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Treas.
H]
10
.A13P4
v.338
u.s.
Department of the Treasury
PRESS RELEASES
DEPARTMENT
OF
THE
TREASURY
NEWS
lREASURY
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE. N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
CONTACT:
FOR RELEASE AT 2:30 P.M.
August 2, 1994
Office of Financing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $24,800 million, to be issued August II,
1994. This offering will result in a paydown for the Treasury of
about $675 million, as the maturing weekly bills are outstanding
~n the amount of $25,483 million.
Federal Reserve Banks hold $6,586 million of the maturing
bills for their own accounts, which may be refunded within the
offering amount at the weighted average discount rate of accepted
competitive tenders.
Federal Reserve Banks hold $2,120 million as agents for
foreign and international monetary authorities, which may be
refunded within the offering amount at the weighted average
discount rate of accepted competitive tenders. Additional
amounts may be issued for such accounts if the aggregate amount
of new bids exceeds the aggregate amount of maturing bills_
Tenders for the bills will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public
Debt, Washington, D. C. This offering of Treasury securities
is governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes, and
bonds.
Details about each of the new securities are given in the
attached offering highlights.
000
Attachment
LB-991
HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED AUGUST 11, 1994
August 2, 1994
Offering Amount .
$12,400 million
$12,400 million
91-day bill
912794 N9 1
August 8, 1994
August II, 1994
November 10, 1994
May 12, 1994
$12,510 million
$10,000
$ 1,000
182-day bill
912794 Q4 9
August 8, 1994
August 11, 1994
February 9, 1995
February 10, 1994
$16,521 million
$10,000
$ 1,000
Description of Offering:
Term and type of security
CUSIP number
Auction date
Issue date
Maturity date
Original issue date
Currently outstanding
Minimum bid amount
Multiples .
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids
Competitive bids
Maximum Recognized Bid
at a Single Yield
Maximum Award .
Receipt of Tenders:
Noncompetitive tenders
Competitive tenders
Payment. Terms
Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids
(1) Must be expressed as a discount rate with
two decimals, e.g., 7.10%.
(2) Net long position for each bidder must be
reported when the sum of the total bid
amount, at all discount rates, and the net
long position is $2 billion or greater.
(3) Net long position must be determined as of
one half-hour prior to the closing time for
receipt of competitive tenders.
35% of public offering
35% of public offering
Prior to 12:00 noon Eastern Daylight Saving time
on auction day
Prior to 1:00 p.m. Eastern Daylight Saving time
on auction day
Full payment. with t.ender or by charge to a funds
account. at a Federal Reserve Bank on issue date
OFFICE OF PUBliC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C.. 20220. (202) 622-2960
FOR RELEASE UPON DEUVERY
Text as prepared for delivery
August 3, 1994
Testimony of Treasury Secretary Lloyd Bentsen
Senate Committee on Banking, Housing and Urban Affairs
LB-992
FOR RELEASE UPON DELIVERY
Text as prepared for delivery
August 3, 1994
TESTIMONY OF TREASURY SECRETARY LLOYD BENTSEN
SENATE COMMITI'EE ON BANKING, HOUSING AND URBAN AFFAIRS
Mr. Chairman, members of the committee:
There are a number of points I would like to cover this morning. For
organization's sake, I want to present my testimony in four parts. First, I want to
describe my relationship to the oversight of the Resolution Trust Corporation and how
my office operates. I want next to address my recollection of events. I'd like also to
discuss the steps I have taken over the past months. And finally, I want to cover the
conclusions which have been reached and the actions I will take.
Knowing that the responsibilities of a Cabinet office are different from those of a
congressional office, I put two systems in place when I came to Treasury to help me
make the transition.
First, as it regards the RTC, I serve as Chairman of the Oversight Board. By law
I am prohibited from involving myself in any day-to-day matters. I can discuss policy in
broad terms, but I cannot intervene in any case-specific matters.
I asked my legislative director, Mike Levy, to make it clear if members or staff
inquired about specific cases, that they should be directed to the RTC, not to me.
Second, I have organized my office such that all the paperwork on matters of
policy and Treasury's varied operations flows through my Executive Secretary, Ed Knight.
Ed's the gatekeeper. It's his job to make certain that what crosses my desk as it regards
the RTC - or any issue for that matter -- contains only those materials which I should be
seeing -- and nothing else.
LB-992
(MORE)
2
We have a thick manual at the department about how information flows to my
office. I insist on written briefings. It makes the best use of my time. It's the best way
I've found to absorb information. When I'm asked for a decision, I expect a memo that
gives me the background, lays out the options, tells me what the staff recommends. That
way I can either make the decision, or let my staff know I want more information or
want a meeting on the issue. That's how I deal with substantive issues, not in some bull
seSSIOn.
In short, I have a very organized office procedure. I have run my offices like that
for years -- in business, in the Senate, and at the Treasury Department.
Mr. Chairman, if someone on my staff wanted to communicate with me in a
meaningful way, this is how they would have done it. Through my in-box, with a memo,
with a meeting on which I was briefed, in writing. That's not to say I don't have
occasional impromptu visits from or conversations with my staff. That often happens if
there's a developing crisis that must be dealt with. But for matters of any import, I
prefer paper.
I asked my staff to go back and look at my office records to see what I was
involved in over the period in which the committee is interested. From the 23rd of
September last year until March 21 of this year, I had nearly 800 meetings on 560 topics.
I attended 130 meetings at the White House, met with 51 members of Congress, and
testified on the Hill 11 times. I received more than 500 written briefings to prepare for
my meetings. I delivered 60 speeches, gave 80 interviews, had 25 press conferences. I
received over 2,400 memos. And during that period I traveled to six countries and ten
states.
This entire issue revolves around meetings that I understand were on the issue of
handling press inquiries about the Madison Guaranty referral, or on the procedures the
R TC would follow in pursuing civil claims. There are differing recollections, but they
are about actions that two independent investigations tell us broke no criminal law and
violated no ethical standard.
I have turned the Treasury Department upside down. I've turned my memory
inside out. We went through thousands and thousands of documents and can't find one
written briefing to me on these White House meetings. It wasn't until March 3rd that I
learned the extent of these meetings. I issued a statement about the meetings and said
that I had not attended them and did not know about them.
I may be walled off from most RTC matters, but I am responsible for what
~appe~ at the Treasury Department, and I accep! that responsibility. That's why I also
unmedIately asked the Office of Government Ethics to examine these contacts. They're
a nonpartisan agency. Thefre the experts.
3
In preparing for this hearing, I agreed to the committee request to avoid looking
at materials regarding the case until I gave my deposition to the committee staff. I
agreed to that request, although it frustrated me because I wanted to wade into this and
find out all I could. I had to wait over four months to start looking at these papers.
After I gave my deposition last week, I sat down and began to read through the
material. I saw nothing that changes my recollection.
Let me layout for you what my basic recollection is about these matters.
First, I read in the press sometime in October about criminal referrals and
Madison Guaranty. Second, on February 1, Roger Altman and Jean Hanson came to my
office. Roger told me he was thinking of recusing himself, and the other subject that
came up was the legislation on extending the statute of limitations. Later that month
Roger told me he had decided not to recuse himself.
On February 23rd, I met with Roger and Jean Hanson briefly in advance of the
RTC oversight hearing the 24th. I again told Roger the recusal issue was a personal
issue for him. On the 25th of February, I learned that Roger had testified the day
before as to one meeting with people from the White House, and that he had recused
himself. On March 3rd, I read in the press about two additional meetings. It was then
that I asked for the OGE examination of the contacts and issued my statement.
Now, I would like to review the subsequent events.
Our Treasury Department Inspector General's office was asked to support the
OGE examination. Mr. Fiske, the Independent Counsel, was already looking at this
from the standpoint of the criminal statutes.
After I asked the OGE to examine the ethics issues involved, Mr. Fiske asked the
Treasury IG to suspend his work while Mr. Fiske's investigation was under way. And the
OGE also independently decided it would hold off until Mr. Fiske's work was complete
so as not to interfere.
I want to point out the lengths to which the Treasury Department, at my
direction, went to cooperate with Mr. Fiske, with the IG and with the congressional
committees.
Every scrap of paper that remotely looked like it might conceivably have some
relation to the Madison Guaranty savings and loan, or to contacts with the White House,
was turned over to various investigators -- something on the order of 6,500 pages. We
went through hundreds of thousands of documents with investigators to find the ones
they needed. We used extra warehouse space to hold back our trash.
4
I brought in professional investigators from the IRS to go through the top offices
in Treasury -- mine included. We removed computers from the offices of those involved,
including those used by the support staff, and had experts go through them to find
anything that would be useful. We worked around the clock, quite literally. We
searched offices nationwide to see what could be found. And my staff was always
promptly available to Mr. Fiske, the IG, and congressional investigators to answer
questions.
Now, when Mr. Fiske completed his report on this phase of his investigation and
concluded that no criminal laws were broken, I asked the aGE to complete its
examination of the contacts and report back to me.
Over the past weekend I received the aGE report. I released it to the public,
and then I sent it to the President's counsel. I also sent it to every member of this
committee and the House Banking Committee.
The Office of Government Ethics, after a careful analysis of the independentlygathered facts, says I can conclude that those working at the Treasury did not, repeat did
not violate any of the standards of ethical conduct for employees of the executive branch
of government.
I heard a senator say something the other day that stuck with me. He said that in
this town, an allegation is synonymous with conviction, without benefit of a trial or
hearing.
Clearly, in retrospect, it might have been better if some of these meetings or
contacts had not taken place, or had occurred in a different context. But when you boil
it down, no criminal law was broken, and the people who work at Treasury did not
violate the ethical standards. And no one at Treasury intervened in any way or
interfered in any RTC action.
The aGE report did say it was troubled by some of the contacts, and it raised
important issues that I believe should be addressed.
The aGE said it appeared there were misconceptions by Treasury officials that
may have contributed to the contacts. Those include a possible lack of appreciation of
the difference between a Treasury function and one belonging to the Resolution Trust
Corporation, and what rules apply. They also include a misconception about the
standard on the use of nonpublic information, and a misconception about the function of
a recusal.
5
Those are very good points. I would point out the unique situation in which these
contacts occurred no longer exists. Mr. Altman is no longer acting CEO of the RTC.
And there no longer are lines of responsibility here that could give rise to
misconceptions about job functions and the rules that apply. So the possibility for a
jumbling of roles and a confusion about the rules has been greatly lessened.
I've only had this report for a few days, and I'm not going to make any knee-jerk
reaction to what clearly are complex issues involving management of Treasury functions.
I want to reserve judgment on that. I'm not going to make my decisions in the heat of
debate. I will study this information -- and any thoughts the committee might have -and take whatever steps I consider appropriate.
Before I conclude my testimony, I want to remind the committee of one important
point: The Treasury Department has a law enforcement role, as do a number of other
government agencies. It is critical that the Department be able to communicate with
other agencies, and the White House when necessary. Let me give you some examples:
The White House may need to know that the Secret Service is investigating a crime in
which a visiting dignitary is involved. Or the ATF might have an arms export case
involving high officials of this government, or of a foreign country.
Clearly, there .is a legitimate need to discuss matters, in the proper forums, with
the proper individuals. There must be a mechanism in which public officials can
communicate with one another without fear they're stepping over the line.
We've seen how grey areas can be -- where there's one set of rules at the RTC,
and another at Treasury. And we've seen how there sometimes is no bright white line
that gives public officials the guidance they need.
I intend to work with the Attorney General, our Inspector General, and the Office
of Government Ethics, to see what remedies would offer our employees better guidance.
And it should be clearer for our officials how to handle the issue of confidential
information as it regards press inquiries.
Mr. Chairman, members of the committee, two quick points in closing. First, I've
been in public service for nearly 30 years. I've seen everything from the McCarthy
hearings to Watergate, Iran-Contra, the Church Committee, all of it. What you have
here is a unique confluence of circumstances that, when you strip away all the rhetoric,
resulted in actions that broke no criminal law, did not violate the ethics rules and did not
in any way affect the Madison case. I think that when Congress concludes these
hearings, Congress and Americans who have followed this matter, will conclude the
same. And finally, I am proud that throughout it all the Treasury Department has
continued to operate at 100 percent and done a good job.
-30-
NEWS
omCE OF PUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
REMARKS BY JEFFREY R. SHAFER
ASSISTANT SECRETARY FOR INTERNATIONAL AFFAIRS
BEFORE THE
GASTON SIGUR CENTER FOR EAST ASIAN STUDIES
GEORGE \VASHINGTON UNIVERSITY
AUGUST 2, 1994
I was invited here to discuss the capital needs of East Asia, and to give special
emphasis to the ASEAN countries and their need for financial services liberalization.
Frankly, I can't think of a more appropriate topic for me to focus on this evening
because I have just returned from a visit to five ASEAN countries. The purpose of that trip
was to encourage them to develop a strategy for liberalizing their financial sectors. This is
key to meeting their capital needs. I would like to discuss in more detail my impressions
from the trip and why I believe financial sector opening is critical to sustained growth in the
regIon.
One purpose of this conference is to consider "What next?" now that the Uruguay
Round has been concluded. That's an easy question for me to answer because financial
services negotiations, along with maritime, telecom and aviation, were not concluded last
December: the negotiations have in effect been granted an eighteen month extension. That
means I will be very busy over the next twelve months working to achieve our still unmet
objective of securing market access and national treatment abroad for our financial services
providers.
Participants and onlookers of the Round were surprised that we could not conclude
the entire package of negotiations on time. In retrospect, it is not surprising at all.
Negotiating services multilaterally was uncharted territory, and I think for a lot of people,
the terrain proved a little rockier than expected. By contrast, goods negotiators were on
LB-993
surer ground because they had several rounds of negotiations behind them. As we develop a
bit more experience and expertise on how to deal with the special features of services trade -inseparability of trade and investment issues, and the role of regulations, services
negotiations will become familiar territory as well, and I am confident that we will be able to
reach a fair agreement.
A lot of people continue to doubt that we will be able to negotiate financial services
successfully. Skeptics argue that we can negotiate multilateral agreements for goods because
other countries want to sell goods here, so it's in each country's best interest to come to the
table and work out a deal. However, they assert that countries are not interested in having
banks or other financial service providers here, so we have no leverage. But I think there is
value in a reservation for reciprocity, and that this value grows as countries develop and seek
to become established in the major centers of the global financial marketplace. More
importantly, I see financial market opening as a win-win proposition. In creating
opportunities for American firms in the fastest growing region in the world, we are helping
to ensure that growth can be sustained.
My view that countries will be willing to open up because it is in their self-interest to
do so was borne out during my trip to East Asia. It is well understood by many in the
region that financial services liberalization is vital to sustained rapid, private sector-led
growth. By offering support to the reformers, and evidence that financial sector opening
helps economies grow, I believe we will see countries make the kind of commitments we are
looking for.
It won't happen as fast as it should and some countries will try to stand aside. Vested
interests will seek to freeze the status quo. Economic nationalism will hold others back.
Hence, pressure is needed and the right inducements will be required.
These will have to come from leaders among the emerging markets, as well as from the
United States. But we will be reinforcing trends, not bucking them.
