAINLY A
TARGET OF EUROPEAN CRITICISM AT TIMES,

AT THE SAME TIME, THERE

is A GREAT EUROPEAN RELUCTANCE TO SEE OR FACILITATE A CHANGE IN
THAT ROLE FOR THE DOLLAR THROUGH GREATER WILLINGNESS TO PROVIDE
INTERNATIONAL CREDIT THEMSELVES;

TO PERMIT GREATER USE OF

THEIR OWN CURRENCIES IN RESERVES;

TO SERIOUSLY CONSIDER STEPS

TOWARD EVOLUTION OF A LARGER ROLE FOR THE SDR.

I READILY

ACKNOWLEDGE THE RESPONSIBILITY FOR THE UNITED STATES TO MAINTAIN
REASONABLE BALANCE IN ITS ACCOUNTS.

BUT I CANNOT ACCEPT THE

- 12 IDEA, WHICH I THINK IS IMPLICIT IN MUCH OF THE CRITICISM OF
THE INTERNATIONAL ROLE OF THE DOLLAR, THAT THE PROVISION OF
INTERNATIONAL CREDIT SHOULD BE SHARPLY CURTAILED AND THAT IT
is UP TO THE UNITED STATES TO DO IT.

THERE IS A REAL NEED

FOR CREDIT TO MAINTAIN A FUNCTIONING WORLD ECONOMY.

IT IS

REASONABLE TO EXPECT A LARGER EUROPEAN ROLE IN SUPPLYING
THAT CREDIT.
29.

SECOND, THE UNITED STATES CONTINUES TO BEAR LARGE

FOREIGN EXCHANGE COSTS —
NET ANNUALLY ~

ON THE ORDER OF $2 1/2 BILLION

IN THE AREA OF EUROPEAN DEFENSE.

I DON # T FOR

A MOMENT DENY THAT THIS IS IN OUR COMMON INTEREST, AND I AM
NOT SUGGESTING A RENEWAL OF OFFSET NEGOTIATIONS.

BUT I AM

SUGGESTING THAT THIS SHOULD BE BORNE IN MIND IN FORMULATING
EUROPEAN ASSESSMENTS OF, AND ADVICE ON, THE U.S. EXTERNAL POSITION.
30.

THIRD, IN THE ENERGY AREA, I AGAIN ACKNOWLEDGE THE

LARGE RESPONSIBILITY OF THE UNITED STATES FOR GETTING ITS OWN
ENERGY SITUATION UNDER CONTROL AND REDUCING ITS CLAIMS ON WORLD
OIL SUPPLIES. .WE I N T E N D T O M E E T T H I S R E S P O N S I B I L I T Y .

AT T H E

SAME TIME, THE U.S. HAS EXPENDED A GREAT DEAL OF EFFORT TO
ENCOURAGE OPEC PRICE MODERATION —
OF PRODUCTION LEVELS.

AND MAINTENANCE AND EXPANSION

THIS IS VITAL TO ALL OIL IMPORTING COUNTRIES -

CERTAINLY IN EUROPE'S INTEREST AS MUCH AS OUR OWN.

BUT IN

SIGNIFICANT RESPECTS, THE U.S. HAS BEEN ALONE IN THIS EFFORT.

- 13 WE HOPE THAT EUROPE WILL SOON AGREE TO COUNTRY-SPECIFIC TARGETS
WHICH LIMIT OIL IMPORTS IN 1980, BY ADOPTING POSITIVE MECHANISMS
TO THIS END AND BY RESISTING THE TEMPTATION TO DILUTE THIS
EFFORT.

AND WE ARE CONCERNED OVER REPORTS THAT SOME EUROPEAN

GOVERNMENTS HAVE SOUGHT SPECIAL PREFERENCE AMONG PRODUCING
COUNTRIES FOR ASSURANCE OF THEIR OWN OIL SUPPLIES, WITH LITTLE
APPARENT CONCERN FOR THE GLOBAL PROBLEM.

FROM OPEC'S

PERSPECTIVE, THEY ARE DEALING WITH AN UNCOORDINATED AND THEREFORE
WEAK GROUP OF CUSTOMERS.

A CLEARER PICTURE OF SOLIDARITY ON

THE PART OF THE MAJOR INDUSTRIAL COUNTRIES COULD BE ENORMOUSLY
HELPFUL IN PERSUADING KEY OPEC MEMBERS TO TAKE A MODERATE
AND CONSTRUCTIVE LINE.

-13 A -

31.

FOURTH, EUROPE HAS BEEN UNWILLING TO DO IN THE AREAS

OF TRADE FINANCE AND INVESTMENT WHAT IT WAS WILLING TO DO IN
THE AREA OF TRADE ~

LIMIT SUBSIDIES.

I THINK THERE IS LITTLE

INTELLECTUAL DISAGREEMENT WITH THE U.S. VIEW THAT SUBSIDIZED
EXPORT CREDIT COMPETITION IS WASTEFUL AND COSTLY TO ALL OF US,
AND BENEFITS NONE OF US IN THE END. BUT THE CONSENSUS RULE IN
THE EC HAS FRUSTRATED PROGRESS IN AGREEING ON LIMITATIONS ON
COMPETITION ON EXPORT CREDITS, DESPITE YEARS OF EFFORT.

AND IN

THE CASE OF INCENTIVES FOR INTERNATIONAL INVESTMENT, EUROPE
HAS NOT EVEN ACCEPTED THE BASIC PROPOSITION —
IN OUR VIEW —

WHICH IS UNEXCEPTIONAL

THAT THIS KIND OF COMPETITION CAN BE JUST AS HARMFUL

AS IN THE TRADE AREA.
32.

I DON'T INTEND TO EXTEND THE LIST ENDLESSLY. THESE

POINTS ILLUSTRATE A U.S. PERSPECTIVE OF A NEED FOR GREATER
ASSUMPTION OF RESPONSIBILITY BY EUROPE;

GREATER RECOGNITION

THAT EUROPE'S OWN ACTIONS CAN NOT ONLY AFFECT BUT HELP SHAPE

- 14 THE GLOBAL ENVIRONMENT;

AND GREATER BALANCE IN THE U.S.-

EUROPEAN RELATIONSHIP.

IN CONSIDERING THIS PERSPECTIVE OF

PROBLEMS FROM THE U.S. POINT OF VIEW, I CAN EASILY ANTICIPATE
SOME POINTS THAT WOULD BE INCLUDED IN A EUROPEAN PERSPECTIVE;
AND THERE IS NO DENIAL THAT THE U.S. ITSELF MUST MAKE A MAJOR
CONTRIBUTION TO STRENGTHENING THE RELATIONSHIP.
33.

THE U.S. AND EUROPE HAVE THE CENTRAL RESPONSIBILITY

FOR MAINTAINING A COOPERATIVE AND SMOOTHLY FUNCTIONING GLOBAL
ECONOMIC SYSTEM.

W E WILL MEET THAT RESPONSIBILITY EFFECTIVELY

IF WE DEEPEND OUR OWN COOPERATIVE RELATIONSHIP ~

WHICH FIRST

REQUIRES THAT WE UNDERSTAND EACH OTHERS' PROBLEMS AND PERSPECTIVES.
CONFERENCES SUCH AS THIS CAN BE A HELPFUL STEP IN THAT PROCESS.

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Author(s):
Title:

"U.S. Aide Hits Europe's Efforts for OPEC Deals"

Date:

1979-10-28

Journal:

The Washington Post

Volume:
Page(s):
URL:

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Author(s): Albert L. Kraus
Title:

"Europeans Seen Hiding Own Failure"

Date:

1979-10-29

Journal:

The Journal of Commerce

Volume:
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FOR IMMEDIATE RELEASE

October 25, 1979

Sale of Gold by the U.S. Treasury
The Department of the Treasury announced that it will
offer up to 1.25 million ounces of gold for sale on
Thursday, November 1, 197 9. The sale will be conducted by
the General Services Administration and bid forms must be
submitted by 11:00 A.M., Eastern Standard Time, November 1
to the GSA Office at 7th and "D" Streets, S.W.,
Washington, D.C. Bids may be submitted by telegraph or
teletype by 11:00 A.M.
The gold will be offered in bars whose fine gold
content is 89.9 to 91.7 percent containing approximately
300 fine troy ounces each. The minimum bid is 300 fine
troy ounces. A bid deposit of $30 an ounce is required.
Formal invitations for Bid, including bid forms for
use in this and future sales, are being mailed today to
firms and persons on the GSA precious metals list. Copies
may be obtained from:
General Services Administration
Metals Branch, Office of Stockpile Disposal
18th and "F" Streets, N.W.
Washington, D.C. 20405
Telephone: Area Code 202 - 566-1986

:i-146

FOX IMMEDIATE RELEASE
Monday, October 29, 1979

Contact:

John P. Plum
202/566-2615

INTEREST RATE BASE FOR NEW SMALL SAVER CERTIFICATE
Secretary of the Treasury, G. William Miller, today
advised the supervisory agencies for Federally insured
depository institutions that the average 4-year Treasury
yield curve rate during the five business days ending
October 26 was 11.55%, rounded to the nearest 5 basis ooints.
( This rate will be used by the agencies in determining
the maximum interest payable in November on time certificates
issued in denominations of less than $100,000 and maturities
of four years or more.
The report of the Treasury yield curve average is
announced three business days prior to the first day of each
month for determination of ceilings for new variable rate
savings certificates which are adjusted on the first calendar
day of each month.
The commercial bank ceiling for the certificate is one
and one-quarter percentage points below the yield on the
four-year Treasury securities. The ceiling for thrift institutions is one percentage point below the yield on four-year
Treasury securities.)
o 0 o

M-147

FOR IMMEDIATE RELEASE
October 29, 1979

Contact:

Alvin M. Hattal
202/566-8381

TREASURY ANNOUNCES TENTATIVELY
THAT CERTAIN STEEL WIRE NAILS
FROM KOREA ARE NOT BEING "DUMPED"
The Treasury Department today announced its preliminary
determination that, with the exception of the products of
one firm, steel wire nails from Korea are not being sold in
the United States at less than fair value. With respect to
that one firm, the Treasury has tentatively discontinued
its antidumping investigation because the margins of sales
below fair value were minimal and the company has provided
assurances of no further sales at less than fair value.
("Sales at less than fair value" generally occur when
imported merchandise is sold here for less than in the home
market or to third countries.)
A final Treasury decision in this case will be made by
March 17, 1980. If Treasury determines that sales at less
than fair value are occurring, the case will be referred to
the U. S, International Trade Commission (ITC) to determine
whether such imports have injured or are likely to injure
an American industry. An affirmative ITC decision would
require the imposition of dumping duties on future imports.
The company tentatively found to have minimal dumping
margins is Murakami Kogyo Co.
Notice of this action appeared in the Federal Register
of October 26, 1979.
Imports of this merchandise amounted to $42-million in
1978,
o

M-14 8

FOR IMMEDIATE RELEASE
OCTOBER 29, 1979

Contact:

Al Hattal
202-566-8381

The Advisory Committee for Presidential and
Vice Presidential candidate protection today released a
formal set of guidelines for determining the "major"
candidates who should be recommended to the Secretary of
the Treasury for Secret Service protection.
A copy of the guidelines is attached.
The Committee, which was established under Public Law
90-331, consists of five members:
Speaker Thomas P. O'Neill, Jr.
House Minority Leader John Rhodes
Senate Majority Leader Robert Byrd
Senate Minority Leader Howard Baker
Former Congressman Wilbur Mills
The fifth member, who is designated by the four
Congressional members, was selected by the Committee at its
first meeting on October 24.