Europe's experience with financial sector liberalization supports this contention.
During the nine years I was with the OECD, I was a close observer of capital market
development in the region. I saw the last phase of a process that began with the
establishment of the OECD in 1961 -- a process that completely dismantled restrictions on
2
capital flows and opened up national financial markets to foreign participation. The United
States consistently goaded European governments to give us fair market access. The OECD
provided a forum for peer pressure. And European countries did open up -- both by
integrating with each other in the European Union, and by opening up to the outside. I am
the first to acknowledge that they didn't open up just because the U.S. pressured them, but
because they knew it was important in order to live up to their growth potential. Still, U.S.
leadership is critical.
I expect that this phenomenon will be repeated in East Asia because financial sector
opening is an essential component of a successful, long term development strategy. When I
was in Asia I made this point privately to the finance ministers and other officials I met with,
and in speeches to foreign and American audiences. I want to give you the same pitch I
gave them.
Let me begin by noting that the development process in East Asia is as worthy of a
chapter in history as any other major revolution. The growth rates of the best performing
countries in East Asia have no equal in history. Per capita income in much of East Asia has
been doubling every 13 years. In the last 30 years, Korea grew as much as the United States
did in all of the last century. Hong Kong, Taiwan, and Singapore have gone from extreme
poverty to OEeD income levels in a very short time. The record shows that, within one
generation, there can be qualitative improvements in living standards that benefit all segments
of the population.
The changes brought by this rapid growth mean that the development process must
evolve or it will run down long before these economies achieve their full potential. That
potential is to match the United States and the European Union and (except for Singapore)
they are far, far short of this. For example, per capita GDP in the ASEAN countries ranges
from $740 for Indonesia to $3400 for Malaysia (the high), compared to $25,000 in the
United States and about $19,000 in the EU.
In most of the countries I visited-- the Philippines, Indonesia, Malaysia and Thailand-growth is being constrained by infrastructure bottlenecks. Clogged traffic, brown-outs and
poor communications systems are inhibiting business, and hence, private sector growth.
The Asian Development Bank has estimated that Asia's financing needs will approach
3
$1 trillion for infrastructure alone through the year 2000. In some East Asian countries, the
World Bank has found that shortfalls in infrastructure investment in the 1980s may have been
equivalent to 2-3 percent of GDP. Countries cannot rely on official sources of capital to
meet these financing needs. Nor will official channels direct resources as efficiently as
competitive markets. In addition, many emerging financial markets in the region are not up
to providing the depth and liquidity of markets and range of financial instruments which are
needed to support a gamut of investments ranging from small enterprise loans to giant
infrastructure projects.
In my view, Asian economies need strong, well-developed financial systems to
channel domestic and foreign savings to the most promising investment opportunities. By
serving as the economy's "nervous system", the financial sector sends signals that help direct
the operation of the real economy.
What, then, can countries do to support capital market development in their
economies? Areas to consider include stock and equity markets, bond markets and pension
funds. Asian stock markets have begun to contribute significantly to capital mobilization,
and bond markets could potentially support some of the large, long-term investment and
infrastructure needs in the region. Private pension funds can marshall domestic savings for
long-term investment in equities and bonds.
Authorities in developing East Asian countries also need to more fully develop the
potential of their banking sectors for intermediating domestic savings. This means improving
the regulatory environment for both banks and capital markets, including the modernization
and enforcement of prudential regulations and the development of better accounting and
disclosure standards.
Foreign banks and securities firms can make an important contribution to the
development of Asia' s financial markets. They can add depth, and they can contribute
expertise on market operation and new instruments. This i) a point I raised many times
during my trip. and encountered little disagreement from Asian officials.
Yet. foreign firms are barred from meaningful participation in a number of financial
sectors and markets in the region. Foreign banks are limited in their ability to enter Asian
domestic financial markets to set up new branches, and often fund their operations through
4
deposit-taking or borrowing abroad. Even if they can overcome obstacles to establishment ,
foreign banks face numerous restrictions which limit their operations, such as prohibitions on
branch offices or automatic teller machines.
In a number of regional securities markets, foreign shareholding is limited to a
minority share in anyone listed company. Securities firms operating in Asia are often
barred from full membership in local stock exchanges, or from acquiring a majority interest
in local stock exchange markets.
These are the types of barriers I am encouraging foreign governments to knock down.
They won't come down overnight, but movement in the region is clearly in the direction of
liberalization. All of the finance officials I spoke to indicated that they are committed to
gradual liberalization, and most could point to evidence of this commitment. The
Philippines, for example, just passed a new banking law and
Thailand has announced that it
will grant a limited number of additional banking licenses.
At the same time, I heard a number of arguments advocating a slow-down. I noticed
that officials are concerned that their comparatively small banking systems would be
overwhelmed by sophisticated foreign banks. I agree that it would not be prudent to
eliminate all controls overnight. A big-bang approach can have short term costs. And a
gradual approach will provide comfort for doubters as the waters are tested. What the
United States is seeking is a commitment to increasing openness at a good pace until
effectively full market access and national treatment prevails.
To conclude, for those concerned that multilateral initiatives will languish a
fter the Uruguay Round, this is one area where a lot of work remains to be done to open
markets. We have national interest in ensuring the success of this effort. The best way for
countries to develop their financial capacities is to open up. This will increase competition,
deepen markets on a regional or global basis, and foster innovation as ways of doing business
in pioneering markets are brought in. Countries that maintain strict controls will discover
that protectionism will not support a competitive and mature financial sector. The force of
these arguments will need backing -- we will not give full access to our markets in a
multilateral agreements if others are unwilling to do so. We count on peer pressure to bring
these countries along, and I am looking forward to going hack to the table to move on to the
next phase of negotiations.
5
DEPARTMENT
OF
THE
TREASURY
NEWS
~~178~9~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .
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OmCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
Statement of Roger Altman
Deputy Secretary of the Treasury
Before the Committee on Banking, Finance
and Urban Affairs of the
U.S. House of Representatives
August 3, 1994
LB-994
Mr. Chainnan and Members of the Committee: My name is Roger Altman. On January 21,
1993, I was unanimously confinned by the Senate as Deputy Secretary of the Treasury and
have served in that capacity since then. That was the second time I was unanimously
confinned to serve in the Treasury. Over the four years of the Carter Administration, I
served as Assistant Secretary for Domestic Finance.
I feel privileged to have served in these capacities. Public service has always been an
important part of my life, as it was for my parents. Over those years, and in those positions,
I may have made some poor decisions or other mistakes, but my integrity has never been
questioned.
Let me address first the very basic issue as to whether any effort was made by Treasury or
White House staff to impede or alter in any way the criminal or civil processes of the RTC
as they relate to Madison Guaranty. I include within that question, the issue of whether any
infonnation was improperly imparted to the White House.
To the best of my knowledge, there was no effort on the part of any White House or
Treasury staff to impede or affect in any way the RTC investigations. Moreover, no
member of the RTC or Treasury staff, to my knowledge improperly imparted any
infonnation about Madison Guaranty to the White House. I did not do it myself, and I am
not aware of anyone else doing so.
Three independent investigations have addressed these questions. First, we have the results
of the legal investigation by the independent counsel, Mr. Fiske. All issues involved in his
investigation were fully and thoroughly investigated. And we are all familiar with his
conclusions.
There is also the report of the Office of Government Ethics which Secretary Bentsen released
on Sunday. This concluded that there had been no unethical activities on the part of any
Treasury personnel. The Office of Government Ethics is an independent body. As with
Mr. Fiske, it had access to all documents and took testimony, under oath, from all those
involved, including your witnesses.
There is also the report of Mr. Cutler, White House Counsel, on the question of any
unethical behavior by White House staff. He concluded there was none.
These investigations have confinned that the Clinton Administration did not interfere in any
aspect of the Madison Guaranty case. There is no evidence, I repeat, no evidence that either
the criminal or civil aspects were compromised, delayed or altered in any way. Simply
none.
1
I believe that the conclusions of these three separate investigations are absolutely correct.
And I ask the Committee to bear in mind the larger context of my involvement in the
handling of the Madison matter by the RTC:
Most importantly, I never made any decisions with respect to the Madison
case;
I was committed, as I told the White House staff and others, to have the RTC
General Counsel, Ellen Kulka, make whatever detennination was necessary
with respect to any civil claims arising from Madison;
My meeting with the White House staff on February 2 was cleared by both
Treasury General Counsel and the designated Treasury Ethics Officer;
I obtained two written ethics opinions stating that my recusal was not required;
and
I recused myself from the Madison matter on February 25th without ever
having made any decision in that case.
The TreasurylRTC Relationship
Let me tum to describing the interaction between the Clinton Administration and the RTC.
First, when Mr. Casey resigned as CEO in March 1993, the Administration had only taken
office five or six weeks beforehand and had not yet chosen its nominee for this position.
Indeed, only two U.S. Treasury officials had even been confirmed -- Secretary Bentsen and
me.
Secretary Bentsen asked me to assume this position until a permanent CEO was nominated
and confirmed. As others will attest, I neither sought nor wanted this assignment, but
accepted it because there was no one else. And, during the discussions about my
appointment, there was no mention by anyone of Madison Guaranty.
In June 1993, we submitted a nomination for permanent chairperson of the RTC.
expectation was that he would be promptly confirmed, and I could leave the agency.
Our
Our nominee was a RepUblican, and an active one. He was well qualified for this position,
and the Administration supported his nomination throughout the Congressional session. But,
the nomination was not taken up by the Senate. After Congress completed its work last Fall,
he withdrew his name from further consideration.
2
Let me make an observation about this situation. The Administration nominated an active
Republican for the top RTC job. That is not consistent with trying to exert undue control
over the agency or one of its investigations.
When I became RTC Chairman, the agency was managed on a day to day basis by its two
Senior Vice Presidents -- Bill Roelle and Lamar Kelly. Almost all members of the RTC
senior staff reported to one or the other. These two men were appointees of Mr. Casey,
who, in tum, had been appointed by President Bush. They were thoroughly professional
and were retained throughout all of 1993. Each then left at his own initiative to rejoin the
FDIC.
Retaining the two Senior Vice Presidents who we inherited is also not consistent with trying
to exert political control over the agency. Moreover, these two individuals had no
motivation to show favoritism on Madison Guaranty, and I do not believe that they did so.
During my tenure at the RTC, I was also serving as Deputy Secretary of the Treasury. In
that role, I was deeply involved in policy initiatives ranging from passage of the President's
Economic Plan to co-chairing the U.S.-Japan framework negotiations. These responsibilities
permitted me limited time for RTC matters.
My RTC involvement typically related to broad public issues, like the long struggle to pass
the RTC Completion Act last year. At no time did I ever ask to be briefed, or was I briefed,
on any investigation or the status or outlook for any case. Not once. My role was to
provide general oversight at twice-weekly RTC Senior Staff meetings. These involved 8 - 10
RTC officials. They were the only RTC employees with whom I ever had personal contact
of any kind.
The Criminal Referral
Last Fall, Bill Roelle or Jean Hanson, or both, advised me, because of impending publicity,
that the RTC was considering referring the Madison matter to the Justice Department for
criminal investigation and that the referral could mention the President and First Lady in
some capacity. I had never asked to be involved in Madison-related matters or any other
RTC investigation. Indeed, until that time, I had known nothing about Madison except
through the press. And, as I said, I believe they advised me because publicity was
imminent.
I was also advised that such referral decisions are typically made at the regional office level.
I responded by saying that this referral decision should be made in exactly the same fashion
as in any other case. If that meant the regional office level, then that's where the decision
would be made.
There were no further conversations with me on this subject. I ultimately learned through
the press that the case indeed had been referred to the Justice Department.
3
I do not believe that I suggested that the White House be informed on any facts relating to
this referral. But, if Ms. Hanson did advise the White House of an impending press leak on
it, I see nothing improper in that.
Mr. Roelle has testified that he advised me of a possible criminal referral as early as March
1993. I respect him but I do not recall it.
There have also been questions on press articles on Madison which I may have faxed to
Mr. Nussbaum. He has said that he has no recollection of receiving them. I don't recall
sending them either. But there would be nothing wrong with sending press articles to
anyone. And, there isn't a shred of evidence that I conveyed sensitive information then or
at any other time.
The February 2 Meeting
During our meeting at the White House on February 2, we conveyed no information on the
facts, merits or outlook for the case or the statute of limitations decision. That would have
been impossible because I had no information on those matters. I never had such
infonnation on Madison, or any other case, and don't have any today.
The only infonnation we provided which related to the case involved a description of the
generic and procedural alternatives which face the RTC on any expiring statute of limitations
situation, and indeed faced it on Madison. All of that information was in the public domain.
It had previously been provided to representatives of the Congress, upon request. And, it
was in the hands of the media. The Washington Times, for example, had already printed
a summary of these procedural alternatives.
During the months of December and January, there were at least seven meetings or
conversations between RTC officials and House and Senate staff, all requested by the latter.
Three of these involved Senator D' Amato's staff. All of these centered around the statute
of limitations issues and the supplying to Congress of documents related to Madison.
Moreover, from December 1993 through February 1994, a series of Congressional inquiries
regarding the pursuit of civil claims arising from the Madison failure came directly to me.
They included a letter on January 11 from forty-one Republican Senators and a letter on
January 25 from Senator D' Amato and a letter from Congressman Leach. These urged, in
Senator D' Amato's words, "take action to voluntarily seek agreements from potential parties
to pre-initiated legal action ... I can see no reason for further delay on your part ... please
provide me with your conclusion immediately."
The Congressional inquiries directed to me, of course, required a response. Prior to
receiving them, I was not familiar with the statute of limitations issues. I am not a lawyer
and, for example, had never previously heard of a tolling agreement.
4
To assist in preparing responses to Congressional inquiries, Ellen Kulka, RTC General
Counsel, briefed me on these issues. I learned that the RTC had to make a decision by
February 28. The alternatives were: (1) seeking a tolling agreement with the parties against
whom a claim might be brought; or (2) failing that, filing a claim in court; or (3) concluding
that no basis existed for pursuing a claim. This information, together with the facts relating
to the criminal referral, was the sum total of information relating to Madison which was
known to me.
My responses to Members of Congress were very direct. We pledged an impartial process,
a thorough review and "if such (civil) claims do exist, the RTC will vigorously pursue all
appropriate remedies using standard procedures in such cases, which could include seeking
agreements to toll the statute of limitations ...
With the volume of Congressional and press inquiries rising, it seemed to me that, first, the
White House should have the same information which was being provided to Congressional
Staff and the press; and second, it was appropriate to advise the White House of events
which could affect its function. Those were my only motivations.
On February 2, Jean Hanson and I went to the White House. She attended because, as
Treasury's senior lawyer, she had been helping me on various RTC legal matters, and the
subject matter was inherently legal. She saw nothing wrong with providing this information
to the White House. I later learned that she also had the good judgment to check the ethical
issues with Dennis Foreman, Treasury's chief ethics officer, who also saw nothing improper.
Mr. Foreman is a career appointee who preceded the Clinton Administration.
In other words, Treasury's General Counsel and its senior ethics officer both approved this
meeting.
The meeting lasted no more than twenty minutes. Initially, Ms. Hanson and I described the
generic procedures which the RTC used in this or any other case facing an expiring statute
of limitations. We recited the three alternatives, following talking points which she had
prepared. This Committee has a copy of those.
This was the total information provided which related to the case. We provided no
information on the status or outlook for the case. That would have been impossible because
we possessed none.
The Office of Government Ethics, which took testimony under oath from all participants,
said in its report that "nothing . . . suggests that (this) part of the meeting involved a
disclosure of nonpublic information."
5
The Question of Recusal
Toward the end of the February 2 meeting, I also raised the question of recusal. Let me
now address that. The issue of recusal is a false one. Whether I recused myself or not
would have had no impact on the case. None at all.
The facts are that I began thinking about recusal around February I, and on February 25,
I did recuse myself. No matter came to me for decision on any case, including Madison.
Moreover, prior to recusing myself, I was de facto recused. Decisions on cases never came
to me at any time during my RTC tenure. And, I had specifically reaffirmed to the RTC
General Counsel, before the February 2 meeting, that she would be making all decisions
related to Madison, not me. Indeed, I had told her that more than once and with others
present.
On February 2 when I informed the White House that I was thinking about recusal, I told
them that it was irrelevant because the RTC General Counsel would be making all decisions
on Madison, not me. The Office of Govemment Ethics report confirms my de facto recusal.
It states that "recusal is just another word for nonparticipation." I had already chosen
non-participation.
Nine days after the February 2 meeting, Congress passed a two-year extension of the statute
of limitations on Madison Guaranty. That made recusal entirely moot. My term as RTC
Chairman was to expire (and did expire) on March 30. With such additional time, it was
almost certain that the RTC would not be making any Madison decisions by my March 30
termination date.
In retrospect, I perhaps should have recused myself right off the bat.
controversy would have been avoided.
Some of this
But, before February 2, I had been advised that there was no legal or ethical requirement to
recuse myself. I later received two written opinions from ethics officers to that effect.
Moreover, it isn't clear whether recusing oneself in the absence of such requirements is
entirely appropriate either. The Office of Government Ethics Report questions whether I
made the right decision to recuse or, instead, had a duty to serve.
I don't think that taking three weeks to make such a complex decision is all that surprising.
But, again, the important point is that I recused myself without ever having participated in
any decisions on Madison.
Following the meeting on February 2, there were several incidental contacts, all of which
involved only the issue of my recusal or the conclusion of my term at the RTC. These
included a brief telephone call to Mr. McLarty a few days after the February 2 meeting to
6
the effect that I was still considering the issue of recusal. Around the same time, I had a
brief discussion with Harold Ickes to tell him essentially the same thing. Those brief
conversations on recusal could not, under any circumstances, have had a bearing on the
case. I already had removed myself from any possible role on the case.
Finally, I also had a brief discussion with Mr. Ickes the night before my Senate testimony.
I told him that I intended to announce during my testimony that I was stepping down as CEO
of the RTC, as I did announce the next day. Around the same time, I literally ran into
Mr. Nussbaum in a corridor of the White House. He told me the Administration would soon
be submitting its nominee for permanent RTC head. Again, however, neither of these
contacts had anything to do with the Madison investigation.
Conclusion
In closing, I would like to reiterate the key facts. Three separate investigations have
concluded that no legal or ethical violations occurred. And, no one interfered in any way
with the Madison Case nor improperly imparted information on it.
I hope that these points, and the answers I'll now provide to your questions, will satisfy this
Committee that my conduct was proper. Thank you.
7
DEPARTMENT
OF
THE
'IREASURY
TREASURY
NEWS
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C.. 20220. (202) 622-2960
STATEMENT OF JOSHUA L. STEINER
CHIEF OF STAFF
U.S. DEPARTMENT OF THE TREASURY
BEFORE THE COMMITTEE OU BANKING,
FINANCE AND URBAN AFFAIRS
U.S. HOUSE OF REPRESENTATIVES
AUGUST 3, 1994
LB-995
August 3, 1994
Mr. Chairman, Congressman Leach, Members of this Committee:
My name is Joshua steiner and I serve as the Chief of Staff
at the Department of the Treasury. Before joining the Treasury
Department, I was Executive Assistant to Timothy Healy, the
President of the New York Public Library.
I am here today to answer your questions and help clarify any
outstanding issues concerning contacts between the Treasury
Department and the White House on the Resolution Trust
Corporation's investigation of Madison Guaranty. I have
cooperated fully with all investigations into this matter,
including those conducted by Mr. Fiske, the Office of Government
Ethics and Congressional committees.
Several members of this Committee have commented on my
personal diary and, if I might, I would like to make one brief
point about it.
I started keeping this diary nearly six years ago. I would
write in it fairly infrequently -- sometimes every two weeks,
other times six weeks would go by before I made an entry.
Indeed, some of the entries of interest to this Committee
describe events that occurred nearly a month before I wrote about
them.
I made no effort to check the accuracy of my diary because
this was never intended to be a precise narrative or a verbatim
account of what took place. At times, it included impressions of
meetings that I did not even attend. It was, more than anything,
a way to reflect on events and draw lessons from my personal and
professional experiences.
Today, you will ask me questions under oath and I hope my
answers will clarify the entries I made in my diary. Since the
time I first made these entries, I have had a chance to reflect
about precisely what I know.
wish that my diary was more accurate, but I take my
responsibility to this Committee very seriously and I feel
obligated to present the facts as truthfully as I possibly can.
I
Thank you.
DEPARTMENT
OF
THE
TREASURY
NEWS
~J78fg~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .
..................
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR RELEASE WHEN AUTHORIZED AT PRESS CONFERENCE
August 3, 1994
CONTACT: Office of Financing
202/219-3350
TREASURY AUGUST QUARTERLY FINANCING
The Treasury will auction $17,000 million of 3-year notes,
$12,000 million of 10-year notes, and $11,000 million of 30-1/4year bonds to refund $29,600 million of publicly-held securities
maturing August 15, 1994, and to raise about $10,400 million new
cash. The Treasury will also auction $7,000 million of 38-day
cash management bills. Details about the cash management bill
are given in a separate announcement.
In addition to the public holdings, Federal Reserve Banks
hold $3,213 million of the maturing securities for their own
accounts, which may be refunded by issuing additional amounts of
the new securities.
The maturing securities held by the public include $2,683
million held by Federal Reserve Banks as agents for foreign
and international monetary authorities. Amounts bid for these
accounts by Federal Reserve Banks will be added to the offering.
The 10-year note and 30-1/4-year bond being offered today
are eligible for the STRIPS program.
Tenders will be received at Federal Reserve Banks and
Branches and at the Bureau of the Public Debt, Washington, D. C.
This offering of Treasury securities is governed by the terms and
conditions set forth in the Uniform Offering Circular (31 CFR
Part 356) for the sale and issue by the Treasury to the public
of marketable Treasury bills, notes, and bonds.
Details about the notes and bond are given in the attached
offering highlights.
000
Attachment
LB-996
HIGHLIGHTS OF TREASURY OFFERINGS TO THE PUBLIC
AUGUST 1994 QUARTERLY FINANCING
August 3, 1994
Offering
AInomt
Description of Offering:
Term and type of security
Series
CUSIP nlJlber
Auction date
Issue date
Dated date
Maturity date
Interest rate
Yield
Interest payment dates
Minimum bid amount
Mul tiples
Accrued interest payable
by investor
Premium or discount
STRIPS Information:
Minimum amount required
Corpus CUSIP number
Due dates and CUSIP numbers
for additional TINTs
$17, 000 mill i on
$12,000 million
$11,000 million
3-year notes
X-1997
912827 Q7
August 9, 1994
August 15, 1994
August 15, 1994
August 15, 1997
Determined based on the average
of accepted competitive bids
Determined at auction
February 15 and August 15
10-year notes
C-2004
912827 Q8 8
August 10, 1994
August 15, 1994
August 15, 1994
August 15, 2004
Determined based on the average
of accepted competitive bids
Determined at auction
February 15 and August 15
$5,000
$1,000
None
$1,000
$1,000
None
Determined at auction
Determined at auction
30-1/4-year bonds
Bonds of November 2024
912810 ES 3
August 11, 1994
August 15, 1994
May 15, 1994
November 15, 2024
Determined based on the average
of accepted competitive bids
Determined at auction
November 15 and May 15 (first
payment on November 15, 1994)
$1,000
$1,000
Determined at auction (from
May 15 to August 15, 1994)
Determined at auction
Not applicable
Not applicable
Not applicable
D~termined
°
at auction
912820 BK 2
Not applicable
Determined at auction
912803 BO 4
May 15, 2023 --- 912833
November 15, 2023--912833
May 15, 2024 --- 912833
November 15, 2024--912833
The following rules apply to all securities Jnefltioned above:
Slbaission of Bids:
Noncompetitive bids • • • • •
Accepted in full up to $5,000,000 at the average yield of accepted competitive bids.
Competitive bids
• • • • • • • • (1) Must be expressed as a yield with two decimals, e.g., 7.10%.
(2) Net long position for each bidder must be reported when the sum of the total bid amount,
at all yields, and the net long position is $2 billion or greater.
(3) Net long position must be determined as of one half-hour prior to the closing time
for receipt of competitive tenders.
Maxi .... Recognized Bid
35% of public offering
at a Single Yield
35% of public offering
"axi~ Award • • • • . •
Receipt of Tenders:
Prior to 12:00 noon Eastern Daylight Saving time on auction day
Noncompetitive tenders
Prior to 1:00 p.m. Eastern Daylight Saving time on auction day
Competitive tenders.
Full payment with tender or by charge to a funds account at a Federal Reserve Bank on issue date
Payment Te~ . . • • . •
IN
lP
lR
IT
8
3
9
5
DEPARTMENT
OF
THE
TREASURY
OFFlCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
TALKING POINTS OF DARCY BRADBURY
DEPUTY ASSISTANT SECERTARY FOR FEDERAL FINANCE
AT THE
FINANCING PRESS CONFERENCE
AUGUST 3, 1994
TALKING POINTS
FOR THE
FINANCING PRESS CONFERENCE
August 3, 1994
Today, we are announcing the terms of the regular Treasury
August midquarter refunding.
I will also discuss Treasury
financing requirements for the balance of the current calendar
quarter and our estimated cash needs for the October-December
1994 quarter.
1.
We are offering $40.0 billion of notes and bonds to
refund $29.6 billion of privately held notes and bonds maturing
on August 15 and to raise approximately $10.4 billion of cash.
The three securities are:
First, a 3-year note in the amount of $17.0 billion,
maturing on August 15, 1997.
This note is scheduled to
be auctioned on a yield basis at 1:00 p.m. Eastern time
on Tuesday, August 9, 1994.
The minimum purchase
amount will be $5,000 and purchases above $5,000 may be
made in multiples of $1,000.
Second, a 10-year note in the amount of $12.0 billion,
maturing on August 15, 2004.
This note is scheduled to
be auctioned on a yield basis at 1:00 p.m. Eastern time
on Wednesday, August 10.
will be $1,000.
The minimum purchase amount
2
Third, a 30 1/4-year bond in the amount of $11.0
billion, maturing on November 15, 2024.
This bond is
scheduled to be auctioned on a yield basis at 1:00 p.m.
Eastern time on Thursday, August 11.
The minimum
purchase amount will be $1,000.
2.
We are also announcing a $7 billion 38-day cash
management bill, which will be issued on August 15 and mature on
September 22, 1994.
This bill is scheduled to be auctioned on a
discount rate basis at 11:30 a.m. Eastern time on Thursday,
August 11.
Noncompetitive tenders will be accepted up to $1
million and, in order to be timely, must be submitted by 11:00
a.m. Eastern time.
The minimum purchase amount will be $10,000
and purchases above $10,000 may be in multiples of $1,000.
3.
As announced on Monday, August I, 1994, we estimate a
net market borrowing need of $45 billion for the July-September
1994 quarter.
The estimate assumes a $40 billion cash balance at
the end of September.
Including the notes and the bond in this
refunding, we have raised $19.6 billion of cash from the sale of
marketable securities.
This was accomplished as follows:
raised $3.2 billion from the 2-year note that settled
August 1;
raised $11.5 billion from the 5-year note that settled
August 1;
3
raised $1.7 billion from the 52-week bills;
raised no new cash in the regular weekly bills,
including those announced yesterday, August 2;
paid down $7.2 billion in the 7-year note that
matured July 15; and
raised $10.4 billion of cash from the securities
announced for the refunding today.
4.
The Treasury will need to raise $25.5 billion in market
borrowing during the rest of the July-September quarter.
We have
taken into account the fact that the $7 billion cash management
bill to be issued on August 15 and the $6 billion cash management
bill that was issued on July 15 will mature on September 22,
before the end of the quarter.
The financing remaining to be
done before the end of September can be accomplished through
regular sales of 13-,
26-, and 52-week bills and 2-year and 5-
year notes, although a cash management bill may be necessary to
cover the cash low-point in mid-September.
5.
We estimate Treasury
n~t
market borrowing needs to be
in the range of $45 to $50 billion for the October-December 1994
quarter, assuming a $30 billion cash balance on December 31.
6.
We are also announcing that we intend to establish 3-
decimal competitive yield bidding for auctions of Treasury notes
and bonds, possibly beginning in the spring of 1995.
We believe
4
that 3-decimal bidding will tend to encourage participation in
Treasury auctions and will conform Treasury auctions to current
market practice for when-issued trading of Treasury securities.
7.
We are also announcing that the Treasury will continue
to auction regular monthly offerings of 2- and 5-year notes using
the single-price method.
Treasury's use of the single-price auction method began with
the 2- and 5-year note auctions in September 1992.
The stated
purpose of the experiment was to determine whether the uniformprice auction technique broadens participation and reduces
concentration of securities on original issue, and whether it
reduces the Treasury's financing costs, by encouraging more
aggressive bidding by participants.
The results of the single-price auction technique to date
have been neutral to slightly positive.
Certain information
concerning the results of the auction technique are included in
the package summarizing the Borrowing Advisory Committee meeting,
which you can pick up as you leave.
until recently, market conditions had been very stable with
a prolonged period when interest rates were declining to flat.
We want to continue to examine evidence on the single-price
technique over more varied interest rate environments.
We expect
5
to release more information in the future for review by market
participants and other interested parties.
8.
We will accept noncompetitive tenders up to $5 million
for each of the notes and the bonds.
The 10-year note and 30-
year bond being announced today are eligible for conversion to
STRIPS (separate Trading of Registered Interest and Principal of
securities) and, accordingly, may be divided into separate
interest and principal components.
9.
The November midquarter refunding press conference will
be held Wednesday, November 2, 1994.
TREASURY FINANCING REQUIREMENTS
April - June 1994
'1
$8 I '~
100
1
Uses
$ .
I100
BII.
Sources
98 / 4
75
75
Coupon Maturities.
50
251
•
Coupon Refunding
50
Increase
in Cash
Balance
+
Deficit 1/
+1/4
+2'/4
+2
1
F
'
/2
orelgn
Nonmarketables
I
01
1/
Departmenl ollhe Treasury
Office 01 Markel Finance
Savings
Bonds
State and
Local
Net
Market
Borrowing
125
+
10
Includes budget deficit, changes in accrued interest and checks
outstanding and minor miscellaneous debt transactions.