M-149

kpartmentoftheTREASURY
HINGTON, D.C. 20220

TELEPHONE 566-2041

October 29, 1979

FOR IMMEDIATE RELEASE

RESULTS OF TREASURY'S WEEKLY BILL AUCTIONS
Tenders for $3,100 million of 13-week bills and for $3,102 million of
26-week bills, both to be issued on November 1, 1979,
were accepted today.
RANGE OF ACCEPTED
13-week bills
:
COMPETITIVE BIDS: maturing January 31, 1980 ,
Discount Investment
Price
Rate
Rate 1/ :

26-week bills
maturing May 1, 1980
Discount In\ vestment
Rate 1/
Price
Rate

High
96.920§-/ 12.185%
Low
96.892
12.295%
Average
96.902
12.256%
a/ Excepting 1 tender of $85,000

93.847 12.171%
93.828 12.208%
93.836 12.193%

12.78%
12.90%
12.86%

:
:

13.18%
13.23%
13.21%

Tenders at the low price for the 13-week bills were allotted 93%.
Tenders at the low price for the 26-week bills were allotted 39%.

Location
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Treasury

TENDERS RECEIVED AND ACCEPTED
(In Thousands)>
Received
Accepted
Received
$
91,185
$
51,385 $
51,385 :
4,673,365
2,384,520
3,698,400
98,115
46,725
45,025
42,820
61,320
61,320 J
40,015
42,880
42,880
49,005
59,185
59,185
348,270
158,020 .
423,020
66,625
55,935
25,665
22,765
23,995
23,995
31,985
40,790
46,590
14,525
26,200
26,200
344,835
142,410
287,760
44,375
38,645
38,645

Accepted
$
54,185
2,495,825
67,790
27,820
39,015
37,285
106,570
30,600
7,765
31,670
14,095
144,835
44,375

$4,862,040

$3,100,040

$5,867,885

$3,101,830

$2,801,215
761,595

$1,139,215
761,595

:
:

$3,776,685
525,300

$1,210,630
525,300

$3,562,810

$1,900,810

•

$4,301,985

$1,735,930

Federal Reserve
and Foreign Official
Institutions
$1,299,230

$1,199,230

$1,565,900

$1,365,900

$3,100,040

$5,867,885

$3,101,830

TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public

TOTALS

$4,862,040

1/Equivalent coupon-issue yield.

M-150

ADVISORY COMMITTEE GUIDELINES FOR
ASSIGNMENT OF SECRET SERVICE PROTECTION TO
PRESIDENTIAL CANDIDATES PURSUANT TO P.L. 90-331
(1980 PRESIDENTIAL CAMPAIGN)
Introduction
P.L. 90-331 places upon the Secretary of the Treasury
(the Secretary) responsibility for determining, from
time to time after consultation with an Advisory
Committee (the "Committee"), those persons who qualify
as a major Presidential and Vice Presidential candidate
(major candidate) and thus should be furnished with
Secret Service protection, unless declined. The
Committee consists of the Majority Leader of the Senate,
the Minority Leader of the Senate, the Speaker of the
House of Representatives, the Minority Leader of the
House of Representatives, and one additional member to
be selected by the members of such Committee. These
guidelines will assist the Committee in advising and
the Secretary in determining who are the "major
Presidential or Vice Presidential candidates who should
receive
. . . protection
..."
Persons Defined
as Major Candidates
A. Nominees for Offices of President and Vice President
The nominees for the Office of President and Vice
President of any party shall be deemed to be major
candidates when the candidate for the Office of
the President of that party in the preceding
Presidential election received ten percent or
more of the total number of popular votes received
by all candidates for the Office of the President
of the United States.
B. Candidates in Primary Elections
Prior to the national conventions of the candidate's party, a candidate seeking the nomination
for President of a party shall be deemed to be
a major candidate when:
1) the candidate has publicly announced his or
her candidacy;
2) the candidate is seriously interested in, and
actively campaigning on a national basis for
the office for which his or her candidacy has
been announced; and

-23)

the candidate has (i) qualified for and
remains qualified for matching payments
under Sections 9031 through 9042 of
Title 26, U.S. Code in an amount of at
least $100,000 for the Presidential
campaign for which nomination is sought
(whether or not the candidate declines
matching funds) and (ii) has received
additional contributions totaling $900,000
or more in compliance with the Federal
Election Campaign laws; or
b. the candidate, in two consecutive prirary
elections, has received at least ten percent of
the total number of votes cast for all candidates of the same party for the same office
in such primary election.
4) the candidate is seeking the nomination of a
party whose nominee is eligible for protection
under IIA.
Commencement and Duration of Protection of Major Candidates
A. Commencement of Protection. No protection shall
be furnished pursuant to P.L. 90-331 earlier than
January 11, 1980. On or after such date, protection
shall be commenced forthwith upon a determination
by the Secretary that a person is a major candidate.
B. Duration of Protection. Protection shall not be
withdrawn so long as a major candidate continues
tc qualify under the terms of Section II.
General
Nothing contained herein shall preclude the Secretary,
after consultation with the Committee, from providing
protection to a major candidate although the requirements
and conditions contained in parts II and/or III of these
guidelines have not been met.

-3Settlement for accepted tenders for bills to be maintained
on the book-entry records of Federal Reserve Banks and Branches
must be made or completed at the Federal Reserve Bank or Branch
on November 8, 1979, in cash or other immediately available
funds or in Treasury bills maturing November 8, 1979.
Cash
adjustments will be made for differences between the par value of
the 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 these bills 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 these
bills (other than life insurance companies) must include in his
or her Federal 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.
Department of the Treasury Circulars, Public Debt Series Nos. 26-76 and 27-76, and this notice, prescribe the terms of
these Treasury bills and govern the conditions of their issue.
Copies of the circulars and tender forms may be obtained from any
Federal Reserve Bank or Branch, or from the Bureau of the Public
Debt.

FOR IMMEDIATE RELEASE
October 29, 1979

Contact:

Alvin M. Hattal
202/566-8381

TREASURY ANNOUNCES FINAL DETERMINATION
IN COUNTERVAILING DUTY INVESTIGATION
ON CERTAIN FOOTWEAR FROM INDIA
The Treasury Department today announced a final determination that the Government of India is subsidizing exports of
leather shoes and uppers to the United States. All other footwear products subject to Treasury Department investigation were
found not to be subsidized.
The Countervailing Duty Law requires the Secretary of the
Treasury to collect an additional duty equal to the subsidy
paid on merchandise exported to the United States.
Certain leather uppers covered by this investigation
enter the United States duty-free. Countervailing duties may
be imposed on duty-free merchandise only if the U. S. International Trade Commission (ITC) determines that a domestic industry
is being injured by reason of the subsidized imports. Therefore,
the case as it applies to leather uppers entering duty-free is
being referred to the ITC for a determination of the injury
question.
The remaining items found to be subsidized will not be
referred to the ITC now. However, if, after January 1, 19 80,
India is determined to have accepted the obligations of the
recently negotiated International Subsidies/Countervailing Duty
Code, such other products may also be referred at that time for
an injury determination under the new Trade Agreements Act of
1979.
As a result of its own investigation, Treasury found that
manufacturers of leather shoes and leather uppers, which
constitute 15 percent of Indian footwear exports to the United
States, received subsidies consisting primarily of a cash
rebate exceeding the indirect taxes which Indian footwear firms
paid on the components of the product. Rebates equal to such
taxes are not regarded as subsidies. The Government of India
(MORE)
M-151

- 2 -

has indicated that there are additional taxes for which no
credit has been given and which, if considered, would effectively eliminate the excess rebate found to have been paid on
these two products. When submitted, such data will be reviewed.
The amount of the subsidy has been determined to be 4.24
percent on leather shoes and 1.01 percent on leather uppers.
Notice of this action appeared in the Federal Register of
October 26, 1979.
Imports of this merchandise amounted to about $10-million
in 1977.
o

Statement by Emil M. Sunley, Deputy Assistant Secretary of
the Treasury for Tax Policy, on the United States
Department of Agriculture, Food and Nutrition Service
Report, "Recoupment in the Food Stamp Program,"
before the House of Representatives Committee on
Agriculture, Subcommittee on Domestic Marketing,
Consumer Relations and Nutrition
October 30, 1979
Recoupment may be regarded as one possible, although
partial, approach to rationalizing the United States system
for transferring income from some families to other families.
These income transfers are effected through a vast number of
tax and grant programs whose combined operating characteristics are exceedingly complex. Measurements which we have of
the combined calendar year distributional impacts of all
programs taken together show that certain families fare
rather well and others rather badly. In part the differences
in the treatments of families with similar incomes are
intentional and in part are unintentional.
One source of possibly unintended differential
treatments is very short accounting periods for income on
which program grants are reckoned. In the food stamp program
the accounting period is one month. Under the plan proposed
in the Jeffords amendment to the Food Stamp Act the monthly
accounting of income for eligibility would be continued but,
if the income of a unit over a completed calendar year
exceeded twice the poverty line income for that unit, a part
of the Food Stamp grant equal to the excess of actual
calendar year income over twice the poverty line income would
M-152

-2be reclaimed, or subjected to a 100 percent clawback, as the
British would say. Recoupment, thus, is a way for making a
family's grant depend not just upon its income in any month
but also upon its calendar year income. The mechanism
proposed for effecting an annual review of income and program
grants is the Federal personal income tax. We oppose the use
of the tax system for this purpose.
The Treasury generally has been supportive of attempts
to rationalize the transfer system. The Treasury originated,
the President accepted and the Congress adopted in the
Revenue Act of 1978 an admittedly quite limited inclusion of
unemployment compensation grants in income subject to the
personal income tax. There is in unemployment compensation
rograms, as you are aware, an accounting period problem
similar to that in the food stamp program. Many public
finance scholars have supported inclusion in taxable income
of wage replacement income, such as social security grants,
sick pay, disability pensions, and employer premiums for
group term life and health insurance. For these other
programs, the problem is not one of very short accounting
periods but the effects on equity of permitting fortunate
families to pile tax-exempt income upon substantial amounts
of taxable income.
In the Treasury, we have had trouble determining whether
there is a proper and administratively feasible way to
coordinate with the personal income tax means-tested transfer
programs, such as aid to families with dependent children and
food stamps. In theory programs may be integrated by either
(a) offsetting taxes and at least a part of grants dollar for
dollar, as is proposed in Representative Jeffords' amendment
to the Food Stamp Act, or (b) including program grants in
personal income tax taxable income to be taxed at personal
income tax rates. If food stamps are viewed as negative
taxes, equity would seem to suggest recoupment. Negative
taxes properly should be offset dollar for dollar against
positive taxes. But if food stamps are viewed as income then
the proper tax treatment would be to include them in taxable
income.
Compared to recoupment, inclusion does not subject
additional earnings to as high explicit and implicit rates of
tax. Under recoupment, additional earnings may be taxed at
rates in excess of 100 percent. Nevertheless, given the high
rates at which grants under existing means-tested programs
are reduced for other income, inclusion of grants in taxable
income would subject the labor and property income of the
poor to rates of taxation which, for the nonpoor, we regard
as excessive.