August 1. 1994 22
TREASURY FINANCING REQUIREMENTS
July -September 1994
SBil.,
, $Bil.
I
1491;4
Uses
Sources
140~
140
120
120
Coupon Maturities •
•
Coupon Refunding
100~
80
60
40
-1100
State and Local
--·80
Savings Bonds
+
51;4
--..
~
21;4
11;4
Foreign Nonmarketables
Net Market. 45
Borrowing
60
Decrease in ~ 40
Cash
Balance~/
20
20
o
o
1; Includes budget deficit. changes in accrued interest and checks
outstanding and minor miscellaneous debt transactions.
V Issued or announced through July 29. 1994.
Oepertment 01 the Treasury
0fI\ce 01 Uatket FInance
~
Assumes a $40 billion cash balance September 30. 1994.
August 1. 1994·23
TREASURY OPERATING CASH BALANCE
$Bil.
Semi- Monthly
I
Without
Total Operating
Balance
60
•
50
Tax and loan
40
30
20
,,
I,~
,,
,
10
01
•
Federal Reserve Account
-10
I
I
I
I
.. -,
•
-20
I
I
•
,
-30
-40
I
,I
~I
"
__________~_____~_____~_______~_ _~_ _ _ _L -__- L____L -__~__~____J -_ _~_ _ _ _~--~----~
Jul
Aug
Sep Oct
1993
Nov
Dec
Jan
Feb
Mar
Apr
May
1994
Jun
Jul
Aug
Sep
JIAssumes refunding of maturing Issues
Department of the Treasury
OIlice of Marl<et F,nance
Augus' 1 1994 5
TREASURY NET MARKET BORROWING .11
$BiI.
rl
100
80
60
-;===-:----------------------=-~~=-------,
Coupons
I$Bil.
103.5
E2J Over 10 yrs.
100
D 5 -10 yrs.2I
~ 2 - under 5 yrs ~
Bills
[ZLJ 84.1
80
•
60
45
40
40
20
20
o
o
-20
-20
-40 I
I
II
III
1990
DepartJr.ent 01 the Treasury
OffICe of Mar1let FInance
IV
.11
21
SJI
11
-1..40
I
II
III
1991
IV
II
III
1992
IV
II
III
1993
IV
II
III Y .
1994
Excludes Federal Reserve and Government Account Transactions.
7 year note disconllnued after April 1993
4 year note discontinued after December 1990.
Issued or announced through July 29, 1994.
Augusl 1.1994·4
NET STRIPS AS A PERCENT OF PRIVATELY HELD
STRIPPABLE SECURITIES
$Bil.
220
l= Held in STRIPS Form
200
%
I
Percent
(Left Scale)
(Right Scale)
_
_
30 Year
20 Year
a:::zzz:zD 20 Year
~10Year
-10Year
-
30 Year
70
180
60
160
50
140
120
40
100
~-
.. 30
80
60
-420
40
10
20
o
I
km Wll WJ w:a W1
I
A
~
,...
Wj
N 0
WJ
J
r /J
fl??d Pc/d [;:</]
!
j
f
1 I
j [
1 I
J t; J
F M A M J J A SON
1993
\,
0
j
!
a\i
J
j
k
t
1
ViJ
t .
j
\1
k
d
,
0
F M A M J J*
1994
"Through July 22, 1994
By period to maturity on original issue.
Departmen1 of the Treasury
0fIIce 01 Uar1l., Finance
August 1, t 994-18
SECURITIES HELD IN STRIPS FORM
Percent of Privately Held, 1992-1994
%,
1%
Strippable
50·-
Stripped
•
As of July 31, 1992: $589.5 billion, $146.8 billion
o
As of July 31,1993 $666.1 billion, $197.3 billion
III As of July 22,
-- 50
1994: $730.6 billion, $223.4 billion
40
~~40
30
&Il888888I I
20
~20
10
~~10
o
M:mW
Less than 5 years
5-10 years
10-15 years
15-20 years
20-25 years
30
10
25-30 years
Years Remaining to Maturity
Note: The STRIPS program was announced January 15, 1985.
Department 01 the Treasury
Oillee 01 Market Fmanee
August 1. 1994· t3
NET NEW CASH FROM NONCOMPETITIVE TENDERS IN
WEEKLY BILL AUCTIONS !I
Discount Rate %
$Mil,.,.....-------~~~~==..::....=...:=--:....------Net New Cash (left scale)
o
500
----..
26 week
. 1 3 week
,.,,:
26 week
.
I
I
13 week
400
300
200
I
•••
•
....... .....,...........-_....................
-.
..
....
.
.
......
......
"
I '_:
.....
I
I
,
..
5.0
.,
4.5
••••••
I
•••
4.0
.'
,,'
••."
--
I
...
•••
Discount Rate (right scale)
3.5
,
,
:' i ,
, I, ' I '1'1',
I
'I'
II,1 I II!, ! III
~
Iii !; ~ 3.0
I I
I
"
100
0 1•
2.5
R
• ' •• • •
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•
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II
•
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••••••••
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-100
-200
Jul
Aug
Sep
Oct
Nov
Dec
Jan
1993
Feb
Mar
Apr
May
Jun
Jul
P
1994
.1.1 Excludes noncompetitive tenders from foreign oHlcial accounts and the Federal Reserve account.
Department 01 \he Treasury
0tfI0e 01 Market Finance
P Preliminary
Augusl 1, 1994-14
NONCOMPETITIVE ·TENDERS IN TREASURY NOTES AND BONDSY
$Bil.l
2.5
I $Bil.
_7Year
~ 2&5Year
_
'3,10 & 30 Year
r--
2.5
-
~
0
~
~.
2.0 r-I
1.5 r- ~
~
~
1.0
t--
10
I
::::
I
10
10
10
f8
,
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o
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10
10
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J
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~
~
10
~
~
~ ~
~
~
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r
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1992
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,
A SON D J
1993
-.!/Excludes foreign add·ons from noncompetitive tenders.
F
M A M J
1994
J p 0
p Preliminary
Treasury increased the maximum noncompetitive award to any noncompetilive bidder to $5 million eHecllve November 5. 1991
EHectl1l8 February 11. 1992 a noncompetitive bidder may not hold a pOSlllon
nor submit both competitive and noncompetitive bids lor Its own account
Department
In
WI trading. lutures, or lorward contracts,
0' the Treasury
0IfIce of Mat1<et Finance
August 1. 1994· 7
TREASURY NET BORROWING FROM NONMARKETABLE ISSUES
$BiI. i
10
8
I$Bil.
D
ELl
Savings Bonds
•
State and Local Series
•
Foreign Series
6
10
Domestic Series
7.8
8
6
4.6
4
4
2
2
o
0
-2
-2
-4
-4
-6
"I
-4.2
-6
i
-8
-8~'-------------------L--------------~--------------~--------------~----------~
III e
II
III IV
II
II
III
IV
II
III IV
II
III IV
1990
1991
1992
e
1993
1994
estimate
Department 01 the Treasury
OffIce 01 Marltet Finance
Augusl I. 1994·20
SALES OF UNITED STATES SAVINGS BONDS
1980 - 1994
$Bil. I
6
5
~ Total Sales
4
3
2
•
Payroll Sales
1
O'~"--~~"~~~~~~~~~~~~~~~~~~~~~~~~~--~
1980 1981
19R2 1983 1984 1985 1986 1987 1988 1989 1990 1991
1992 1993 94
e
End of Quarter
Department ot the Treasury
Office ot Mar1<et Finance
e estimate
August 1. 1994-8
STATE & LOCAL GOVERNMENT SERIES
$Bil./
-
I $Bil.
Gross Issues
. Redemptions
10
_,
,
5
-·10
/ _ __ J/'
.....
5
01
$8;1.1
10
I$8il.
-
NetSLGs
5
5
oI
-
5
E
'.....
.
II
I
III
1990
Department of the Treasury
OHlce of Market FInance
f ' - ' '..- .
~
...-...-
IV
~ 9[
I
I
I\:'"
~,..O
Jr
I
II
III
1991
IV
II
III
1992
IV
II
III
1993
IV
I
5
1\-
1994
August 1 1994·6
STATE AND LOCAL MATURITIES 1994 - 1996
$Bil..
I $Bil.
13.2
12
12
10
10
8
8
6
6
4
4
2
2
o'
III
1994
IV
L - . - _.....'
II
III
1995
IV
II
III
0
IV
1996
Department 01 !he T re8Su 'Y
OffIce 01 Market Finance
August 1, 1994·19
QUARTERLY CHANGES IN FOREIGN AND INTERNATIONAL
$Bil. I
HOLDINGS OF PUBLIC DEBT SECURITIES
I$Bil.
Nonmarketable
n
35
t::.:J
35
31.4
Marketable
30
~ Net Auction Awards to Foreign
25
•
30
11
25
Other Transactions
20
20
15
-. 15
10
10
5
5
o
o
-5
-5
-10
-10
-7.9
-15'
-
-6.3
II
III
1990
IV
II
III
1991
IV
II
III
1992
IV
II
III
1993
IV
1-15
I
II Y
1994
.1/ Auction awards to foreign offIcial purchasers netted against holdings of maturing securilies.
Y Data through May 31, 1994.
Oopartmen\ 01 Ihe Treasury
Oil leD 01 Markel F,nance
Augusl I. 1994·21
NET AWARDS TO FOREIGN OFFICIAL ACCOUNTS !I
$BiI.i--':=':"-=-~':-=-=-=-~~=-------------8J81
I$Bil.
8.8
Notes
~ 5 years and over
E:;:;:;:;::I 2-4 years Y
Bills
8
~
8
-
6
6
4
4
2
2
01
0
II1II
-2
-2
-4
-4
-6
-6
-8
-4.2
i
II
III IV
1990
II
III IV
1991
II
III IV
1992
II
III IV
1993
1111994
II
-8
Quarterly Totals
Depar1menl of the Tr.....ry
~
of MarUI FInance
y
Noncompetitive awards to foreign official accounts held in custody at the Federal Reserve In
excess of foreign custody account holdings of maturing securities.
V
4 year notes not issued after December 31, 1990 .
.v
Through July 29, 1994.
Augusl1.1994·28
SHORT TERM INTEREST RATES
Quarterly Averages
%.
1%
Prime Rate
•
12
-,
10~~
~
8J-
r
L
.
12
~
Through
~ .... ___ .I
10
July 27
"
'-..
!
-48
=-~
6
6
Commercial
Paper
3 Month
Treasury Bill
4
21
1984
1985
Department oIlhe Treasury
Office 01 Matl<el Finance
1986
1987
1988
4
~.
1989
1990
1991
1992
1993
1994
•2
August I, 1994-24
SHORT TERM INTEREST RATES
Weekly Averages
%,
1%
7
7
Prime Rate
61
•
Through
6
July 27
...
Commercial
Paper
5
4
.........•........, ." ....
3J~
2'
I II
Oct
...-
~.~.
~Z;23;;C::t:;;:;wm£Ji"<sn
Dec
Jan
-~
£
_.' •
;t
t·t, &A"', Y
4
;;~
3
Federal Funds
II
Nov
1993
....---.-,...
._
·'5
-_
..
' ...
,, ,•.........-,,
II
Feb
II
Mar
Apr
1994
II
May
'2
1I
Jun
Jul
Department 01 the Treasury
0IIIce 01 Ua"'et Finance
August 1. 1994·25
LONG TERM MARKET RATES
Quarterly Averages
0/0
%
~-
14
14
- . 13
13
-..~ 12
12
New Aa Corporates
•
11
10
I
Through
July 27 _ J
11
10
9
9
8
8
•
7
Treasury
30-Year
Municipal Bonds
6
51
III
1984
III
til
1985
D9partment 01 the Treasury
OffICe 01 Market F .nanc8
7
1986
I,
1987
I '
1988
lit
III
t
1989
1990
6
1991
\i l l s
III
1'1
1992
1993
1994
August 1 199426
INTERMEDIATE TERM INTEREST RATES
Weekly Averages·
%11----~------------------------------------~
.
8
~
FHLMC 30-Year Conventional
,.
7~-'
-
__
tI
....
-" '
.. ---~
,,,,_,
"
,
...
~
'
It-'
,
~ " -,"
~~
\
%
," '"
."
8
7
AA lO-Year Industrial
•
6
t
Through I
July 27
5
6
5
Treasury 5-Year
4
"
Oct
!
Nov
1993
Dec
Jan
Feb
Mar
• Salomon 10-yr. AA Industrial
IS
!!
[
Apr
1994
[ [
May
Jun
Jul
4
a Thursday rate
Department 01 the Treasury
OffICe 01 Mar~8t Fonance
'\tJglJsI I
1994? 7
MARKET YIELDS ON GOVERNMENTS
0/0 I
-, %
l
!!
I
7'-
I
!
I
I
August 1, 1994
~
6
6'%1
5
1%
•
~_~J_7.50
J,.s
. May 2,1994
5
725
7.00
IL-__L-__~__~__~__~__~__- L__~__- L__~I
12
14
16
18
20
22
24
26
28
30
4'
4
1
2
3
4
5
6
7
8
9
10
Years to Maturity
Oepar1menl 01 Ihe Treasury
Olhce 01 Markel Fmance
A"",,'I 2. 19~4 29
PRIVATE HOLDINGS OF TREASURY MARKETABLE DEBT
BY MATURITY
$Bil,,'------------=-:......==-=-~~~~-_:_-------~==-=-=-=---""
2600
June 30, 1994
CJ
~
,,~..,~ ..,
Over 10 years
2400
II) 2-10 years
2200
E21
2000 I-
1-2 years
963.2
1800
1600
1400
~
1 year & under
•
Bills
..........................<}< .............. .
1200
/
1000
800
600
419.0
~+
352.1
--t-
400
200
o
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
As of December 31
Department 01 the Treasury
Qillee Of Markel Finance
Augusl I, 1994 1
PRIVATE HOLDINGS OF TREASURY MARKETABLE DEBT
Percent Distribution By Maturity
9oupons
DOver 10 years
IiJ 2-10 years
~ 1-2 years
~ 1 year & under
•
Bills
100%
80
60
40
20
o
1983
Department 0' the Treasury
OH,ce 01 Markel Finance
1984
1985
1986
1987
1988 1989 1990
As of December 31
1991
1992
1993 Jun'94
AuguSI I, 19Y4 2
AVERAGE LENGTH OF THE MARKETABLE DEBT
Privately Held
y e a r s - - - - - -_ _ _ _ _~_ _ _ _- - - - - _ _ ,
Months ________------------------------------,
June 1947
10 Years
5 Months
'II'
10
June 30, 1994
5 Years, 7 Months
70·- --
!
9
8
66
64LI__L--L__~~__~~___ L_ _L _ _ L_ _L_~~
7
J
F
MA
J
M
J
AS
0
NO
6
5
December 1975
2 Years
5 Months
4
~
3
21
1 I
I
I
I
I
I
I
I
I
I
I
I
1 I
I
I
I
I
I
1 I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
!
I
I
1945 47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93
Deparlment of the Treasury
OIIiee of Mar1<et Finance
Augus! 1 199.1·3
MATURI"NG COUPON ISSUES
August - December 1994
(in millions of dollars)
June 30, 1994
Held by
Maturing Coupons
125/8%
85/8%
67/8%
83/4%
41/4%
81/2%
%
4
91/2%
41/4%
11 5/8%
81/4%
6
%
10 1/8%
45/8%
75/8%
45/8%
Note
Note
Note
Bond
Note
Note
Note
Note
Note
Note
Note
Note
Bond
Note
Note
Note
Totals
Y
8/15/94
8/15/94
8/15/94
8/15/94
8/31/94
9/30/94
9/30/94
10/15/94
10/31/94
11/15/94
11/15/94
11/15/94
11/15/94
11/30/94
12/31/94
12/31/94
Total
Federal Reserve
& Government
Accounts
Private
Investors
Foreign-Y
Investors
6,300
7,842
17,165
1,506
16,605
8,914
16,755
7,074
16,293
6,659
8,272
16,808
1,502
15,911
9,681
17,136
949
112
2,080
72
876
602
1,602
979
863
1,255
66
2,992
90
530
1,205
1,225
5,351
7,730
15,085
1,435
15,728
8,312
15,153
6,095
15,430
5,404
8,206
13,816
1,412
15,381
8,476
15,911
125
580
2,217
40
1,023
689
877
877
1,422
594
842
1,959
369
1,378
1,302
1,135
174,423
15,498
158,925
15,429
F.R.B custody accounts for foreign offiCial Institutions. Included In Private Investors
Oepanmenl 01 the Treasury
Office 01 Market Finance
Augusl 1 1994·9
TREASURY MARKETABLE MATURITIES
Privately held, Excluding Bills
$8IIr------r-----------""T'""""-----.,...... $8.1....-------.------:--:--=-----.------n
~
30
30.5
1995
322
E
32.9
30.0
14
11 9
118
1 2 · ·
'i
22
20
11 6
84
1998113
11
12.5
11.7
106
8.8
12.2
9.3
1·1
11 2
95·
16.3
16.
16.6
'69
169
17.9
'"
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2
0
o
14
:
35.3
~
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27 7
U
~~
4r
28.1
27 6
.
25.7
26
24
22
20
-
12 1&4
31.6
30
.
110
I
115
1,;1999115
2000
10.2
~
100
f:'.
l
_
'.3
-
70
30
28
7.1
86
9.7
_ . 76 -
97
9.4
:8_
•
-
,:
12 1
I -
o
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182
20
18
16
14
10.8
8
12
10
11.7
10.6
7.6
7.3
1
8.9
11 1 11.3
9.2
8.3
11
F
M
Department 01 the Tl888Ury
Oft\ce 01 Marital FInence
A
M
J
J
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2002
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16 .
14 -
10
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247
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133
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109
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I11III
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iIIIll
U
A
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SON
o
Issued or announced through July 29, 1994
August " 1994-10
TREASURY MARKETABLE MATURITIES
Privately held, Excluding Bills
rt----r----;;-~ft~
........
:----__r__--~!1$811'-------:---i-~20~1~1---r---;-;I-~
I
69
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61
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46
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49
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Office 01 Maf1(et Finance
_
Securilies Issued prior to 1992
i!Il!II
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F
M
A
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s o
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o
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illtilllliil
Issued or announced through July 29, 1994
AuguSI 1 1994 11
TREASURY MARKETABLE MATURITIES
Privately held, Excluding Bills
$"~"!="f---I"---~;;:-:-~-;-i-2-78-----rI---~il$B~Ir-------:---3-6-2=::0;;-:;1~1---~-14:;-;1-----...,..,
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13
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179
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AuguSI 1 1994 I 1
TREASURY MARKETABLE MATURITIES
Privately held, Excluding Bills
! 2°1
:l[
o
20 I-8 I--
2019
188
I Ir~
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14
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221
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28
26
24
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24122120 I-
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141t2
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119
116
109
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Issued or announced through July 29. 1994
August t. 1994-12
SCHEDULE OF ISSUES TO BE ANNOUNCED AND AUCTIONED
IN AUGUST 1994 y
Monday
Tuesday
1
2
8
9
22
16
23
30
11
Auction
10 year~
5
12
Announce
52 week
Auction
30 year~
18
Announce
2 year
5 year
19
Auction
52 week Y
24
Auction
2 year.1l
29
4
10
17
Friday
Thursday
3
Auction
3 year~
15
Wednesday
25
26
Auction
5 yearY
31
J/ Does not include weekly bills
?I For settlement August 15
Depanmenl of Ihe Treasury
Office of Markel Finance
.;;y For settlement August
.41 For settlement August
25
31
AuguSI2 1994-15
SCHEDULE OF ISSUES TO BE ANNOUNCED AND AUCTIONED
IN SEPTEMBER 1994 j/
Monday
5
Tuesday
Wednesday
Friday
Thursday
1
2
6
7
8
9
13
14
15
16
Announce
52 week
Holiday
12
Auction
52 week9'
19
20
26
27
21
Announce
2 year
5 year
28
Auction
2 yearY
22
23
29
30
Auction
5 year JI
Y Does not Include weekly bills
9' For settlement September 22
]I For settlement September 30
Depanment 01 the Treasury
Office of Markel Finance
Augu,' 2 1994· t 6
SCHEDULE OF ISSUES TO BE ANNOUNCED AND AUCTIONED
IN OCTOBER 19941/
Monday
3
Tuesday
Wednesday
4
5
Friday
Thursday
7
6
Announce
52 week
10
11
12
13
Holiday
17
24
14
Auction
52 week fl
18
19
25
Announce
2 year
5 year
26
Auction
2 yearY
20
21
27
28
Auction
5 year;1!
31
Y
Department 01 the Treasury
Office of Markel Finance
Does not Include weekly bills
fI For settlement October 20
Y For settlement October 31
AlHjll~'
2 lY94 17
REPORT TO THE SECRETARY OF THE TREASURY
FROM THE
TREASURY BORROWING ADVISORY COMMITTEE
OF THE
PUBLIC SECURITIES ASSOCIATION
AUGUST 3, 1994
Dear Mr. Secretary:
During the three months since the Committee's last meeting with the
Treasury in May 1994, the economy has continued to expand at a solid pace.
Though faint so far, evidence of some cyclical acceleration of inflation is
growing. Monetary policy has continued to become less simulative, and the
Federal funds rate was raised a further 0.50% during the period to the present
level of 4.25%.
Over the three-month interval, yields on Treasury securities have
increased by approximately 5 to 35 basis pOints. The largest increases have
been for maturities under one year, and as a consequence the yield curve has
flattened. Along with forward prices for various fixed-income instruments, the
present shape of the yield curve indicates that market participants expect
additional increases in interest rates in the coming months.
Within this context, to refund the $29.6 billion of securities maturing on
August 15, 1994 that are privately held and to raise additional cash of $10.9
billion, the Committee recommends that the Treasury auction $40.5 billion of the
following securities:
• $17.0 billion 3-year notes due August 15, 1997;
• $12.0 billion 7 1/4% notes due May 15, 2004; and,
• $11.5 billion of 30 1/4 year bonds due November 15, 2024.
Fourteen of the 20 Committee members present for the meeting favored this
recommendation. Five members favored a composition of $17.0, $12.0, and
$11.0 billion for the respective three offerings, and one member favored a
composition of $17.5, $12.0, and $11.0 billion.
Given the composition favored by the majority, the Committee
unanimously recommends the reopening of the 10-year note issued in the last
refunding. The recommendation is based on the premium the current 10-year
issue commands in both the secondary market and the repurchase agreement
market.
With respect to the bond, the Committee by a vote of 16 to 4 recommends
that the Treasury auction an issue that matures either in Mayor in November
because of the relatively greater demand currently for the components of
stripped securities maturing in these two months.
I~ consideri~g. the
consequent choice between a 29 3/4 year and 30 1/4 year Issue, a majority of
the Committee believes that, on the margin, there may be somewhat greater
2
demand for the longer alternative that would mature in November 2024. The
principal reason for this view is the prospect that when stripped the lower dollar
price would make the longer issue more attractive to defeasance programs,
thereby maximizing its premium in comparison to surrounding issues. In
addition, looking ahead to February 1995 when the next 30-year bond is
scheduled to be auctioned, the Treasury would be able to assess the relative
attractiveness of reopening and thus enlarging the issue.
With the aim of achieving a cash balance of $40 billion on September 30,
the Committee unanimously recommends that for the remainder of the quarter,
the Treasury meet its borrowing requirements in the following manner:
•
Two 5-year notes of $11.0 billion each, to raise $22 billion of new
cash;
•
Two 2-year notes of $17.25 billion each, to raise $3.6 billion of
new cash;
•
Two 1-year bills of $17.0 billion and $17.25 billion respectively,
to raise $3.7 billion of new cash;
•
Weekly 3- and 6-month bills totaling $25.2 billion for each week
during the remainder of the quarter, to reduce cash by $1.2
billion;
•
Redemption of the outstanding cash management bills maturing
September 22, to reduce cash by $6.0 billion; and,
•
Redemption of the outstanding 4-year note maturing September
30, to reduce cash by $8.3 billion.
Including the $10.9 billion raised in the mid-quarter refunding as well as
anticipated foreign add-ons of $5.2 billion, the proposed financing schedule will
raise a total of $29.9 billion. When added to the $15.1 billion of net borrowing
already raised or announced during quarter, this amount will accomplish the
total net borrowing requirement of $45.0 billion.
The Committee also
recommends that additional intra-quarter cash management bills totaling
approximately $16.0 billion be issued to cover the cash low points in midAugust and early September.
For the October-December quarter, the Treasury estimates its net market
borrowing in the range of $45 to $50 billion with a cash balance of $30 billion at
the end of December. The Committee notes that this borrowing estimate is
significantly below most private forecasts.
To accomplish the Treasury's
anticipated market borrowing requirement, the Committee recommends the
following provisional financing schedule:
Refunding: 3-year note
10-year note
Raising (billions)
Size (billions)
Auctions
$
$
17.0
12.5
29.5
$
0.6
3
5-year notes
2-year notes
1-year bills
3- and 6-month bills
Cash management bills (January maturity)
Estimated foreign add-ons
Subtotal
2x$11.0
22.0
4.2
4.2
3.3
15.0
5.3
2 x $17.5
3 x $17.5
13x$25.2
$
Less: 7-year note maturity
Total Net Market Borrowing
54.6
1L11
$
47.5
The Committee also notes the likely need for the issuance of intra-quarter cash
management bills to cover cash low points during the quarter.
In response to the request for its further views on whether to continue the
single-price auction technique for 2- and 5-year notes after August 1994, the
Committee reviewed the analysis presented to it by the Treasury staff which
materially augmented the preliminary data presented at the Committee's
previous meeting in May.
The Committee is mindful that conclusions drawn from the analysis need
to be tempered by the comparatively brief period covered by the data and the
variability, and thus reduced statistical significance, of much of the data within
this period. Of particular concern is that throughout most of the period interest
rates were stable or falling and therefore little experience has been gained
during episodes when interest rates are rising. Despite the limitations on
potential significance of the available data, the analysis seemed fully in concert
with the comments offered in the Committee's last report (an excerpt of the
pertinent section is appended for reference). Certain points from the analysis
are worth highlighting:
•
Consistent with theory, the single-price auctions seemed to have reduced
the concentration of awards among dealers and increased awards to
customers. Though in absolute terms the shift can be seen as small, in
proportionate terms the shifts are reasonably substantial.
Moreover,
growing familiarity with Single-price auctions could lead to additional growth
in the participation by customers in future auctions.
•
While the data do not yet provide a compelling case that single-price
auctions have lowered the cost of borrowing to the Treasury compared to
multiple-price auctions, there is no evidence in the data that single-price
auctions have raised the cost.
•
Transaction volumes on days of single-price auctions have increased
notably, suggesting that the technique has contributed to improved liquidity,
which in turn should lower the cost of borrowing.
•
The dispersion pattern of bids in single-price auctions, as compared to those
in of multiple-price auctions, suggests that dealers, and perhaps others,
perceive a potential for underwriting profit in single-price auctions. Over
4
time as bidding techniques evolve, this perceived opportunity for profit may
provide greater confidence in the robustness of the single-price auction
technique during periods of rising interest rates and associated market
stress.
On the basis of its review of the analysis and the judgments expressed in
its May report, the Committee recommends by a vote of 17 to 3 that the Treasury
continue the single-price auction for 2- and 5-year notes and, furthermore, that it
extend the experiment with technique to the auction of 10-year notes. The
choice of the 10-year note for extension of the technique was made on the basis
that there is now sufficient evidence of success with the technique to warrant a
trial with a longer maturity. The 10-year was preferred because of its status as a
global benchmark security and because the 30-year bond is now auctioned just
twice a year and therefore would afford an inadequate number of observations
to provide sufficient data for analysis. The Committee recommends that, in
addition to the 30-year issue, the 3-year note continue to be auctioned on the
existing multiple-price basis in order to provide a useful standard of comparison
for continued evaluation of the single-price auction technique.
The three Committee members who voted against this recommendation
favored a continuation of single-price auctions for 2- and 5-year notes but
opposed at this time extension of the technique to 10-year notes. In their
reasoning, the members cited the inconclusiveness of the existing data on
single-price auctions and the desire for an opportunity to evaluate the data
more rigorously. Further, although they concurred with the majority's view that
there was no evidence that single-price auctions raised the cost of borrowing in
the 2- and 5-year notes, these three Committee members were concerned that
extension of the technique to the longer maturity could have a less successful
outcome and perhaps be costly to the Treasury.
The Committee's view on 3-decimal yield bidding was unanimous in
favor of the change. Consistent with the view expressed in its report of August
1, 1990, all Committee members thought that smaller yield increments WOUld,
on the margin, induce some market participants to bid more aggressively in
coupon auctions, thus potentially lowering slightly the Treasury's financing
costs. Also, 3-decimal yield bidding would bring auction price increments into
line with those in the secondary market. The Committee could identify no
disadvantages to the change.
Mr. Secretary, that concludes the Committee's report. We welcome any
questions or comments.
D~
Stephen C. Francis
Chairman
Attachment
5
EXCERPT
REPORT TO THE SECRETARY OF THE TREASURY
FROM THE
TREASURY BORROWING ADVISORY COMMITTEE
OF THE
PUBLIC SECURITIES ASSOCIATION
MAY 4, 1994
In response to the request for its views on the experiment to date with
single-price auctions for two- and five-year notes, the Committee offers the
following comments:
•
Anecdotal evidence suggests that compared to the multiple-price
auctions for three- and ten-year notes, the single-price auctions for twoand five-year notes has broadened the base of distribution and reduced
the concentration of winning awards. If this impression is confirmed by
further analysis of the data available to the Treasury, two important
measures of success will have been met.
•
Examination of the data presented to the Committee, combined with the
observations of members from their own experience, suggests that while
on occasion single-price auctions may have led to higher costs to the
Treasury than might have occurred in multiple-price auctions, these
occasions are balanced by others where there were apparent savings.
The data to date reveal no consistent pattern. It is important to note,
however, that most of the period covered by the data was, until recently,
comparatively benign. Results for periods of high volatility are not yet
available.