-3We think that recoupment, as proposed with taxation of
earnings at a 100 percent rate, is a mistake and the Treasury
is extremely reluctant to undertake administration of such a
program. We have two problems with it. First, we cannot
justify taxing the earnings of families who are not rich at a
rates way above the rates at which we tax the incomes of the
really rich. Collection of amounts due to be recouped would
put the Internal Revenue Service in the position of pursuing
poor people usually for small amounts or deferring collection
perhaps for several years. The high rates of tax would also
induce households to arrange their affairs for avoidance.
o A household member might avoid taking a job toward
the end of a year if, as is possible, his doing so
would reduce the household's total disposable
income for the year.
o Household members might manipulate tax filing
status so as to minimize recoupment of food stamp
grants. Certain households would be more free than
others to manipulate filing status. Inequities in
the treatments of households with varying potential
tax filing composition could be prevented only by
changing either the food stamp or personal income
tax filing units or both. Changing either would
have major impacts on the respective programs.
The first of these responses has an undesirable effect on
work incentives; the second has an undesirable effect on tax
equity.
Second, there are serious administrative problems, which
we have thus far been unable to solve. The most significant
unsolved problem is the differing definitions of the
reporting unit for food stamp purposes and tax purposes. If
this problem cannot be solved, it would be virtually
impossible for IRS to administer any food stamp recoupment
program. This issue is important if we are to recoup, on an
annual tax filing basis, benefits awarded on a monthly food
stamp household basis. To do so, there must be a means of
attributing benefits to tax filing units. To date, we are
unaware of any acceptable means of accomplishing this. Other
serious problems, such as the availability of timely
and useable data from grant management agencies, are
described in the Report. These administrative problems are
also present if food stamps were to be included in taxable
income.

-4So, primarily because of design defects and difficulties
in IRS administration of the program, Treasury opposes
adoption of the Jeffords amendment.
While I am before this Committee, I would like to
mention another matter unrelated to recoupment but of concern
to the Treasury. Section 6 of H.R. 4318 would amend the Food
Stamp Act of 1977 to permit disclosure of employment tax
information to the Department of Agriculture and to State
welfare agencies to determine household eligibility for food
stamp benefits and the amount of such benefits. As now
drafted, the bill would direct the Department of Health,
Education and Welfare to establish by regulation safeguards
against unauthorized redisclosure of this information.
We do not object to disclosure of employment tax
information by HEW for use in administering the food stamp
program so long as such disclosure is consistent with the
Privacy Act and the Department of Justice has had an
opportunity to comment. However, we believe that the
amendment should be placed in Section 6103 of the Internal
Revenue Code. In 1976, Congress sought to consolidate in the
tax code all of the rules relating to disclosure of tax
information. One of the principal reasons for consolidation
was to ensure a degree of uniformity in applying
confidentiality standards to, and safeguards on, the use of
tax data for nontax related purposes. The current version of
H.R. 4318 would abandon this policy and revert to the
piecemeal approach to tax disclosure that existed prior to
1976.
Other pending legislation may be a useful model in this
regard. H.R. 4904, the Social Welfare Reform Amendments
bill, would amend Section 6103 of the Internal Revenue Code
to permit disclosures of certain employment tax information
for purposes of monitoring the aid to families with dependent
children (AFDC) and supplemental security income (SSI)
programs. We would be happy to assist in drafting similar
Code language to permit disclosure for food stamp monitoring
purposes. There is also some technical ambiguity in Section
6 of H.R. 4318 that we would be happy to assist in
clarifying.

LIBRARY
FOR IMMEDIATE RELEASE Contact: George G. Ross
October 29, 1979
m 202/566-2356
TREASURY ISSUES REPORT ON- THE™EiT
TERRITORIAL INCOME TAX SYSTEMS
The Treasury Department today released its report on
the Territorial Income Tax Systems: Income Taxation in
the Virgin Islands, Guam, the Northern Mariana Islands
and American Samoa. Each of these territories applies
the U. S. Internal Revenue Code as a local territorial
tax code according to one form or another of the "mirror"
system. The mirror system means that the words "Virgin
Islands," "Guam," the Northern Mariana Islands" or
"American Samoa" are substituted for the words "United
States" wherever they appear in the U. S. Code. In
general, U. S. citizens who are residents of a territory
are relieved of the obligation of filing a Federal return
and paying Federal taxes by doing so in the territory.
No other tax jurisdictions in the world are accorded this
status.
The Report examines the problems of coordination
between the Federal and territorial income tax systems
which are created by the special status of the territories.
The Report evaluates the operation of the territorial
income tax systems in terms of their ability to raise
revenues, to ensure equitable treatment of territorial
versus stateside residents, and to provide for simplicity
of administration and compliance.
The Report concludes that the present income tax
systems are functioning poorly. Specific proposals for
reform are being considered by the Administration in
light of overall Federal policy toward the territories
and will be advanced shortly.
Copies of the Report are available for purchase from
the Superintendent of Documents, U. S. Government Printing
Office, Washington, D. C. 20401. When ordering, use Stock
No. 048-000-00332-0. o
0
o

M-153

IMMEDIATE RELEASE
Tuesday, October 30, 1979

CONTRACTS fEverard Munsey
"vl '
202/566-8191
•v

-THJ

TREASURY DEPARTMENT ANNOUNCES TENTATIVE
DECISION OF NO DUMPING OF FRESH WINTER VEGETABLES
FROM MEXICO
The Treasury Department announced today its tentative
determination that five types of fresh winter vegetables from
Mexico are not being sold at "less than fair value" within the
meaning of the Antidumping Act of 1921.
Sales at less than fair value generally occur when the price
of imported products is less than the price of the same or
similar goods sold in the home market or to third countries. In
this case, since the vegetables are not sold in Mexico, sales
prices to Canada were considered in determining whether U.S.
sales were below "fair value."
The vegetables that are the subject of this proceeding are
cucumbers, eggplant, peppers, squash and tomatoes (except cherry
tomatoes) imported into the United States between November and
the following April.
In September 1978, counsel on behalf of the Southwest Florida
Winter Vegetable Growers Association, the Palm Beach-Broward
Farmers Committee for Legislative Action and the South Florida
Tomato and Vegetable Growers, Inc., filed a petition alleging
that these fresh winter vegetables from Mexico were being sold at
less than fair value. The petition was withdrawn in July 1979
to permit negotiations between the Governments of Mexico and the
United States concerning trade in these products. The withdrawal
expressly permitted the petitioners to refile their petition if
no agreement had been reached within 90 days. As no agreement
was reached, the petitioners refiled their petition and the
Treasury's tentative determination was made on the basis of the
information collected during the initial investigation that was
terminated in July.
In view of the great number of individual growers involved
in this trade, data was collected by the Customs Service from
31 growers representing the largest producers of the affected
products. Sales of identical products shipped by the same grower
M-154

- 2 on the same day to customers in both Canada and the United States
were compared on days randomly selected from the entire growing
season. The "matched pairs" of transactions were considered
an adequate statistical sample of the total sales in the markets
being compared.
From this statistical study it was evident that prices for
the same merchandise shipped on the same day to destinations
at comparable distances from Nogales, Arizona (the point of
entry into the United States) were not significantly different.
The price analysis showed that in effect a unitary market exists
in which there is no discrimination in price between sales to
Canada and the United States by Mexican growers. Under these
conditions, price-to-price comparisons yield no dumping margins.
In administering the Anti-dumping Act, price comparisons
are the preferred means of determining whether there is dumping.
Since meaningful price comparisons could be made in this case,
the possibility of sales at less than the cost of production
could not be decisive.
An appendix to the tentative determination reflects the
following sales volumes of the affected merchandise during the
1977-78 crop year which were considered in making this decision:
Tomatoes 118,369,965
15/ 352/ 095
Squash
4, 946, 220
Eggplant
26,
389, 496
Peppers
33, 145, 361
Cucumbers

FOR RELEASE AT 4:00 P.M.

October 30, 1979

TREASURY'S WEEKLY BILL OFFERING
The Department of the Treasury, by this public notice,
invites tenders for two series of Treasury bills totaling
approximately $6,200 million, to be issued November 8, 1979.
This offering will provide $200
million of new cash for the
Treasury as the maturing bills are outstanding in the amount of
$6,030 million. The two series offered are as follows:
91-day bills (to maturity date) for approximately $3,100
million, representing an additional amount of bills dated
August 9, 1979,
and to mature February 7, 1980
(CUSIP No.
912793 3Q 7 ) , originally issued in the amount of $3,022 million,
the additional and original bills to be freely interchangeable.
182-day bills for approximately $3,100 million to be dated
November 8, 1979,
and to mature May 8, 1980
(CUSIP No.
912793 4D 5 ) .
Both series of bills will be issued for cash and in
exchange for Treasury bills maturing November 8, 1979.
Federal Reserve Banks, for themselves and as agents of foreign
and international monetary authorities, presently hold $2,956
million of the*maturing bills. These accounts may exchange
bills they hold for the bills now being offered at the weighted
average prices of accepted competitive tenders.
The bills will be issued on a discount basis under competitive
and noncompetitive bidding, and at maturity their par amount will
be payable without interest. Both series of bills will be issued
entirely in book-entry form in a minimum amount of $10,000 and in
any higher $5,000 multiple, on the records either of the Federal
Reserve Banks and Branches, or of the Department of the Treasury.
Tenders will be received at Federal Reserve Banks and
Branches and at the Bureau of the Public Debt, Washington,
D. C. 20226, up to 1:30 p.m., Eastern Standard time,
Monday, November 5, 1979.
Form PD 4632-2 (for 26-week series)
or Form PD 4632-3 (for 13-week series) should be used to submit
tenders for bills to be maintained on the book-entry records of
the Department of the Treasury.
M-155

-2Each tender must be for a minimum of $10,000. Tenders over
$10,000 must be in multiples of $5f000. 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.
Banking institutions and dealers who make primary markets in
Government securities and report daily to the Federal Reserve
Bank of New York their positions in and borrowings on such
securities may submit tenders for account of customers, if the
names of the customers and the amount for each customer are
furnished. Others are only permitted to submit tenders for
their own account. Each tender must state the amount of any net
long position in the bills being offered if such position is in
excess of $200 million. This information should reflect positions
held at the close of business on the day prior to the auction.
Such positions would include bills acquired through "when issued"
trading, and futures and forward transactions as well as holdings
of outstanding bills with the same maturity date as the new
offering; e.g., bills with three months to maturity previously
offered as six month bills. Dealers, who make primary markets in
Government securities and report daily to the Federal Reserve
Bank of New York their positions in and borrowings on such
securities, when submitting tenders for customers, must submit a
separate tender for each customer whose net long position in the
bill being offered exceeds $200 million.
Payment for the full par amount of the bills applied for
must accompany all tenders submitted for bills to be maintained
on the book-entry records of the Department of the Treasury. A
cash adjustment will be made on all accepted tenders for the
difference between the par payment submitted and the actual issue
price as determined in the auction.
No deposit need accompany tenders from incorporated banks
and trust companies and from responsible and recognized dealers
in investment securities for bills to be maintained on the bookentry records of Federal Reserve Banks and Branches. A deposit
of 2 percent of the par amount of the bills applied for must
accompany tenders for such bills from others, unless an express
guaranty of payment by an incorporated bank or trust company
accompanies the tenders.
Public announcement will be made by the Department of the
Treasury of the amount and price range of accepted bids. Competitive bidders will be advised of the acceptance or rejection
of their tenders. The Secretary of the Treasury expressly
reserves the right to accept or reject any or all tenders, in
whole or in part, and the Secretary's action shall be final.
Subject to these reservations, noncompetitive tenders for each
issue for $500,000 or less without stated price from any one
bidder will be accepted in full at the weighted average price
respective
(in three decimals)
issues. of accepted competitive bids for the