•
In the instances where single-price auctions seemed to have resulted in
yields materially above the levels prevailing in the when-issued market at
the time of the auction, the difference appears related to the market
environment at the time rather than to the auction technique. There is no
clear basis for believing multiple-price auctions would produce
systematic savings to the Treasury in these same environments.
•
It would be useful to expand the analysis of when-issued trading to
include not only the period immediately subsequent to the auctions but
also the period immediately prior. Despite the difficulties of comparing
auctions of securities of different maturities, an analysis of price patterns
in the hour or two prior to Single-price auctions with those in the
comparable periods for multiple-price auctions may reveal whether there
exist any significant differences.
•
Market liquidity prior to Single-price auctions may be greater than for
multiple-price auctions because sellers have greater confidence that
their sales can be successfully covered in the auctions at market levels
prevailing at the time of the auctions. In addition, as noted in an earlier
report by the Committee, there seems to be some evidence that postauction tradina in sinale-orice auctions is less volatile.
6
On the basis of this assessment, which given the comparatively brief period is
necessarily substantially subjective, the Committee recommends that the
Treasury:
•
Extend the experiment with single-price auctions for another year from
August 31, 1994.
•
Consider expanding the experiment to one or more additional maturities.
There was no consensus among Committee members which maturity or
maturities might be most suitable. Some members favored the threenote as being a natural extension from the present two- and five-year
notes. Others expressed the view that since no major negatives with
multiple-price auctions have been revealed so far, more might be
learned from longer maturities, such as the ten-year or the thirty-year.
•
Because it is the principal objective of single-price auctions, focus further
analysis of the auction data on the extent to which single-price auctions
encourage broader participation and less concentration among bidders.
MINUTES OP THE MEETING OP THE
TREASURY BORROWING ADVISORY COKMITTEE
OP THE PUBLIC SECURITIES ASSOCIATION
AUGUST 2 AND 3, 199.
August 2
The committee convened at 11:40 a.m. at the Treasury
Department for the portion of the meeting that was open to the
public. All 20 members were present. The Federal Register
announcement of the meeting and a list of Committee members are
attached.
Deputy Assistant secretary for Federal Finance Darcy
Bradbury welcomed the Committee and the public to the meeting.
Assistant secretary for Economic Policy Alicia Munnell gave a
summary of the current state of the U.s. economy. Jill Ouseley,
Director, Office of Market Finance, presented an informational
briefing updating Treasury borrowing estimates and statistical
information on recent Treasury borrowing and market interest
rates.
The borrowing estimates and other information in chart
form had been released to the public on August 1, 1994.
The public meeting ended at 12:18 p.m.
August refunding
The committee reconvened in closed session at the Madison
Hotel at 2:00 p.m. All members were present.
Deputy Assistant
secretary Bradbury gave the Committee its Charge, which is also
attached.
The Committee first discussed the size of the August
midquarter refunding within the context of the Treasury's
estimate of a $45 billion net market borrowing requirement during
the July-September 1994 quarter.
The Committee discussed recommending that the August
refunding consist of $17 to $17-1/2 billion of 3-year notes, $12
billion of 10-year notes, and $11 to $11-1/2 billion of 30-year
bonds. A majority of 14 members voted to recommend a $40-1/2
billion August refunding consisting of $17 billion of 3-year
notes, $12 billion of 10-year notes, and $11-1/2 billion of 30year bonds. An increase in the bond was preferred to an increase
in the 3-year note.
The Committee voted unanimously to reopen the 7-1/4%
Treasury notes of May 15, 2004. Members believed that reopening
would enhance market liquidity in the 10-year maturity area.
The Committee then considered the maturity date for the
long-term bond.
By a majority of 16 to 4, the Committee voted to
recommend a bond that would have interest payments in May and
November, as opposed to February and August. The Committee then
2
voted by 12 ayes, 2 noes, and 6 abstentions, to recommend issuing
a 30-1/4 bond, maturing on November 15, 2024. The other option
presented was a 29-3/4 year bond maturing on May 15, 2024. The
majority believed that the Treasury would benefit from issuing
the 30-1/4 year bond, because it would be more attractive for
stripping and potentially it could be reopened in the February
refunding.
By consensus, the committee agreed to adopt the draft
financing plan for the rest of the July-September quarter and for
october-December period displayed in a draft proforma, as
modified. One of the modifications would be to split the
estimated cash management bill need in the rest of the JulySeptember period between bills issued on August 15 and on
September 2, both to mature on September 22. The draft proforma
is also attached. Also by consensus, the committee agreed to
recommend cash balances of $40 billion on September 30 and $30
billion on December 31.
single-price auction
Paul Malvey, senior Economist, Office of Market Finance,
u.S. Treasury, explained the charts that were attached to the
Committee's Charge. The charts display different aspects of the
results to date of single-price auctions of 2- and 5-year notes.
The Committee's sense was that the 2- and 5-year notes
appear to be more widely distributed in the single-price auction
than securities that the Treasury is selling in the multipleprice auctions. This belief is based on experience, as well as
the Treasury data, which show a high degree of variability in
auction results. The single-price auction appears to the members
to be neutral with respect to Treasury borrowing costs. Members
observed, however, that the single-price auction has not been
tested in a rising yield environment. The Committee voted by 17
to 3 to recommend extending the time period for the single-price
auction experiment and expanding it to include 10-year notes.
Three-decimal yield bidding
The final item in the Charge was to consider whether the
Treasury should adopt 3-decimal bidding in auctions of notes and
bonds. The Committee's recommendation to proceed with 3-decimal
yield bidding was unanimous. The members believed that bidding
in tenth of basis point, rather than full basis point, yield
increments would bring more participants into auctions,
particularly of longer term securities. Also, 3-decimal yield
bidding would conform Treasury auctions with market practice in
which securities are traded in 3-decimal yield increments.
The meeting adjourned at 4:30 p.m.
3
August 3
The Committee reconvened at 8:30 a.m. at the Treasury in
closed session. All members were present, except Mr. Kessenich
and Mr. McKnew. The Chairman presented the Committee report
(copy attached) to Under secretary for Domestic Finance Frank N.
Newman and Deputy Assistant secretary Bradbury.
In response to a question, the Committee expanded upon the
recommendation of a 30-1/4 year bond. Members believed that it
is appropriate for the Treasury to increase the long-term bond in
the August refunding, after having left the size unchanged at $11
billion since August 1993. Also, the Treasury issues a large
volume of securities in the short intermediate maturity area.
Banks, which are the natural constituency for short-term notes,
have been increasing commercial lending activity recently and
decreasing their purchases of Government securities.
Committee members also responded to questions regarding
extending the single-price auction experiment. Expanding upon
the discussion at the meeting on August 2, members suggested that
experimenting with la-year note auctions would be beneficial,
because the types of bidders that participate in la-year auctions
are somewhat different from bidders in 2- and 5-year note
auctions. Members did not believe that a similar benefit would
be gained from experimenting with bill auctions.
The meeting adjourned at 9:30 a.m.
'r(
~K. ~USeley.
a~~c~
of Market
Domestic Finance
August 3, 1994
Attachments
Certified by:
M,
'h'
Stephen C. Franc~s, C a~rman
Treasury Borrowing Advisory Committee
of the Public Securities Association
August 3, 1994
.,4464
Federal Register I Vol. 59, No. 127 I Tuesday, July 5, 1994 I Notices
For the C
·on. by the Division of
Market Regu tion.
'''nl to delegated
authority. 1~ ::FR 200.3(}-_. "011.
,onathan G. atz.
Secretary.
IFR Doc. 94-
5187 Filed 7-1-94; 8:45
81LUHO COClE
1~'~
amI
fair and orderly markets and the
protection of investors.
For the Commission. by the Division of
Market Regulation. pursuant to delegated
BUthOrity.
)-..
'An G. Katz.
Secretary.
(FR Doc. 94-161~
Self-Regull
ry Organization;
Appllcatio. for Unlisted Trading
Privileges; otlce and Opportunity for
Hearlng;C
go Stock Exchange, Inc.
June 27. 199
The above Damed national securities
exchange h filed applications With the
Securities d Exchange CommissioD
("Commiss 0") pursuant to Section
12(0(1 )(B)
the Securities Exchange
Act of 1934 nd Rule 12f-1 thereunder
for unlisted ading privileges in the
following securities
)alate. Ltd.
Common 5 d .. No Par Value (File No. 712589)
Alliances Ent
Warrants A
Alliances Ent
Warrants B
Energy Ventu
Common S
:fainment Corp.
"13/95 (File No. 7-12590)
:1ainment Corp.
/13/95 (File No. 7-12591)
15. Inc.
d .. S1.00 Par Value (File No.
7-12592)
Highwoods PI
Common 5
12593)
International
Common St
lperties. Inc.
d. $.01 Par Value (File No. 7bttery. Inc.
ck. SOl Par Value (File No. 7-
12594)
Liberty Prope y Trust
Share~ of 64 leflCiallnterest. S 001 Par
Value (F! No 7-1:595)
Walseo. Inc.
Common 51 k. S 50 Par Value [File No 71259fiJ
These seCl ntles are listed and
regIstered or one or more other national
. securities ex hanges and are reported in
the consolid ted transaction reporting
system.
Interested ,ersons are Invited to
submit on or )efore July 19, 1994.
....Titten data ... iews and arguments
concerning the above-referenced
application. ersons desiring to make
written COIlU ents should file thre€
caples there< with the Secretary of the
Securities an Exchange C?Qltnission.
450 Fifth Str et, NW .. Washtngton, DC
20549. Folio ring this opportunity for
hearing. the ommission will approve
the applicati n if it finds. based upon
all the infom ation available to it. that
the extensior ; of unlisted trading
privileges pu suant to such application
is consistent I'ith the maintenance of
<"·i.l~d 7-1-94; 8:45 am)
8IUlNO COClE 1CtI~,~
DEPARTMENT OF THE TREASURY
Debt Management Advisory
Committee; Meeting
Notice is hereby given. pursuant to 5
U.S.c. App. 10(a)(2). that a meeting will
be held at the U.S. Treasury
Department, 15th and Pennsylvania
Avenue. NW .• Washington, DC, on
August 2 and 3, 1994, of the follOwing
debt management adviSOry committee:
Public Securities Association. Treasury
Borrowing Advisory Committee
The agenda for the meeting provides
for a technical background briefing by
Treasury staff on August 2. followed by
a charge by the Secretary of the Treasury
or his designate that the committee
discuss particular issues. and a working
session. On August 3, the committee
will present 8 written report of its
recommendations.
The background briefing by Treasury
staff will be held at 11 :30 a.m. Eastern
time on August 2 and will be open to
the public. The remaining sessions on
August 2 and the committee's reporting
session on August 3 will be closed to
the public. pursuant to 5 U.S.c. App.
10(d).
This notice shall constitute my
determination. pursuant to the authority
placed in heads of departments by 5
U.S.c. App. 10(d) and vested in me by
Treasury Department Order No. 101-05.
that the closed portions of the meeting
are concerned with information that is
exempt from disclosure under 5 U.S.c.
552b(c)(9)(A). The public interest
requires that such meetings be closed to
the public because the Treasury
Department requires frank and full
advice from representati ves of the
financial community prior to making its
final decision on major financing
operations. Historically. this advice has
been offered by debt management
advisory committees established by the
several major segments of the financial
community. When so utilized. such a
committee is recognized to be an
advisory committee under 5 USC App.
3.
Although the Treasury's final
announcement of financing plans may
not reflect the recommendatiQD4
provided in reports of the advi$oty
committee, premature disclosure ofthe
committee's deliberations and rep<Jlts
would be likely to lead to significant
financial speculation in the ~
market. Thus, these meetings
wfthin
the exemption covered by U.s.c.
552b(c)(9)(A).
r.u
The Office of the Under Secretary for
Domestic Finance is responsible for
maintaining records of debt
management advisory committee
meetings and for providing annual
reports settiQ8 forth a summary of
committee activities and such other
matters as may be informative to the
publi<; consistent with the policy of 5
U,S.c. 552b.
Dated: June 28. 1994.
Frank N. Newman,
Under Secretary 01 the Treasury, Domestic
Finance.
(FR Doc. 94-16154 Filed 7-1-94; 8:45 am
8IWNO COClE 4810...a.4
Fiscal Service
Renegotiation ~ Interest>Rate,
Prompt Payme It 1nterest.Rate,
Contracts DtSJ Ites Act
Although the Renegotiation Board is
no longer in ex .tence. other Federal
Agencies are l'E luired to use interest
rates computer mder the criteria
established by le Renegotiation Act of
1971 (P.L. 92~ L). For example. the
Cootracts Disp' tes Act of 1978 (p.L. 95563) and the PI )mpt Payment Act (p.L.
97-177) are re< .tired toca1culate
interest due OD claims at a rate
established by the Secretary of the
Treasury purS\ IUlt to Public Law 92--41
(85 Stat. 97) fo the Renegotiation Board
(31 U.S.c. 390J ,.
Therefore. n( ice is hereby given thaI .
pursuant to the Ilbove mentioned
sections. the SE ~tary of the Treasury
has detennineq that the rate of interest
applicable for the purpose of said
sections. for the period beginning July 1,
1994 and endil g on December 31. 1994,
is 7% per centl m per annum.
Dated: June 2a 1994.
Marcus W. Page
Acting Fiscal Assistant Secretary.
(FR Doc. 94-161 ~ Filed 7-1-94; 8:45 am)
BILLING COO£ 4810 ~
1994
TREASURY BORROWING ADVISORY COMMITTEE OF THE
PUBLIC SECURITIES ASSOCIATION
CHAIRMAN
stephen C. Francis
General Manager
Fischer, Francis, Trees & Watts
Royal Court, Royal Exchange
London EC3V 3RA, England
VICE CHAIRMAN
Richard Kelly
Chairman of the Board
Aubrey G. Lanston & Co., Inc.
One Chase Manhattan Plaza, 53rd Fl.
New York, NY 10005
Daniel S. Ahearn
President
Capital Markets strategies Co.
c/o Wellington Management
Company
75 State Street
Boston MA 02109
Kenneth de Regt
Managing Director, Fixed Income
Morgan Stanley & Company
1221 Avenue of the Americas 6th Floor
New York, NY 10020
Thomas Bennett
Partner
Miller Anderson & Sherrerd
One Tower Br idge
West Conshohocken, PA 19428
Barbara Kenworthy
Senior Portfolio Manager
The Dreyfus Corporation
200 Park Avenue
New York, NY 10166
James R. Capra
Principal
Moore Capital Management
1251 Avenue of the Americas
New York, NY 10020
Mark F. Kessenich, Jr.
President
Eastbridge capital, Inc.
135 East 56th Street
New York, NY 10022
Jon S. Corz ine
Partner
Goldman, Sachs & Company
85 Broad Street
New York, NY 10004
Bruce R. Lakefield
y.anaging Director
Lehman Brothers
200 Vesey Street, 9th Fl.
New York, NY 10285
2
Richard D. Lodge
Senior Vice President
Banc One Corporation
100 East Broad street, 3rd Fl.
columbus, OH 43215 (Fed Exp
Mail)
43217 (Ground Mail)
Robert D. McKnew
Executive Vice President
Bank of America
555 California street, 10th Fl.
San Francisco, CA 94104
Daniel T. Napoli
Senior V. President
Merrill Lynch & Company
250 Vesey street, N. Tower
World Financial Ctr., 8th Fl.