FOR IMMEDIATE RELEASE

October 30, 1979

RESULTS OF AUCTION OF 3-1/2 YEAR NOTES
The Department of the Treasury has accepted $2,751 million of
$6,851 million of tenders received from the public for the 3-1/2 year
notes, Series G-1983, auctioned today.
The range of accepted competitive bids was as follows:
Lowest yield 11.62%Highest yield
Average yield

11.64%
11.64%

The interest rate on the notes will be 11-5/8%. At the 11-5/8% rate,
the above yields result in the following prices:
Low-yield price 100.014
High-yield price
Average-yield price

99.958
99.958

The $2,751 million of accepted tenders includes $929 million of
noncompetitive tenders and $1,432 million of competitive tenders from
private investors, including 83% of the amount of notes bid for at
the high yield. It also includes $390 million of tenders at the
average price from Federal Reserve Banks as agents for foreign and
international monetary authorities in exchange for maturing securities.
In addition to the $2,751 million of tenders accepted in the
auction process, $800 million of tenders were accepted at the average
price from Government accounts and Federal Reserve Banks for their own
account in exchange for securities maturing November 15, 1979.
1/ Excepting 2 tenders totaling $20,000.

M-156

For Release Upon Delivery
October 31, 1979 2:30 PM EST

STATEMENT OF
HARVEY GALPER
ASSOCIATE DIRECTOR, OFFICE OF TAX ANALYSIS
DEPARTMENT OF THE TREASURY
BEFORE THE
SUBCOMMITTEE ON TAXATION AND DEBT MANAGEMENT
OF THE SENATE FINANCE COMMITTEE
OCTOBER 31, 1979

Mr. Chairman and members of the Subcommittee:
I welcome the opportunity to present the Treasury's
views on four bills now before you: S.246, S.1846, S.1488,
and S.1543. These four bills would attempt to encourage
savings by making interest or dividends tax exempt under
certain specified conditions. The first and simplest is S.
246. It would exempt up to $500 of interest on savings
accounts ($1,000 for joint returns).
The second bill, S. 1846, would enlarge the existing
exemption for dividends received. Under present law, the
first $100 of dividends received by an individual each year
is generally tax exempt (up to $200 on a joint return).
Under S. 1846, the exemption would be increased to $250 ($500
for a joint return), and would be allowed for interest on
savings accounts as well as dividends.
The third bill, S. 1488, would exempt up to $500 of
interest on savings accounts ($1,000 on a joint return).
However, the exemption would be available only to the extent
that interest earned in one year exceeded the amount earned
in the immediately preceding year.

M-157

-2Finally, S. 1543 would exempt up to $1,500 of dividends
reinvested each year under a qualified dividend reinvestment
plan. The exemption would be $3,000 for joint returns.
We have given these bills careful consideration because
of our interest in legislation that might promote savings or
assist small savers. However, we have concluded that none of
the bills would effectively further these goals and, in fact,
these bills would distort the allocation of saving among
financial assets. Therefore, the Treasury is opposed to all
four of these bills.
To the extent possible, any tax incentives for savers
should be neutral as between different kinds of savings,
should not permit tax-deductible borrowing for the purpose of
securing a tax-free return, should not encourage complicated
transactions to realize tax benefits, and should reward most
additional saving with a higher after-tax return. In
addition, any incentive program must be consistent with our
fiscal objectives of moving towards budgetary balance.
We will now focus attention on each proposal separately.
S. 246
The Treasury opposes S. 246 for three reasons. It is
very expensive, it does not stimulate savings effectively,
and it may hinder the enactment of legislation now before the
full Senate to phase out Regulation Q. Regulation Q
currently limits to 5.5 percent the return that thrift
institutions can pay to savers holding passbook accounts. The
Administration supports legislation to phase out Regulation 0
as a more effective means to aid small savers.
The revenue loss from S. 246 would be quite large. It
would amount to $3.4 billion in its first year of operation
and would increase to over $4.6 billion a year in 1984.
S. 246 does not stimulate savings effectively because,
for the most part, it does not operate on the margin of
decision-making. No incentive effect whatever is provided to
savers who earn more than $500 of interest. Currently, such
savers earn 92 percent of all taxable interest. While S. 246
provides no incentive effect to these large savers, they,
nonetheless, are eligible for the full $500 exclusion and
would receive almost three-fourths of the tax break resulting
from S.246. Thus, almost three-quarters of the revenue loss
(or over $3.3 billion a year at 1984 levels) would go to the
largest savers and would do absolutely nothing to encourage
savings.

-3Some marginal incentive to increase saving would be
provided to the small savers with less than $500 of interest
income, a group which now contributes a small share of
aggregate savings. Even in the unlikely event of a
substantial increase in the savings of this group, aggregate
savings would be very little affected. 1/
We agree that small savers are now treated unfairly;
they generally receive a very low return on savings accounts,
a return that is less than the current rate of inflation.
Moreover, small savers are ordinarily unable to take
advantage of higher-yielding alternatives (such as
money-market certificates) because of minimum deposit
requirements. While S. 246 would provide some relief to
small savers the simplest and most effective way to provide
assistance is to phase out Regulation Q, which is what forces
small savers to accept an unfairly low return.
This can be illustrated by a hypothetical example.
Consider a saver in the 21 percent bracket (e.g., a family of
four making $18,000 a year) who for the purpose of this
example we will assume might earn 9 percent before taxes and
7.2 percent after taxes on passbook savings once Regulation Q
is phased out. However, the maximum amount now allowed on
passbook accounts under Regulation Q is 5.5 percent. Even if
the entire 5.5 percent is tax-free, the small saver in our
example is 1.7 percentage points better off if Regulation Q
is phased out than if S. 246 is passed.
S.1347 which would phase out Regulation Q over 10
years, was reported out by the Banking Committee and is now
before the full Senate. Because it is the most effective way
to provide relief for small savers, the Administration
supports S.1347.
l7 S.246 would raise the average after-tax return of savers
with less than $500 of interest income by no more than
one-third. Even under the assumption of an extremely high
savings response to this increase in after-tax return (assume
an interest elasticity of 0.4) such small savers would
increase their holdings of interest-earning assets by no more
than 12 to 13 percent. This, in turn, would represent an
increase of only 1 percent in holdings of all
interest-earning assets or less than one-quarter of one
percent in holdings of all assets yielding capital income.
Thus, the increase in aggregate savings would be
imperceptible.

-4Finally, S. 246 encourages savers to switch from one
kind of savings to another, e.g., from stocks and bonds to
savings accounts. Activity of this kind merely rearranges
savings, and does nothing to increase savings. 2/
S. 1846
S. 1846 would exempt a combined total of up to $250 of
interest and dividends. (Up to $500 of interest and
dividends would be exempt on joint returns.) Thus, compared
to present law, S. 1846 expands the exemption to cover
interest on savings accounts as well as dividends and
increases the total exemption from $100 to $250.
S. 1846 has many of the same weaknesses as S. 246. Over
60 percent of the revenue loss is wasted on taxpayers who are
over the $250 limit and who therefore are not given any
incentive to save. Only about 7.5 percent of interest and
dividends is affected at the margin.
Because S. 1846 sets a lower limit than S. 246 ($250
rather than $500) , it results in a smaller revenue loss. The
revenue loss from S. 1846 — which would grow from $2.0
billion in 1980 and $2.6 billion in 1984 — would be about
three-fifths of the revenue loss from S. 246. Also, S. 1846
treats dividends and savings account interest equally,
thereby reducing the incentive to switch from one form of
savings to another. Switches between non-eligible
assets—such as corporate and government securities—to
savings accounts would still be likely, however.
2/ S. 246 also suffers from the defect that it may encourage
taxpayers to borrow from one bank in order to make tax-exempt
deposits at another bank. For example, a taxpayer in the 50
percent bracket (e.g., a family of four making $80,000 a
year) might borrow $10,000 at 15 percent from one bank and
use the money for a 9 percent certificate of deposit at
another bank. Interest paid on the money borrowed would be
deductible, but interest earned on the certificate of deposit
would be tax exempt. Therefore, the taxpayer would make an
after-tax profit of $150 a year, without doing any real
saving at all. A remedy would be to allow the exemption only
for interest income in excess of interest expense. For
example, if a taxpayer received interest of $500 and paid
interest of $300, only the net amount of $200 would be exempt
from tax.

-5In conclusion, the Treasury is opposed to S. 1846
because it would result in a substantial revenue loss, would
do little to promote savings, and would provide less relief
for small savers than phasing out Regulation Q—the same
reasons we are opposed to S. 246.
S. 1488
S. 1488 exempts up to $500 of interest on savings
accounts each year (up to $1,000 on a joint return).
However, a taxpayer is eligible for the exemption only if he
earns more interest this year than he did last year. For
example, if a taxpayer earned $200 of interest last year and
earns $500 this year, only the increase of $300 is exempt.
The revenue loss from S.1488 would be $1.1 billion in
1980 rising to $1.5 billion in 1984.
S.1488 is an intriguing attempt to overcome a major
weakness in S.246. As noted earlier, S.246 has no incentive
effect on large savers, but nonetheless gives them more than
$3 billion a year. The incremental approach of S.1488,
combined with quite high dollar limits on these increments,
means that some incentive effect is likely to be provided to
all but the very largest savers. However, one must be
careful not to overstate the magnitude of the incentive
effects provided by an incremental approach. While both
S.1488 and S.246 exempt interest income from taxation, S.1488
has a much smaller effect on any particular saving decision
than S.246.
To see why this is so, consider a taxpayer in. the 21
percent bracket (e.g., a family of four with an income of
$18,000 a year) trying to decide whether to add $100 to a
pass book savings account. If the passbook interest rate is
5.5 percent, S.246 would permanently increase the after-tax
interest return from $4.35 a year to $5.50 a year. On the
other hand, S.1488 would increase the after-tax interest
return by the same amount, but for only a single year. In
other words, if the taxpayer in our example is truly a
marginal saver (i.e., the increase in after-tax return is
necessary to induce him to maintain a $100 higher balance in
his passbook savings account) then he will withdraw the $100
after the temporary effect of S.1488 has worn off at the end
of the year. While S. 1488 does reduce the waste of
non-incremental approaches, this example illustrates that
much of the cost savings under the incremental approach is
achieved by providing a smaller incentive to save.

-6Under an incremental approach, a taxpayer may also
reduce savings for a year (or even better transfer his funds
into other assets for a year) to establish a lower savings
account interest base for the following year. In this
fashion, his holdings of eligible assets may go up and down
to take maximum advantage of the tax benefit. While his
average asset holdings over every two-year period may indeed
rise—at least perhaps his holdings of savings accounts—, it
does not appear desirable policy to encourage such •
transactions in order to qualify for tax benefits.
Furthermore, an incremental approach is bound to have
some arbitrary impacts on taxpayers in particular situations
since there is no operational way to determine exactly the
normal or baseline savings level for each taxpayer.
Taxpayers who would have added to savings in the absence of
the tax incentive are rewarded even if they do not change
their behavior; whereas those who are forced to draw down
savings are completely denied the opportunity to respond to
the incentive.
Thus, while a non-incremental approach would affect all
persons equally regardless of what is happening to their
savings from year to year, the incremental approach of S.1488
would not: It would discriminate against older persons who
are at a stage in life when they ordinarily draw down their
savings, and would favor younger persons who are at a stage
of life when they ordinarily would add to savings. Other
arbitrary events triggering eligibility may be changes in
interest rates or increases or decreases in interest income
because a taxpayer sells or buys a house in a particular
year. Also, since no netting of interest expense against
interest income is provided in S.1488, it is possible to make
money by borrowing for the purpose of generating tax-exempt
interest income.
We recognize that S.1488 attempts to achieve greater
efficiency as a savings incentive but it can only do so at
the expense of injecting arbitrary elements into the tax
code. Accordingly, Treasury is opposed to S. 1488.
S.1543
S. 1543 differs from the other three bills by providing
a relatively narrow incentive for reinvesting dividends,
rather than broader incentives for all dividends or all
interest on savings accounts. Under the bill, up to $1,500
($3,000 on a joint return) of dividends would be tax exempt
if reinvested in a qualified dividend reinvestment plan.
Under such a qualified plan, a corporation would issue new

-7shares of common stock to shareholders who elect to
participate. The new stock would be issued at fair market
value or at a discount not to exceed 5 percent. Shareholders
who elect not to participate would continue to pay tax on
cash dividends received.
Special tax rules would apply to stock purchased under a
qualified dividend reinvestment plan. If such stock is sold
within a year after issue, the entire amount received would
be treated as ordinary income. If the stock is held for more
than a year, this amount would be taxed as a long-term
capital gain.
The effect of S. 1543 is to give shareholders an option
to convert cash dividends into earnings retained on their
behalf. These optional retained earnings would generally be
taxed in a manner similar to actual retained earnings; they
would not be included in the shareholders' income but would
be taxed as capital gains if the shareholder sells his stock.
Under current law, investors can seek the optimal mix of
cash flow and retained earnings from stocks by choosing the
type of stock that suits their needs. Investors in high tax
brackets who seek to defer tax on retained earnings can buy
stocks with low dividend/earnings ratios; investors in low
tax brackets who are interested in cash flow can buy stocks
with high dividend/earnings ratios.
This bill enables shareholders to realize the tax
benefits of retained earnings without purchasing growth
stocks. Consequently, the effect of this bill would be
highly regressive. The major beneficiaries would be
high-bracket investors who could obtain the benefits of
deferral without assuming the risks generally associated with
growth stocks. Low-bracket investors and retired people
would not benefit because they would generally choose to
receive cash dividends.
In addition, tax-motivated borrowing would be encouraged
to the extent it is easier and less risky to borrow against
stock in a secure, high yield company. For example, a
wealthy investor who borrows on margin to purchase shares of
a public utility would be able to receive tax-free
accumulation while deducting interest paid on the margin
account.
S. 1543 resembles past proposals to relieve double
taxation of dividends only to the extent it provides a tax
break for shareholders. However, its other effects are
exactly the opposite of double tax relief as ordinarily

-8understood. Rather than encouraging a more flexible capital
market, as do other proposals for double tax relief, it
encourages retention of earnings within each corporation.
Rather than providing that dividends are taxed once at the
marginal rate appropriate to each shareholder, it taxes them
at corporate rates.
The expected revenue loss from S. 1543 will be $640
million in calendar year 1980 and slightly over $1 billion in
calendar year 1984.
For the foregoing reasons, the Treasury opposes S. 1543.
Our testimony has stressed the weaknesses of four bills
now before the Committee that attempt to encourage savings.
However, we recognize that the tax system, especially in an
inflationary period, does discourage savings and investment
and that it remains an important economic objective to
stimulate greater capital formation. Budgetary
considerations simply do not permit new tax initiatives at
this time. But when appropriate, we would expect to evaluate
a whole range of alternative approaches for promoting savings
and investment. These would include not only possible
savings incentives that would not have the deficiencies of
the proposals before you today, but would also extend to
measures to accelerate depreciation allowances and to provide
for a general restructuring of tax burdens. Choices among
these approaches would then be based on considerations of
equity and relative effectiveness in promoting savings and
investment.
o 0 o

For Release Upon Deliverv
Expected at 2:30 P.M. E.S.T.

STATEMENT OF
H. DAVID ROSENBLOOM
INTERNATIONAL TAX COUNSEL
DEPARTMENT OF THE TREASURY
BEFORE THE
SUBCOMMITTEE ON TAXATION AND DEBT MANAGEMENT
OF THE
SENATE FINANCE COMMITTEE
OCTOBER 31, 1979
Mr. Chairman and Members of the Subcommittee:
I am pleased to have the opportunity to appear today to
present the views of the Treasury Department on S. 1703.
S. 1701 would grant to employees of organizations exempt from
Federal taxation under section 501(c)(3) the $20,000
exclusion of foreign earned income that was generally
available to United States citizens employed abroad prior to
the Tax Reform ^ct of 197<S.
During consideration of the Foreign Earned Income ^ct of
1978, both Congress and the Administration took the position
that the United States tax treatment of United States
citizens employed abroad in the private sector should take
into account the excess costs of living abroad. As a result,
United States taxpayers living abroad are entitled under
section 91** of the Code to a deduction for certain excess
housing, education, home-leave travel, and general living
costs. Tn addition, it was generally believed that some tax
preference for overseas employment could be justified in
cases in which the employee abroad had to accept hardship
conditions. Accordingly, United States taxpayers living in
hardship areas are entitled under section 913 to a $5,000
deduction in addition to the deduction for excess foreign
living costs.

M-158

-9-

The $20,000 exclusion of foreign earned income allowed
to taxpayers generally under prior iaw was retained in
section 911 only for employees living in substandard lodging
in certain camps located in hardship areas. Section 911 was
tightly drawn to compensate certain taxpayers who effectively
must incur a cost in the form of a substantially lower
standard of living than they would normalIv have in the
United States; section 913 generally compensates those who
incur the added costs necessary to maintain a reasonable
living standard. Section 911 was also intended by some
persons to give an incentive to multinational companies,
particularly in the labor-intensive construction industry, to
hire American citizens instead of citizens of other
countries. Congress anticipated that this incentive would
produce benefits for the United States economy through the
purchase by Americans employed abroad of American machinery,
equipment, and technical services.
Regardless of the merits of section 911, the reasons for
its enactment in its present form do not justify extending
the exclusion on a general basis to employees of exempt
organizations. ^o the extent that the employees of exempt
organizations experience adverse livinq conditions in camp
facilities, they may qualify for section 911 on the same
basis as employees in other industries. Employees of exempt
organizations who do not auaiify for section 9ii may be
compensated for hardship conditions by the $5,000 deduction
provided in section 91^.
Although S. l7fp has been described as a measure that
would compensate employees of charities experiencing hardship
conditions while thev carry out activities favored by the
United States, there is no requirement under the bill that
hardship conditions be experienced. Nor is the bill limited
to employees of organizations engaged in relief activities
or, for that matter, to employees of United States
organizations.
Even if the bill were narrowly framed, it would provide
benefits to activities carried on outside the United States
that are not available with respect to similar activities in
the United States. There may be specific situations of the
type covered that merit Federal assistance. Organizations
providing aid to the poor and to agriculture, which are of
the groatest concern to the sponsors of the bill, may be
examples. Tf an incentive to certain groups or activities is
desired, we recommend that direct grants be provided. It
does not appear loaical or efficient to employ the tax system
for this ouroose. With direct grants, the activities to be
benefited could be defined more precisely,17 the cost would be
administered
For
subject
the to
foregoing
periodic
by persons
reasons,
review,
expert
and
we in
oppose
thethe
proaram
area.
S. 03.
would be

(partment of theJREASURY
iSHINGTON, D.C. 20220

TELEPHONE 566-2041

For Release Upon Delivery
Expected at 2:^0 P.M. E.S.T.

STATEMENT OF
HARRY L. GUTMAN
DEPUTY TAX LEGISLATIVE COUNSEL
DEPARTMENT OF THE TREASURY
BEFORE THE
SUBCOMMITTEE ON TAXATION AND DEBT MANAGEMENT
OF THE
SENATE FINANCE COMMITTEE
OCTOBER 31, 197 9

Mr. Chairman and Members of the Subcommittee:
I am pleased to appear today to present the views of the
Treasury Department on four bills: S. 541, S. 555, S. 999,
and S. 1638. A summary of the Department's position on each
bill is attached as Appendix A.
S. 541 - ELECTION OF ESTATE TAX ALTERNATE VALUATION
The value of assets included in a decedent's estate is
determined, in general, either at the time of the decedent's
death or six months after the decedent's death. The latter
date is called the alternate valuation date. Under present
law an alternate valuation date election must be made on a
timely filed estate tax return. S. 541 would permit an
executor to elect alternate valuation on the first late
return filed.
As the proponents of S. 541 have stated, the estate tax
consequences of an alternate valuation election will not
change if an election is permitted on a late return. It is
also true, however, that an alternate valuation date election
M-159

-2-

will usually have income tax consequences under either
steD-up in basis at death (i.e., an heir's basis is, in
general, equal to the estate tax value of the property
received) or carryover basis (i.e., an heir's basis is, in
general, equal to the decedent's basis in the property after
a number of statutory adjustments). In these cases, an
extension of the election date to include late returns may,
despite late filing and payment penalties, encourage deferred
elections in an attempt to minimize the aggregate estate and
income tax consequences to the recipients of inherited
property. We would become concerned if such a trend
developed. On balance though, we do not oppose the
substantive change made by S. 541.
However, we do oppose S. 541 as ^rsfte^ because of the
bill's effective date and transition relief provisions. The
bill is effective, in general, for estates of decedents dying
after December 31, 1977. We do not believe this retroactive
effective date is necessary. Rather, we recommend the
provision be effective for estates of decedents dying after
the date of enactment.
In addition, we are opposed to the special transition
rule pursuant to which executors of estates of decedents
dying before the general effective date could, within 90 days
of enactment, perfect a defective alternate valuation date
election so long as such an election had been indicated on
the first estate tax return filed by the executor. Our
primary difficulty with this form of transition relief is
that, to the extent it is administrable, it will apply
unevenly. It will reward those who attempted to elect
alternate valuation in circumstances where a valid election
was clearly prohibited. However, it will not afford relief
to those who filed late returns and, cognizant of the fact
that an alternate valuation election was prohibited under the
circumstances, did not attempt an election even though it
would have benefited the estate. The uneven application of
the transition rule cannot be rectified short of granting all
executors who filed late returns a limited time period within
which to reelect the alternate valuation date. However, a
transition rule fashioned so broadly would result in
significant administrative difficulties and problems of
identification of and notice to affected executors and heirs.
Therefore we strongly recommend the transition relief be
deleted from the bill.
S. 555 - THE INDEPENDENT LOCAL NEWSPAPER A^T OF 1979
The objective of S. 555 is to preserve local ownership
of newspapers in the face of increasingly aggressive
acquisition offers by large newspaper chains or
conglomerates. If the owner of a local newspaper declines to
sell and dies ownina the newspaper, the estate tax value of
the business is determined in part by reference to recent