New York, NY 10281
William H. Pike
Managing Director
Chemical Bank
277 Park Avenue
New York, NY 10172
Marcy Recktenwald
Managing Director
BT Securities, Inc.
130 Liberty street
New York, NY 10006
Richard B. Roberts
Executive Vice President
Wachovia Bank & Trust Co., NA
P.O. Box 3099
Winston-Salem, NC 27150
Joseph Rosenberg
President
Lawton General Corporation
667 Madison Avenue
New York, NY 10021-8087
Morgan B. Stark
Managing Director
Granite International Capital Group
666 - 5th Avenue, 33rd Fl.
New York, NY 10103
Stephen Thieke
Chairman, Market Risk Committee
J.P. Morgan & Company, Inc.
60 Wall street, 20th Fl.
New York, NY 10260
Craig M. Wardlaw
Executive Vice President
NationsBank Corporation
NationsBank Corporate Center
Mail Code Ncr 007-0606
Charlotte, NC 28255-0001
August 2, 1994
COMMITTEE CHARGE
The Treasury would like the Committee's specific advice on
the following:
Treasury financing
the composition of a financing to refund $29.6 billion of
privately held notes and bonds maturing on August lS and to
raise cash in 3- and 10-year notes, 30-year bonds, and cash
management bills;
the maturity of the long-term bond to be issued in the
refunding;
reopening the 7-1/4% note of May lS, 2004;
the composition of Treasury marketable financing for the
remainder of the July-September quarter and the OctoberDecember quarter; and
the appropriate levels of Treasury cash balances on
September 30 and December 31.
other topics
We would like the Committee's further views on whether to
continue the single-price auction technique for 2- and S-year
notes after August 1994. The information displayed in the
attached charts is provided to assist the Committee in its
consideration of this matter.
We are considering establishing 3-decimal competitive yield
bidding for auctions of Treasury notes and bonds, possibly
beginning in the spring. We would like the Committee's thoughts
on advantages and disadvantages of 3-decimal yield bidding,
including any operational complications that might arise from the
dealer/investor point of view.
The Treasury would welcome any comments that the Committee
might wish to make on related matters.
Attachment
Charts on the Uniform-Price Experiment
Charts 1 and 2:
Impacts on the Distribution of Awards
Charts 1 and 2 contain data on large competitive awards
(based on bids of $1 million or greater) to primary dealers and
their customers through the New York, Chicago, and San Francisco
Federal Reserve banks and branches. The data are broken out into
two periods: from June 1991 to August 1992 and from September
1992 to May 1994(latest available data).
Chart 1 shows that the change in the composition of large
competitive awards to primary dealers and their large customers
is consistent with auction theory. The average share of awards
to customers increased under the uniform-price format, from 21
percent to 25-26 percent, and the share to dealers decreased. 1
By contrast, the share of competitive awards to large customers
remained unchanged for the 3-year notes and decreased by 13
percentage points for the 10-year notes.
Chart 2 shows the shares of competitive awards to the top
primary dealers for their own accounts and also for the top
dealers plus their customers as a percent of total private
awards.
The concentrations of awards to the top ten dealers for
their own accounts for the 2-year and 5-year notes declined by 9
to 10 percentage points during the uniform-price experiment. By
contrast, the concentration of awards for the top ten dealers'
own accounts increased by 10 to 13 percentage points for the 3year and 10-year auctions.
Similarly, the concentration of competitive awards to the
top ten dealers plus their customers was reduced by 4 to 9
percentage points for the 2-year and 5-year uniform-price
auctions. Meanwhile, the share to the top ten dealers plus
customers increased by 11 percentage points for the 3-year notes,
and remained unchanged for 10-year notes.
Charts 3 and 4:
Trading Activity in the When-Issued market
Charts 3 and 4 show average transactions volume in the whenissued (WI) market on auction days in 30-minute intervals for the
multiple-price and uniform-price periods. Transactions volume on
mornings of uniform-price auctions was 35 percent higher for 2-
While the pattern of changes in shares between the 2s and
5s and the 3s and lOs is consistent for all of the data, given
the auction-to-auction variability in the shares, the differences
in shares are not statistically significant.
2
year notes and 24 percent higher for 5-year notes. 2 Although not
shown, transactions volume for 3-year notes was virtually
unchanged over the two periods, while 10-year volume was 16
percent higher.
For the whole day, transactions volume increased
by 39 percent and 14 percent, respectively, for the 2-year and 5year notes. Volume was up by only 6 to 7 percent for the 3-year
and 10-year notes.
Charts 5 and 6:
comparison of Auction Results to the WI Market
Charts 5 and 6 show the spreads between the auction yield
results and the 1:00 p.m. WI bid yields for each auction and also
the average spreads between the 1:00 p.m. WI bid yields and the
auction results for the two auction techniques. Under the
multiple-price format, the average spreads between auction
average yields and 1:00 p.m. WI bid yields are statistically
significant from zero. Or, there is a statistically significant
premium to dealers for bidding in the auctions.
By contrast,
although the size of the average spreads for the uniform-price 2year and 5-year auctions are comparable, they are not
statistically different from zero. That is, there is no
statistically significant markup thus far in the uniform-price
auctions.
One reason is that, while the average auction spreads are
comparable for the two techniques, the volatility of the auction
spreads for the uniform-price auctions is greater. As shown, for
the thirty multiple-price 2-year and 5-year auctions from June
1991 to August 1992 in only one instance (September 1991) did the
auction average come in below the 1:00 p.m. WI yield. Otherwise,
there was a relatively stable average premium under the multipleprice auction technique to successful competitive bidders.
By
contrast, in about 50 percent (24 out of 46) of the uniform-price
auctions the auction yield has been below the 1:00 p.m. WI yield,
but the auction-to-auction volatility of results has been
greater.
Charts 7 and 8:
Dispersion of Auction Yield Bids:
Multiple- and uniform-Price Auctions
One reason for greater variability in auction-to-auction
results is that the average dispersion of auction bid yields
under the uniform-price format is broader than that for multipleprice auctions and somewhat less stable from auction to auction.
Another reason is that average yield is used to express the
2 The charts are not adjusted for changes in auction sizes.
With adjustment, volume for 2-year and 5-year notes was still up,
by 20 percent and 9 percent, respectively, on auction mornings.
3
result in multiple-price auctions and stop-out yield is used in
single-price auctions.
Charts 7 and 8 show the average distributions of yield bids
for the 2-year and 5-year notes under the alternate auction
techniques. The distributions of bids around the auction average
yield for multiple-price auctions is asymmetric, as one would
expect.
The bids trailing off further to the right can for the
most part can be viewed as underwriting bids. 3 In contrast,
there is a greater frequency of bids to the left of the auction
stop in uniform-price auctions, which is also consistent with
auction theory.
However, with greater uncertainty with respect to auction
outcomes, the bids to the right may take on added meaning.
It
has been suggested that dealers may be more likely to split bids
in a uniform-price auction. That is,
they may place one or more
bids at aggressive yields to ensure supply, and place other bids
2 to 5 basis points off the market.
If awarded, experience has
shown that the securities will all usually result in profits to
the bidder in post-auction WI trading.
The second factor contributing to the volatility of uniformprice auction results relative to 1:00 p.m. WI yields is the
different yield concepts employed to report auction yield results
under the two formats.
In multiple-price auctions, the auction
average yield is used, whereas for uniform-price auctions a stopout yield concept is employed.
In and of itself, a single number
is expected to have more volatility than an average of a
relatively stable set of numbers.
The auction tail, or the difference between average yield
and highest accepted yield, for monthly multiple-price 5-year
auctions had never exceeded 1 basis point, while that for 2-year
auction had exceeded 1 basis point only once (May 1991) since
1989.
LARGE COMPETITIVE AWARDS TO PRIMARY DEALERS AND
CUSTOMERS AS A PERCENT OF TOTAL PRIVATE AWARDS*
(Jun '91 - Aug '92; Sep '92 - May '94)
Percent
100
_ 90.1
_ 92.1
92.0
1
89.3
Large
Customers
80
21.1
20.5
26.3
I
_ 91.0 I
18.7
25.1
1
1
J
_92.7 _ 94.4
93.5
14.3
18.7
27.0
-
-
I
-
60
Primary
Dealers
80.1
74.8
40
69.0
68.8
72.3
67.0
65.7
65.7
20
I
o
I
2-Year
5-Year
Maturities
3-Year
'laroe competltlve award. Iba •• d on bid. "r.at., th .... or .qu.1 to .1 mllilonl to primary dealer. and cUltome,.
through the New yotil. 0110-00. end S .... Frendaco Fad.ral A.I_ Bent. end brench...
10-Year
C')
O".lm_ 0/ the rr ••
Olflot 01 M.k.1 ',nanc.
<6,
:r
QJ
::l
~
Chart 2
Large Competitive Awards to Primary Dealers
And Awards to Primary Dealers Plus Their Large Customers
as a Percentage of Total Private Awards·
Top
Two-Year
32.1
24.0
43.8
40.4
10
47.0
38.0
62.3
58.1
69.0
65.7
90.1
92.0
5
40.2
25.7
50.2
37.6
10
51.3
41.6
67.4
58.5
68.8
67.0
89.3
92.1
5
34.6
44.2
42.9
54.5
10
47.0
57.2
60.3
71.7
72.3
74.8
91.0
93.5
5
39.3
52.1
60.2
60.1
10
50.7
63.9
74.3
74.9
65.7
80.1
92.7
94.4
All Dealers
Three-fear
All Dealers
Ten-Year
Dealers Plus Their Large Customers
Jun '91Sept '92Aug '92
May '94
5
All Dealers
Five-Year
Dealer Own Accounts
Jun '91Sept '92Aug '92
May '94
All Dealers
'Large competItive ~warda (baacd on blda greaLCr!hAn or equal \.0 $1 uuilion) \.0 prunary dealers for \heir
OWD 8COOWIu .... d .warda \.0 thell" cUSl.Omcn through the New Yor.:. Chjc.ago, .... d S .... Franclso Federal Reserve Banks and brmGbaL
2-YR AUCTIONS
AVERAGE CHANGE IN ACCUMULATED VOLUME ON AUCTION DAYS
(3D-minute intervals ending at time indicated)
$ MILLIONS
I
I. . .
800 "-
~u~tiPle-price
(6/91 - 8192)
--------
------
_
Uniform-p~ce
(9/92 - 2/94)
---------
I
--
600
400
200 "-
(")
:r
a
D»
~
8:30
~ntlfNl"
9:00
novpx
Inc
9:30 10:00 10:30 11:00 11 :30 12:00 12:30 13:00 13:30 14:00 14:30 15:00 15:30 16:00 16:30 17:00 17:30
o.p.m.rt at the T~
0II0e at tMrtet Fh_
CAl
..,J-
I
n
1""\'-''-' , ''-'I ' ' - I
AVERAGE CHANGE IN ACCUMULATED VOLUME ON AUCTION DAYS
$ MILLIONS
(30-minute intervals ending at time indicated)
Multiple-price
(6/91 - 8192)
800
Un i{orm-price
(9/92 - 2/94)
600
400
200
n
:r
C»
o
~
8:30
9:00
[)epanmert dIlle
~~ I r r .. ·
r:..n,'C)v
Inr
~
9:30 10:00 10:30 11:00 11:30 12:00 12:30 13:00 13:30 14:00 14:30 15:00 15:30 16:00 16:30 17:00 17:30
T"'~
rJII\root ,., Mar1el Finance
AUCTION SPREADS
AUCTION AVERAGE YIELDS - 1 PM WI BID YIELDS
2-YEAR NOTES
(June '91 through July '94)
Basis Points
8
Averages and Std. Errors of Spreads
Between Auction Yields & 1 pm WI Bid Yields
6
Avg.
Std. Error
6/91 - 8/92
9/92 - 7/94
0.41 b.p.
0.13 b.p.
0.23 b.p.
0.33 b.p
4 .-
2 .-
o
(2)
(4)
6/91
8/91 10/91 12/91 2192
4/92
6/92
8/92 10/92 12/92 2193
4/93
6/93
8/93 10/93 12/93 2194
4/94
n
::r
6/94
~
:=l
Auction Date
U'I
Source: GOVPX. Inc.
0It~
----
~~
cllhe T_ury
• ...-~_rL...., .. __
AUCTION SPREADS
AUCTION AVERAGE YIELDS - 1 PM WI BID YIELDS
5-YEAR NOTES
(June '91 through July '94)
Basis Points
8
Averages and Std. Errors of Spreads
Between Auction Yields & 1 pm WI Bid Yields
6 .9/92 - 7/94
037 b.p.
045 b.p.
6/91 - 8/92
Avg.
0.33 b.p.
Std. Error 0.06 b.p.
4
2 .-
o
(2) .-
(4)
6/91
8/91 10/91 12/91 2192
4/92
6/92
8/92 10/92 12/92 2193
4/93
6/93
8/93 10/93 12/93 2194
4/94
(')
6/94
::r
C»
~
Auction Date
en
Source: GOVPx. Inc.
Depertment fA the Treasury
~--"'."'''''''''''r''l
__ _
Average Bids at Various Yields Relative to Auction Yield Results
Two-Year Notes
$ Billions
(June '91 through May '94)
12
10
8
~-
0-
Multiple-Price
6/91 to 8/92
I
6
Uniform Price
9/92 to 5/94
4
2
o
C
-15
-13
-11
Note: Bid yields truncated at + or - 15 basis points
VlI F r I III I':F:I P:P" F:fl [:]:,
-9
-7
1
F4:::J I{·FJ F:f]
3
5
Spreads to Auction Average Yields
-5
-3
-1
7
PI] [rJ
9
l:l]
c+, CT1
..:::b
In
11
13
15
I»
::r
::1-
"'"
Depertment fA the Treasury
Average Bids at Various Yields Relative to Auction Yield Results
Five-Year Notes
(June '91 through May '94)
Billions
2
o
8
0-
0-
Multiple-Price
6/91 to 8/92
[
6
Uniform Price
9/92 to 5/94
4
2
0-
n
:T
o
Q)
-15
-13
-11
-9
Note Bid yields are truncated at + or - 15 basis points
-7
-1
1
-3
3
5
Spreads to Auction Average Yields
-5
7
9
11
13
~
15
CO
Department of the Treasury
.-...:- _ -*
.,_~,
....
r ............... ...
Summary of July - September 1994
Eltimated Net Marketable Borrowing
(billions of dollars)
let new money raised or announced (as of 8/1194):
Regular Treasury bills (
$1.71 billion of foreign add-ons)
52-week bills (no foreign add-ons)
Cash management bills redemption (no foreign add-ons)
2-year notes (includes
$1.15 billion of foreign add-on!)