-•*-

sales of comparable newspapers, which, it is alleged, are
occurrinq at unrealistic, inflated prices. It is further
alleged that a newspaper valued in this manner cannot
generate funds sufficient to pay estate taxes. As a result,
local newspaper owners, at death or prior thereto, are
encouraged to sell out to the large chains.
The bill attempts to solve this problem by providing an
extraordinary number of special exemptions from generally
applicable tax provisions to permit the tax-free accumulation
of funds to pay the estate tax attributable to the value of
the newspaper and to allow any unfunded estate tax to be paid
over fifteen years. Thirty-seven pages of statutory language
are required to codify these provisions.
We have no quarrel with the proposition :hat a free and
vigorous press should be protected. But if this is to be a
national policy goal, we believe the problem should be
addressed directly. If the independent local newspaper
industry is threatened, special loan or subsidy programs
should be considered. To the extent the value of these
businesses is being artificially escalated by takeover bids
from large newspapers, the possible modification of the
anti-trust laws should be considered. Either or both of
these courses would result in a more controlled and equitable
resolution of the problem than the use of tax expenditures.
This point can be made clear by examining S. 5*55 in some
detail. The bill is divided into two principal parts. The
first permits the establishment of a trust by an "independent
local" newspaper for the purpose of paying the estate tax
attributable to any owner's interest in the business. The
trust must have an independent trustee and its corpus may be
invested only in United States obligations. The value of the
trust cannot exceed 7 0 percent of the value of the owner's
interest in the business. The income earned by the trust
corpus will be exempt from t?x. Contributions to the trust
are not only deductible (up to an amount equal to 50 percent
of the annual taxable income of the newspaper business) by
the newspaper business, but are also excluded from the
taxable income of the owner. These income tax benefits are
recaptured roughly if, during the owner's lifetime, the
newspaper ceases to meet the statutory definition of an
"independent local" newspaper. The corpus of the trust is
excluded from the owner's gross estate and the estate does
not realize income when its estate tax liability is
discharged by the trust. The estate tax benefit is
recaptured in whole or part if the business interest is sold
within 15 years of the owner's death.
The second part of the bill provides an elective
deferral of the estate tax attributable to the newspaper
interest not otherwise paid from the assets of the estate tax
payment trust. Payment may be made on essentially the samr

-4-

terms as Code section 6166, with the same preferential 4
percent interest rate, but without regard to the size of the
interest in relation to the owner's estate.
What generally applicable tax law principles does this
bill violate? First, it permits a ^eduction for earnings
diverted to the estate tax payment trust. Although the bill
provides that such a deduction is allowable under section
162, the payment in no way can be said to meet the "ordinary
and necessary" business expense criteria of that section.
Nor is there any other provision in the tax law allowing a
deduction for amounts to be used to pay death taxes.
Second, the bill provides that the funds transferred to
the estate tax payment trust will not be included in taxable
income by the owner. To the extent the newspaper business is
held in corporate form, this payment would in all other cases
be treated as a taxable dividend to the extent of earnings
and profits.
Third, the exemption of trust earnings from income is
contrary to existing law which would treat the beneficiary as
the owner of the trust and taxable on its income.
Fourth, exclusion of the corpus of the trust from the
owner's gross estate violates existing principles which would
include in a decedent's estate any asset in which the
decedent or his estate had an interest.
Finally, if it was appropriate to exclude the funding
and earnings of the trust from the decedent's estate, then
the exclusion from estate income of the amount paid by the
trust to relieve the estate of its estate tax liability
contravenes the basic income tax rule that discharge of an
obligation of another results in income to the party whose
obligation has been discharged.
The effect of these provisions is, in most cases, to
cause the Federal government to nay a large share of the tax
liability attributable to the value of an"independent local
newspaper. The Federal government's share will vary
accordinq to the period of time an estate tax payment trust
has been in existence, the applicable corporate income tax
rate, the amount of interest earned by the trust corpus, the
marginal income and estate tax rates of the owner, and the
form in which funds to pay the estate tax would have been
accumulated absent this special relief. Nonetheless, the
extraordinary scope of the benefits afforded by this bill can
be illustrated by the following example.
Assume that A owns an interest in a local newspaper
worth $1,000,000 at all times. Further, to highlight"the
problem of making lifetime arrangements to transfer this
interest, assume that the $1,000,000 interest constitutes A's

-5sole asset and he wishes to transfer the entire interest to
his heirs at death. Under present law, A would have to
accumulate S516,000 in a portfolio of marketable assets in
addition to his newspaper interest to pay the $516,000 estate
tax on a taxable estate of $1,516,000. This is the burden A,
or any testator wishing to transfer B net of SI,000,000, must
bear. A might meet this burden by saving more during his
lifetime, or by drawing more funds from his newspaper to
accomplish his objective.
Under the provisions of S. 555, this burden is reduced
by 85 percent if A's income is taxed at a 40 percent rate, or
by 92 percent if his income is taxed at 60 percent. This
subsidy arises from two components of the bill. First, by
excludinq the trust corpus from the taxable estate, A is
saved $217,200, or 42 percent of the normal estate tax.
Second, by permitting deposits to be deducted by the
newspaper, and thereby short-circuiting both the corporate
and personal income taxes, S. ^55 saves A an additional
$220,975 (43 percent of the normal estate tax) if he is
subject to a 40 percent income tax rate or $256,810 (50
percent of the normal estate tax) if he is subject to a 60
percent income tax rate. An alternative way of expressing .
the effect of the bill is to note that Congress could
accomplish the same result by paying $438,175 to A's estate
if hj agrees to leave his heirs a $1,000,000 interest in a
local newspaper, should his marginal income tax rate be 4 0
percent, or $474,010 should he be in a 60 percent tax
bracket. Moreover, due to the progressivity of estate tax
rates, in the case of a $5,000,000 interest in a local
newspaper and assuming a 60 percent income tax rate, S. =^5
would forgive 96 percent of the relatively larger normal
estate tax; it would be the equivalent of Conaress
appropriating S8,100,000 to be paid into a testator's estate
if he agreed to bequeath a Sc., 000,000 interest in a local
newspaper to his heirs.1/
W The calculations on which this illustration are based
assume a 2^ year period for accumulating the estate tax
liquid funds; the before-personal-tax (after-corporate-tax)
yield on the newspaper interest is 10 percent; the
corporation is subject to a 46 percent marginal tax rate; and
that the yield on trust fund assets is only 8 percent.
Ace mulating the same amount over a shorter perod would
increase the magnitude of S. 555 benefits.

-6-

At the cost illustrated by this example, it is
apparent that the benefits of this bill should at the very
least be restricted to those who can demonstrate that the
estate tax will, in fact, result in a forced sale of the
newspaper business. Otherwise, the bill turns all
independent local newspapers into income and estate tax
shelters. On the other hand, proper targeting of the
benefits will result in complex amendments to what is already
an enormously complex bill. Even then, because the
phenomenon which gives rise to the need for this bill is the
opportunity to sell newspapers at allegedly premium prices,
it is not demonstrable that the bill ultimately would achieve
its qoal. The bill would, at best, make it less expensive to
pass newspapers from generation to generation. It does
nothing to cure the market situation which creates the need
for the relief. Thus, this bill may be questionable public
policy as well as bad tax policy.
While we are sympathetic to the plight of some owners of
small businesses in planning the payment of estate taxes and
retaining control of the business in the heirs, we also
oppose this bill on the ground that it constitutes special
relief for only one group of "small businessmen."
Present law already provides relief for small business
owners and their heirs. Section 303 provides that in certain
cases the purchase of stock by a corporation to pay estate
taxes will be treated as a redemption and thus subject to
capital gains rather than ordinary income tax. Also, if a
portion of the business must be sold to generate funds to pay
estate taxes, any gain realized will generally be taxed at
the capital qains rate. Further, the transaction can often
be structured as an installment sale, in which case the
payment of the income tax is deferred over the installment
payment period.
In computing the estate tax, there are special relief
provisions. In the 1976 *ct, the amount of property which
may be passed without being subject to the estate tax was
increased from $60,000 to $175,000. Also, the marital
deduction for transfers to surviving spouses, which before
the 1976 Act was limited to one-half the estate, was changed
to a limit of the greater of 50 percent of the value of the
adjusted gross estate, or $250,000.
Finally, the payment of the estate tax may be deferred
where a business interest constitutes a major part of the
estate. Under section 6161f»N, the time for payment of the
estate tax may be extended for up to 10 years upon a showinq
of reasonable cause. Reasonable cause exists when an estate
consists larqely of a closely-held business and does not have
sufficient funds to nay the tax on time, or must sell assets
to pay the tax at a sacrifice price. Section 6166 allows a 5

-7-

year deferral and a 1^ year installment payment at a 4
percent interest rate on all or a portion of the deferred
estate tax if the value of the closelv-held business interest
exceeds 65 percent of the adjusted gross estate. Finally,
section 6166A is applicable to ? broader number of situations
and permits the estate tax attributable to a closely-held
business interest to be p a H in up to 1^ annual installments.
The adoption of S. 55 5 would provide a wedge to be used
again and again by other seqments of society, each arguing
its own importance. We do not believe in this piecemeal
approach to legislation. There are existing provisions
intended to minimize the problems inherent in the payment of
taxes. Tf they are inadeauate they should be reviewed in a
comprehensive and not an ad hoc manner.
S. 999 - WAIVER OF INTEREST ON UNDERPAYMENT OF TAX
Under present law, a taxpayer is charged interest on any
amount of tax that is not paid on time. S. 999 would impose
interest unless the taxpayer's failure to pay tax on a timely
basis is due to reasonable cause and not due to willful
neglect. The Treasury opposes S. 999.
The payment of interest is an economic concept; it is
not a punitive one. Interest is a charge for the use of
money; the borrower's intent in taking out a. loan is
irrelevant. When B taxpayer does not pay tax on time—for
whatever reason—the taxpayer has, in effect, borrowed money
from the government upon which interest is due.
The Internal Revenue Code treats the interest paid
consistently with this economic approach. The taxpayer may
deduct the interest on unpaid tax, and the rate of interest
is adjusted periodically to follow the prevailing lending
rate. Moreover, an overpayment of tax is considered a loan
to the government on which the government must pay interest.
The Code does not iqnore a taxpayer's intent in not
paying his tax. A penalty for the late payment or nonpayment
of tax will not be imposed if the taxpayer's failure to pay
is due to reasonable cause and not due to willful neglect.
Because the penalty is a monetary form of punishment for
failure to pay tax, it is not deductible and there is no
reciprocal penalty imposed upon the government. It is, then,
altogether appropriate to examine a taxpayer's intent in
order to determine whether the penalty should be imposed.
But intent is not an appropriate consideration where the
payment of interest is concerned.
Although circumstances may exist which cause a taxpayer
to be unavoidably late in the payment of his taxes, such
circumstances usually do not prevent the taxpayer from
earning a return on the money that is retained rather than

-8paid in taxes. Thus, even if a taxpayer has a leqitimate
excuse for not paying his taxes on time, the waiver of
interest in such circumstances would frequently provide a
windfall gain. However sympathetic we may be to taxpayers
such as the victims of natural disasters who cannot Day their
tax on time, these people are still, in effect, borrowing
money from the government. Tt is hiqhly unusual in the
business world for interest to be waived short of bankruptcy
proceedings, even for natural disasters. There is no reason
why the government should receive less than any other
creditor in the same situation.
S. 1.63 8 - AMORTIZATION OF START-UP <"PSTS
S. 1638 would permit a taxpayer to elect to amortize
over a period of not less than five years certain business
start-up costs that otherwise would not be deductible. The'x
start-up costs that may be amortized under this bill »re the
costs paid or incurred prior to the functioning of the
business as a going concern and that are incident to the
investigation, formation, or creation of the business. The J
costs must not create an asset having a useful life of its '^
own; they must be of a character that would be subject to
;
amortization over the life of the business (»nd not the life"
of some other asset) if the business had a determinable
useful life. Typical of these costs are the investigatory
expenses directly related to the particular business, and the
appraisals, advertising, insurance, utilities and other
routine expenditures paid or incurred prior to the actual
commencement of business.
For the following reasons, we support S. 163*.
This bill is designed to reduce the disparity in tax
treatment between certain ordinary and necessary preopening
expenses and similar expenses incurred by an existing
business. Under current law, most preopening expenses are
neither deductible nor subject to amortization but similar
expenses incurred by a going concern are usually currently
deductible. It is difficult to justify such disparate
treatment for similar expenses.
The problem of start-up costs arises not only for
taxpayers entering their first business, but also for
taxpayers with an existing business when beginning a new
business that is unrelated or only tangenti a*11y relate^. Th^
tax treatment of the start-up costs of a related business has
generated much controversy. Under current i *w, these costs
are currently deductible if the new operations are part of
the existinq "tra^e or business" and the costs do not create
a separate asset; costs must be capitalized, however, if the
new operations constitute a separate tra^e or business. The
large number of controversies between taxpayers and the IRS
on this issue reflects (1) the difficulty in many cases of

-9determining what constitutes a new business and when a new
asset is created, and (2) the consequences of the
determination. Depending on where these lines are drawn, the
start-up costs are either deductible in full or must be
capitalized indefinitely.
It is our hope that enactment of this bill will induce
taxpayers with existing businesses to elect to amortize the
start-up costs of a marginally related business thereby
reducinq the number of controversies in this area. In the
unclear cases, of which there are many, taxpayers should
elect to amortize; if they fail to elect and the IRS
successfully maintains that the costs must be capitalized,
the election would not be available and the costs would not
be recoverable through amortization.^/ ;- Electing to amortize
these expenses over five years would~appear for most
taxpayers to be a more prudent decision.
In summary, we support S. 1638 because it would (1^
reduce the disparity in tax treatment between certain
ordinary and necessary preopening expenses and similar
expenses incurred by an operating business, and (2) tend to
reduce the number of controversies between taxpayers and the
IRS especially where a taxpayer begins a related business.
I will be happy to answer any questions you may have.

1/ This is based on the assumption that the bill is clarified
to require that the election be made not later than the time
prescribed by law for filing the return (including extensions
thereof) for the year the expense was paid or incurred. A
provision of this nature would be necessary, in our view, to
achieve one of the major virtues of this bill.

-]nAPPENDIX A
SUMMARY OF TREASURY POSITIONS

1. S. Ml - Oppose as drafted.
2. S. 555 - Oppose.
3. S. 999 - Oppose.
4. S. 1638 - Support.

FOR IMMEDIATE RELEASE
October 31, 19 79

Contact:
'

Jack Plum
566-2615

TREASURY ANNOUNCES DETAILS OF NOVEMBER DM NOTE SALE
The Department of the Treasury today announced that on
November 5 and 6 it will offer notes denominated in Deutsche
marks in an aggregate amount of up to DM 2.0 billion at par.
Interest rates will be announced on November 5. The notes
will have maturities of two and one-half and three and one-half
years and will be allocated between those maturities at the
discretion of the Treasury.
The notes are being offered exclusively to residents of
the Federal Republic of Germany through the Deutsche Bundesbank
(German Central Bank) acting as agent on behalf of the United
States. Subscriptions must be received at offices of the
Bundesbank prior to 12:00 noon (Frankfurt time) on November 6
and will be binding until 11:00 a.m. on November 7. For each
maturity, the minimum subscription must be for the amount of
DM 5,000. However, the minimum denomination for subsequent
transfer will be DM 1,000. Allotments will be announced not
later than 11:00 a.m. November 7. Payment for and issuance of
the notes will be on November 12, 19 79.
Under the Double Taxation Agreement between the Federal
Republic of Germany and the United States of America, natural
persons resident in the Federal Republic of Germany and German
companies within the meaning of this Agreement are not subject
to the withholding tax on interest income payable under U.S. law.

###

M-160

IHINGTON, D.C. 20220

TELEPHONE 566-2041

MEMORANDUM FOR THE PRESS
October 3 1 , 1979

Contact:

Alvin M. Hattal
202/566-8381

Treasury Secretary G. William Miller is scheduled
to go to the Bureau of Engraving and Printing at 2:00
p.m., Thursday, November 1, to see for the first time
dollar bills with his signature roll off the press.
The new 1977A Series for the $1 denomination will
be released first, with serial numbers reverting back
to No. 1 and bearing the identification letter A of
the Boston Federal Reserve Bank. They have been r e leased to the Federal Reserve System, and general
circulation will be made as current supplies are depleted
or retired.

M-161

FOR IMMEDIATE RELEASE

October 31, 1979

RESULTS OF AUCTION OF 10-YEAR NOTES
The Department of the Treasury has accepted $2,001 million of
$3,418 million of tenders received from the public for the 10-year
notes, Series B-1989, auctioned today.
The range of accepted competitive bids was as follows:
Lowest yield 10.70%
Highest yield
Average yield

10.79%
10.75%

The interest rate on the notes will be 10-3/4%. At the 10-3/4% rate,
the above yields result in the following prices:
Low-yield price 100.303
High-yield price
Average-yield price

99.759
100.000

The $2,001 million of accepted tenders includes $329 million of
noncompetitive tenders and $1,671 million of competitive tenders from
private investors, including 35% of the amount of notes bid for at
the high yield.
In addition to the $2,001 million of tenders accepted in the
auction process, $400
million of tenders were accepted at the average
price from Government accounts and Federal Reserve Banks for their own
account in exchange for securities maturing November 15, 1979.

M-162

Remarks of Anthony M. Solomon
Under Secretary of the Treasury
for Monetary Affairs
Before the U.S.-Japan Trade Council
October 31, 1979
The U.S. and Japan:
Getting the Economic Relationship Right

This is a good time to think and talk about U.S. economic
relations with Japan, although I recognize that the new cabinet
is in the process of being formed. Recent developments, the
result of actions we both have taken, have produced a period of
relative calm in our bilateral affairs. We have come through
a period of some strain in our economic relationship. Speeches
in Congress, statements by private businessmen and in the
popular press, gave strong indications of an unhealthy attitude
toward the relationship. Pressures for protectionist actions
which could have had a major detrimental impact on the relationship mounted to a dangerous level.
This threat was rooted in the broader, global situation.
The major global economic problem sprang from current account
imbalances involving the U.S., Japan and Germany which placed
major strains on the system. At the same time, there was a
major bilateral U.S. deficit vis-a-vis Japan, and it was the
specific complaints of specific firms to specific Congressmen
with respect to the bilateral trade which fueled most of the
political fire. The concern arose not solely because of the
absolute size of these current account imbalances, but because
of the trend.
M-163

- 2 -

froTan l l J V S f i } ? 7 8 ' th*V'S'
Position wei,t
from an ?18.4 billion surplus to a $16 billion
deficit, a swing of over $34 billion. D X i l l o n
— Over the same period, the Japanese current account
moved from rough balance (a iJ^ficJLt of $0.6 billion)
to a surplus of $16.5 billion, a swing of over $17
billion.
~ In addition, there was a sharp increase in the
l?* lat f r ?* U * S - t r a d e deficit with Japan, from
$1.4 billion in 1975 to $11.7 billion in 1978.
"

Fortunately, both the U.S. and Japan were able to respond
to this situation with cooperation, not with conflict. It
took a lot of consultations at levels ranging from Prime
Minister and the President to working-level experts on individual
commodities. We consulted in many fora, both multilateral and
bilateral. We developed new channels and procedures for
consultation and cooperation. We took concrete policy actions
to address the sources of the imbalances.
Part of the problem was that cyclical expansion had
proceeded further in the U.S. than had been the case in Japan
and Germany. As a result of agreements at the Bonn Summit,
both Japan and Germany took fiscal action to stimulate their
economies. The result: Faster growth in other OECD countries
and the global economy, contributing to reduction of the Japanese
and German surpluses, and the U.S. deficit. We now expect solid,
domestically-oriented growth to be sustained in both Germany and
Japan into 1980 and hopefully, beyond. Both countries will be
in modest current account deficit both this year and next.
At the same time, the U.S. recognized its obligation to
curb inflation and to take forceful action in the area of
energy policy. We initiated a phased decontrol of domestic
oil prices, embarked on an ambitious program to spur production
of alternative energy sources, and adopted a voluntary program
of wage and price moderation. We have a disciplined fiscal
policy stance, and a restrictive monetary policy.
We have improved our efficiency in energy use, and have
had relatively good price performance on those elements subject
to the wage/price program. It has been the externally imposed
60 percent increase in the price of oil, shortages in some
types of foodstuffs, and rising housing costs that have
wrecked our price performance. Prices in areas subject to
the pay-price program have been rising at a rate of less than
seven percent, roughly one-half the overall average. And we
have not seen a spill-over of the higher rate into wage demands.
We are aiming for a return to single-digit inflation by early
next year.

- 3 In response to the altered pattern of growth and the
effects of the exchange rate changes experienced during the
first three quarters of 1978, the massive current account
imbalances of the "Big Three" have virtually disappeared.
There has been some -- though modest -- improvement in the
bilateral U.S.-Japan balance, reflecting both the 1978 exchange
rate movements and the strong growth in Japanese domestic
demand. We expect the U.S. current account to move into surplus
next year. The prospect of a further modest current account
deficit for Japan next year should not be cause for concern;
in view of the prospective large OPEC surplus, it may indeed
be appropriate.
Some of the more explicit bilateral strains have been
eased as well. Japan has
-- accelerated tariff reductions or removal of quota
controls on a number of products of interest to
the U.S.;
-- increased imports of beef, oranges and citrus;
-- committed itself to review and revise the foreign
exchange control system;
-- relaxed rules for the standard method of settlement applied by Japanese customs;
-- substantially improved the opportunities open
to American banks to do business in Japan.
To get at some of the more fundamental structural
changes needed, the Prime Minister of Japan affirmed that it
was Japanese policy "to encourage a shift to greater
reliance on rising domestic demand to sustain Japan's
economic growth and -- to open Japanese markets to
foreign goods, particularly manufactured goods."
The U.S. agreed to "pursue a broad range of policies
to reduce the U.S. rate of inflation, to restrain oil
imports, and to promote U.S. exports."
Both countries accepted, as an objective, a current
account position "consistent with a balanced and sustainable
pattern of international trade and payments."

- 4 And so we find ourselves, as a result of these actions
and agreements, and the adjustment in current account
positions which have occurred, in a period of relative
calm in the overall U.S.-Japanese economic relationship.
We are reaping the benefits of past actions in terms of a
hiatus to both economic and political strains.
We need to use this time to pursue the longer-term
restructuring of our economies which was the purpose of
the specific policy orientations agreed to at the Summit -the restructuring we need to guard against a resurgence
of the strains.
There is no doubt that the first responsibility of
the U.S. is to stop the inflation. Price stability in the
U.S. is almost as important to Japan and other areas
of the world as it is to the U.S. itself. We must -- and
we intend -- to persevere with fiscal and monetary austerity
until inflationary expectations are broken.
As I previously noted, the exchange rate changes
which occurred during the first three auarters of 1978 were
an important factor in the strengthening position of the
U.S. current account so far this year, and the expected
further improvement next year. The dollar is now nearly
eight percent, on a trade-weighted basis, above its low
point of October 1978. It has appreciated 35 percent
vis-a-vis the yen and four percent vis-a-vis the deutschemark
over the same period. The need to ensure that these exchange
rate movements do not erode the U.S. competitive position and
weaken our payments position at some later time is one more
reason why our anti-inflation effort must succeed. As a
supplement to these fundamental efforts to ensure a strong
U.S. competitive position, we recognize the need to improve
the aggressiveness and export orientation of U.S. industry.
Further, we recognize that a reorientation within the
U.S. which will stimulate higher rates of saving and
investment is essential if we are to achieve the goal of
sustained, noninflationary growth.
For its part, Japan has recognized the importance
of a growth strategy which is centered on strong domestic
demand, as contrasted with the export-led growth of the
previous period. The Japanese Government has also accepted
as a longer-term goal an increase in the share of
manufactures in Japan's imports within a more general
policy of rendering the Japanese market fully open to
foreign products.

- 5 Strong domestic demand in Japan, coupled with %
the effects of the OPEC pricing actions and of past
exchange rate movements, combined to produce a major shift
in the Japanese current account position. However, the
swing has been so dramatic, and the effect of OPEC pricing
actions and Japanese dependence on imported oil has produced
such uncertainty, that the yen has depreciated substantially.
We recognize and sympathize with the dilemma the
authorities fice as a result of the current pressures on
the yen. The slide in the foreign exchange market, together
with the oil price increase, are the primary causes of an
increase of nearly 50 percent in the yen price of Japanese
imports. With an increase in import prices of this magnitude,
it is not surprising that wholesale prices are climbing at
a disturbing rate -- an annual rate of nearly 16 percent since
January. There seems little doubt, however, that the foreign
exhange market movement is an over-reaction not fully justified
by fundamental factors. If this situation were to continue,
the Japanese might well find themselves a year from now back
in the position of exporting at a level far beyond that needed
to maintain a reasonably balanced position, and at a level
once again disruptive to the world trading system and to the
U.S. in particular. It would be in no one's interest for this
to happen.
On the other hand, of course, the Japanese authorities
are conscious of the importance of maintaining strong domestic
growth and of the contribution of Japanese growth to world
economic prospects, particularly at a time when the U.S. must
concentrate on stabilization, rather than growth.
In any event, it is essential for both economic and
political reasons that Japan persevere in its policy of
opening its market, and orienting its growth policy toward
reliance on domestic demand rather than on exports. Both
the appearance and the reality of openness on both sides is
essential if the open trade and payments system is to be
preserved.
A widely-held view in the U.S. is that the dependence
on Japanese firms on one another has led to a rather widespread
practice -- unspoken policy, perhaps -- of never buying a
product abroad if it is manufactured in Japan. Neither
better price nor superior quality will enable a foreign
firm to win a Japanese contract if other Japanese firms
are in position to produce the needed item. No doubt this
charge is overdrawn, and there are some instances of U.S.
and other foreign sales. But there is enough substance to
it to discourage bidding on Japanese contracts.

- 6 If we are to deal with the structural problems -- to
bring Japan wholly within the circle of international
trade -- that attitude must change. We may need in the
field of Japanese industrial procurement the equivalent
of the U.S. affirmative action program to overcome the
ingrained inequities of centuries of discrimination.
I believe we need more joint ventures in Japan which
bring foreign firms into participation in the Japanese
industrial economy.
One American firm has achieved great success with a
program to train Japanese businessmen in the American
language. Perhaps there would be scope for a Japanese
firm to teach Americans how to do business in Japan and how
to recruit Japanese citizens to work for American firms in
Japan. Much has been done in Japan to enable Japanese
businessmen to learn about the U.S. It's time to turn over
the coin and teach American businessmen about Japan.
Clearly the U.S. and Japan share one important structural
problem in common. Both of us are going to need to adapt
our domestic production to accommodate the increasing
capability for production of manufactured goods in such
dynamic LDCs as Korea, Taiwan, Hong Kong and Singapore as
well as Brazil and Mexico. Adapt we must -- along with
Western Europe -- because these countries must meet the
needs of their growing populations. But if we can meet
this challenge right we will benefit along with the ADCs
themselves. It is important to get down to brass tacks -to specific industries and products -- and encourage the
reorientation of our own economies. And not just try to
foist off the import pressures on each other.
There is a second need for structural adjustment
which we and our Japanese friends share with most of the
countries of the world. That is the need to conserve
imported oil and to develop new sources of energy. The
need for a concerted response to the energy problem was
the central focus of the Tokyo Summit; since that meeting
was held, both we and Japan have announced our intention
to better the targets to which our nations agreed to at
that time. Even these goals may not be enough. I cannot
overestimate the importance of both increasing efficiency
in our use of energy and in developing increased sources
of energy itself.

- 7 The next few years will be crucial to the U.S.-Japanese
relationship and to our collective ability to maintain the
open, liberal trade and payments system. There are a series
of issues on which cooperative action by the U.S. and Japan
will be essential to maintaining and strengthening the
system.
An area in which cooperation is especially urgent is
implementation of the MTN. The agreements reached in the
MTNs, in particular the non-tatiff barrier codes, will
provide the framework for trade in the future. The key
issue confronting the trading system and which these codes
address is the international regulation of government
policies affecting trade. The subsidy/cvd, government
procurement, standards, and customs valuation codes -- all
set limits on acceptable government actions, provide clear
obligations, set forth rights if those obligations are
violated and provide for dispute settlement mechanisms.
At this time, the U.S. is the only major trading nation
which has completed the necessary procedures tp bring its
legislation into accord with the MTN agreements. Under
our current schedule we intend formally to sign the MTN
agreements in late November and implement them by January 1,
1980.
This timetable could be jeopardized, however, if other
trading nations fail to sign the MTN agreements during this
period. Our Trade Act gives the President authority to
accept the MTN agreements only if the other major trading
nations also are doing so. This is to ensure reciprocity.
Once the agreements are signed, their prompt implementation is all important. We all must fully implement
both the spirit and letter of the agreements. Delay in
implementing, or less than full implementation, would
jeopardize the trade liberalization so painstakingly
achieved in five years of negotiation.
Removal of Japan's barriers to bidding on government
purchases of telecommunications and computer products has
become a "lightning rod" issue in our trade relations -a question which has taken on major political and symbolic
significance. The U.S. and Japan agreed that there must
be reciprocal market access in trade of these products.
The U.S. is an exporter of high technology items. This is
an area in which the U.S. can compete if it can compete

- 8 anywhere in manufactured goods. We must no longer be preven
from selling in the Japanese markets by artificial barriers.
If U.S. exports are kept out by artificial barriers, there
will be a public backlash, and we will experience a*serious
setback in the progress we have made thus far. American
industry and American political leaders are expecting
results -- results in the concrete form of orders for specif
products. Only when actual orders come will American
industry be convinced that the barriers have come down.
Another major area for cooperation to strengthen the
system is the strengthening of the international export
credit arrangement. International cooperation to impose
discipline in the area of official export credit financing
made a promising start in 1976. Further progress was made
in February 1978 when agreement was reached on the International Arrangement on Export Credits. The Arrangement
formalized and spelled out the terms and procedures in
providing official export credits.
This Arrangement has been a useful instrument in
restraining competition between export credit agencies.
However, substantive improvements were necessary to reflect
changing times and conditions. We sought agreement to
correct those deficiencies but the necessary unanimity for
such changes was lacking.
It is an anomaly that the minimum interest rate provisions of the International Arrangement on Export Credits
still provide that a country can give an official export
credit for 10 years to certain countries and only charge
7.5 percent interest on that credit. We have the absurdity
of an Arrangement which sanctions highly subsidized interest
rates on export credit transactions. I doubt this oddity
can or will long persist.
We have been disappointed that our trading partners
were not willing to strengthen the Arrangement and impose
the needed self-discipline on export credit practices. The
only option open to the United States was to enter the
competition itself aggressively, supporting U.S. exporters
and meeting foreign official export credit competition.
There is a growing serious danger that major nations
will find themselves in a costly and self-defeating export
credit war. Japan can help us avoid this war by supporting
the strengthening of this export credit arrangement.

- 9 -

Orderly financing in the China market is especially
important. Excess competition in that growing and potentially
large market poses another threat to the viability of the
International Arrangement on Export Credits. For this reason,
we ask that economic assistance"to China be clearly distinguished from export credits. To insure that the two are not
confused, we would hope that the grant element in an aid
loan, as calculated by the DAC formula, be well above the
50 percent mark so that the loan qualifies clearly as aid
and not an export credit.
In addition, we believe that all countries whose underlying external position is basically strong -- and there is
no doubt that Japan fits that definition despite the current
numbers — should provide their official aid on an untied
basis.
The nations of the world have revised the IMF Articles
to provide a concrete basis for cooperative effort in
dealing with the problems of an interdependent world. The
Articles focus on the fundamentals of domestic economic
policy as the basic determinant of stability in the international economy. The institutional and consultative
framework we have established enables us to deal with
these problems in a concerted fashion. The Articles have
given us an SDR which is slowly being moved to the center
of the system. A substitution account which could contribute
to the evolution of the system and the central role of the
SDR in the system is now under discussion.
The route to stability is through cooperative action
on the fundamentals. The U.S. and Japan have excellent
institutional arrangements -- bilateral and multilateral -to foster this cooperative effort. For example, another
of the regular, periodic meetings of U.S. and Japanese
economic officials at subcabinet level will be held at the
end of next week in Tokyo. A new dimension is also being
added to our bilateral consultations with the forthcoming
activation of the "Wisemen's" group which was agreed on at
the May bilateral summit in Washington.
These forums, and others ranging from day-to-day
contacts at embassy staff level right up to meetings between
respective heads of state, give us the framework. The
improved balance in the positions of the two countries at
this moment give us breathing space -- time -- to solve

- 10 the
use
for
the

more structural problems. It is imperative that we
this time well -- to strengthen and deepen the basis
cooperation between the two largest economies in
free world.

5323 2654 28
86/02/04 "2 V

MflB