5-year notes (includes
$0.53 billion of foreign add-ons)
7-year notes redemption
0.6
1.7
6.0
3.2
11.5
:U
15.8
et new money to be raiHd
Regular Treasury bills (
$0.32 billion of foreign add-ons)
52-week bills (includes
$0.00 billion of foreign add-ons)
Cash management bills (no foreign add-ons a.."lticipated)
2- & S-year notes (incl. $8.914 billion mat. 4-year notes &
$3.08 billion add-on:
Refunding (includes
$1.58 billion of foreign add-ons)
-1.0
3.6
-6.0
20.4
l2.2
29.2
otal net marketable borrowing
~.O
rote: Assumes an end of quarter cash balance of $40 billion
Summary of October - December 1994
Estimated Net Marketable Borrowing
(billions ot dollars)
'et new money to be raised
Regular masury bills (
SO.OO billion of foreign add-ons)
52-week bill!! (includes
$0.00 billion of foreign add-ons)
Cash management bills redemption (no foreign add-ons anticipated)
2· &t 5-year notes (excl. $9.68 billion mat. 4-yeu notes &t
$3.30 billion add-on
Refunding (includes anticipated $1 billion of foreign add-ons)
11.1
4.2
10.0
39.1
2.3
7·year notes redemption
4-year notes redemption
:2.Z
)tal net markeuble borrowing in quarter
m: Assumes an end of quarter Ctlsh balance of $30 billion
-7.1
50.0
HU\:I
I:]l!:.
~
flQ • "~""
.u.t,
·~nt..n ~'n'
e BorroWing
c¥""',o:"
llX•
iV.ltuAt;:WlU.l
(billions of dollus)
I
lr\
,,-'-VI 'VI '''' -' I
July - September 1994
)tal estimated marketable borrowing
)tal net marketable borrowing issued or announced through August I, 1994
~.O
15.8
29.2
$40 billion
etal remaining net marketable borrowing
ash balance at end of quarter
Amount
Amount
Maturir.g
Foreign
Add-ons
Offered
Cash
Cumulative
cash raised
raised
, &; 6::mQntb bills
07-Jul
14-Jul
21-Jul
28-Jul
04-Aug
ll-Aug
IS-Aug
2S-Aug
01-Sep
08-5ep
15--Sep
22-Sep
29-Sep
I-Wei' hills
2B-Jul
2S-Aug
22-Sep
25.9
25.3
24.6
24.2
24.3
24.1
24.1
24.9
25.1
25.0
0.5
·1.4
0.4
-0.8
O.S
0.4
25.2
25.2
0.0
0.3
0.0
0.0
25.2
0.0
0.0
0.0
0.0
0.0
-1.2
-0.4
0.1
0.0
24.3
25.2
25.2
15.2
15.2
25.2
0.0
..0.2
0.9
15.3
153
17.0
0.0
0.0
1.7
15.3
17.3
0.0
1.9
25.5
25.3
25.2
26.4
25.6
25.1
25.S
16.9
0.9
1.0
-0.3
-0.1
..Q.4
1.7
5.3
ash Managmllimt 5ill~
rttlement
Matunty
lte
date
22-Sep
15-Jul
02-Sep
15-5ep
15-Sep
22-5ep
~
0.0
6.0
6.0
0.0
15.0
15.0
-15.0
-6.0
15.0
6.0
ly 7-year
7.2
0.0
0.0
-7.2
ly 2-year
Iy 5-year
15.3
17.3
0.0
11.0
1.1
0.5
3.2
11.5
0.0
17.3
12.0
1.0
18.3
0.5
-17.1
Il.gust 3-year
~gust
lo-year
~gust 30-year
29.6
o..a
ll.Q
a.a
11.0
!funding
29.6
40.3
1.6
12.2
19U1t 2-year
19ust 5-year
15.7
0.0
17.3
1.0
11.0
0.5
2.6
11.5
ptember 2-year
ptember 5-year
23.5
17.3
1.0
0.0
11.0
485,4
522.0
and total
0.0
0.5
-5.2
11.5
40.1
8.4
45.0
45.0
RUG 02. '94
08_
~~'1~a~ BotTOwing
(billions ot dolUn)
P.S
October .. December 1994
)ta1 estimated marketable borrowing
50.0
0.0
rtall'et marketable borrowing issued or announced through August 1, 1994
Jtal remaining net marketable borrowing
SO.O
ash balance at end 01 quarter
./$ 6:mcnth bills
06.Qct
l3-Oct
$30 billion
Amount
Amount
Poreign
Cash
Cumulative
Maturing
Offered
Add-ons
raised
cuhraiaed
25.1
26.1
25.8
24.9
25.6
23.7
15.9
16.2
16.2
17.5
17.5
17.5
1.3
4.2
a
10
0
10.0
10.0
7.1
0.0
17.5
0.0
-7.1
24.S
24.1
2O-Oct
27.Qct
03-Nov
IO-Nov
17-Nov
24-Nov
Ot-Dec
OS-Dec
IS-Dec
22-Dec
29-Dec
24.4
25.1
24.8
25.3
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.1
0.3
25.2
25.2
25.2
26.0
26.0
26.0
26.0
26.0
26.0
26.0
26.0
26.0
26.0
24.9
0.7
1.9
1.6
0.9
0.0
0.0
1.2
0.7
-0.1
0.2
1.1
0.4
2.3
0.0
1.6
0.0
0.0
1.3
0.0
0.0
0.0
11.1
~kbills
2O-Oct
17-Nov
IS-Dec
Ish management bills
ttlement
lte
Maturity
date
IS-Nov
~
:tober 7-year
:taber 2-year
10ber S-year
19-Jan
15.4
1.2
3.3
0.0
11.0
0.5
11.5
Ivember 3-year
lvember l().year
Ivember 3O-year
funding
0.0
28.9
17.5
12.0
1.2
0.5
18.7
-16.4
Q.Q
Q.Q
28.9
29.5
Ivember 2-vear
15.4
0.0
17.5
11.0
1.2
3.3
0.5
11.5
24,6
439.6
484.6
5,0
30,0
SO.O
Ivember S-year
lnd total
0.0
1.7
~
2.3
DEPARTMENT
OF
THE
TREASURY
NEWS
TREASURY
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
FOR RELEASE WHEN AUTHORIZED AT PRESS CONFERENCE
August 3, 1994
CONTACT: Office of Financing
202/219-3350
TREASURY TO AUCTION CASH MANAGEMENT BILL
The Treasury will auction approximately $7,000 million
of 38-day Treasury cash management bills to be issued
August 15, 1994.
Competitive and noncompetitive tenders will be
received at all Federal Reserve Banks and Branches.
Tenders will not be accepted for bills to be maintained on
the book-entry records of the Department of the Treasury
(TREASURY DIRECT). Tenders will not be received at the
Bureau of the Public Debt, Washington, D.C.
Additional amounts of the bills may be issued to
Federal Reserve Banks as agents for foreign and international monetary authorities at the average price of
accepted competitive tenders_
This offering of Treasury securities is governed by
the terms and conditions set forth in the Uniform Offering
Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes,
and bonds.
Details about the new security are given in the
attached offering highlights.
000
Attachment
LB-997
HIGHLIGHTS OF TREASURY OFFERING
OF 38-DAY CASH MANAGEMENT BILL
August 3, 1994
Offering Amount . . . . . . $7,000 million
Description of Offering:
Term and type of security .
CUSIP number . . . . . . .
Auction date
.
Issue date . . . . . . . .
Maturity date
......
Original issue date.
.
Currently outstanding
.
Minimum bid amount . . . .
Multiples . . . . . . . . .
Minimum to hold amount
.
Multiples to hold
..
Submission of Bids:
Noncompetitive bids
38-day Cash Management Bill
912794 L7 7
August 11, 1994
August 15, 1994
September 22, 1994
September 23, 1993
$40,810 million
$10,000
$1,000
$10,000
$1,000
Accepted in full up to $1,000,000 at
the average discount rate of accepted
competitive bids
(1 ) Must be expressed as a discount rate
with two decimals, e.g., 7.10%.
(2 ) Net long position for each bidder must
be reported when the sum of the total
bid amount, at all discount rates, and
the net long position is $2 billion or
greater.
(3) Net long position must be determined
as of one half-hour prior to the
closing time for receipt of competitive tenders.
Competitive bids
Maximum Recognized Bid
at a Single Yield
· 35% of public offering
Maximum Award .
· 35% of public offering
.
.
Receipt of Tenders:
Noncompetitive tenders
Prior to 11:00
Saving time on
· Prior to 11:30
Saving time on
Competitive tenders
Payment Terms .
.
.
. .
.
a.m. Eastern Daylight
auction day
a.m. Eastern Daylight
auction day
. Full payment with tender or by charge
to a funds account at a Federal
Reserve Bank on issue date
DEPARTMENT
OF
THE
TREASURY
ornCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WAsHINGTON, D.C .• 20220. (202) 622-2960
FOR RELEASE WHEN AUTHORIZED AT PRESS CONFERENCE
August 3, 1994
CONTACT: Office of Financing
202/219-3350
TREASURY TO AUCTION CASH MANAGEMENT BILL
The Treasury will auction approximately $7,000 million
of 38-day Treasury cash management bills to be issued
August 15, 1994_
Competitive and noncompetitive tenders will be
received at all Federal Reserve Banks and Branches.
Tenders will not be acce~ted for bills to be maintained on
the book-entry records of the De~artment of the Treasury
(TREASURY DIRECT). Tenders will not be received at the
Burectu of the Public Debt. Washington, D.C.
Additional amounts of the bills may be issued to
Federal Reserve Banks as agents for foreign and international monetary authorlties at the average price of
accepted competitive tenders.
This offering of Treasury securities is governed by
the terms and conditions set forth in the Uniform Offering
Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes,
and bonds.
Details about the new security are given in the
attached offering highlights.
000
Attachment
LB-997
HIGHLIGHTS OF TREASURY OFFERING
OF 38-DAY CASH MANAGEMENT BILL
August 3, 1994
Offering Amount . . . . . . $7,000 million
Description of Offering:
Term and type of security
CUSIP number
....
Auction date
Issue date
. . .
·
Maturity date
·
Original issue date
...
Currently outstanding
·
Minimum bid amount
·
Multiples . . . . . . .
·
Minimum to hold amount
·
Multiples to hold
... ·
Submission of Bids:
Noncompetitive bids
Accepted in full up to $1,000,000 at
the average discount rate of accepted
competitive bids
( 1) Must be expressed as a discount rate
with two decimals, e.g., 7.10%.
(2 ) Net long position for each bidder must
be reported when the sum of the total
bid amount, at all discount rates, and
the net long position is $2 billion or
greater.
( 3 ) Net long position must be determined
as of one half-hour prior to the
closing time for receipt of competitive tenders.
Competitive bids
Maximum Recognized Bid
at a Single Yield
Maximum Award .
.
.
. . 35% of public offering
35% of public offering
.
Receipt of Tenders:
Noncompetitive tenders
Competitive tenders .
Payment Terms .
38-day Cash Management Bill
912794L7 7
August 11, 1994
August 15, 1994
September 22, 1994
September 23, 1993
$40,810 million
$10,000
$1,000
$10,000
$1,000
P~ior to 11:00
Saving time on
. Prior to 11:30
Saving time on
.
.
a.m. Eastern Daylight
auction day
a.m. Eastern Daylight
auction day
Full payment with tender or by charge
to a funds account at a Federal
Reserve Bank on issue date
NEWS
1500 PENNSYLVANIA AVENUE, N.W.· WASHINGTON, D.C.· 20220· (202) 622-2960
FOR RELEASE UPON DELIVERY
Text as prepared for delivery
August 4, 1994
TESTIMONY OF TREASURY SECRETARY LLOYD BENTSEN
HOUSE COMMITI'EE ON BANKING, FINANCE AND URBAN AFFAIRS
Chairman Gonzalez, Congressman Leach, members of the committee:
There are a number of points I would like to cover this morning. For
organization's sake, I want to present my testimony in four parts. First, I want to
describe my relationship to the oversight of the Resolution Trust Corporation and how
my office operates. I want next to address my recollection of events. r d like also to
discuss the steps I have taken over the past months. And finally, I want to cover the
conclusions which have been reached and the actions I will take.
Knowing that the responsibilities of a Cabinet officer are different from those of a
Member of Congress, I put two systems in place when I came to Treasury to help me
make the transition.
First, as it regards the RTC, I serve as Chairman of the Oversight Board. By law
I am prohibited from involving myself in any day-to-day matters. I can discuss policy in
broad terms, but I cannot intervene in any case-specific matters.
I asked my legislative director, Mike Levy, to make it clear if members or staff
inquired about specific cases, that they should be directed to the RTC, not to me.
Second, I have organized my office such that all the paperwork on matters of
policy and Treasury's varied operations flows through my Executive Secretary, Ed Knight.
Ed's the gatekeeper. It's his job to make certain that what crosses my desk as it regards
the RTC -- or any issue for that matter -- contains only those materials which I should be
seeing -- and nothing else.
LB-998
(MORE)
2
We have a thick manual at the department about how information flows to my
office. I insist on written briefings. It makes the best use of my time. It's the best way
I've found to absorb information. When I'm asked for a decision, I expect a memo that
gives me the background, lays out the options, tells me what the staff recommends. That
way I can either make the decision, or let my staff know I want more information or
want a meeting on the issue. That's how I deal with substantive issues, not in some bull
seSSIOn.
In short, I have a very organized office procedure. I have run my offices like that
for years -- in business, in the Senate, and at the Treasury Department.
Mr. Chairman, if someone on my staff wanted to communicate with me in a
meaningful way, this is how they would have done it. Through my in-box, with a memo,
with a meeting on which I was briefed, in writing. That's not to say I don't have
occasional impromptu visits from or conversations with my staff. That often happens if
there's a developing crisis that must be dealt with. But for matters of any import, I
prefer paper.
I asked my staff to go back and look at my office records to see what I was
involved in over the period in which the committee is interested. From the 23rd of
September last year until March 21 of this year, I had nearly 800 meetings on 560 topics.
I attended 130 meetings at the White House, met with 51 members of Congress, and
testified on the Hill 11 times. I received more than 500 written briefings to prepare for
my meetings. I delivered 60 speeches, gave 80 interviews, had 25 press conferences. I
received over 2,400 memos. And during that period I traveled to seven countries and
nine states.
This entire issue revolves around meetings that I understand were on the issue of
handling press inquiries about the Madison Guaranty referral, or on the procedures the
RTC would follow in pursuing civil claims. There are differing recollections, but they
are about actions that two independent investigations tell us broke no criminal law and
violated no ethical standard.
I have turned the Treasury Department upside down. I've turned my memory
inside out. We went through thousands and thousands of documents and can't find one
written briefing to me on these White House meetings. It wasn't until March 3rd that I
learned the extent of these meetings. I issued a statement about the meetings and said
that I had not attended them and did not know about them.
I may be walled off from most RTC matters, but I am responsible for what
happens at the Treasury Department, and I accept that responsibility. I immediately
asked the Office of Government Ethics to examine these contacts. They're a nonpartisan
agency. They're the experts.
3
In preparing for this hearing, I agreed to the committee request to avoid looking
at materials regarding the case until I gave my deposition to the committee staff. I
agreed to that request, although it frustrated me because I wanted to wade into this and
find out all I could. I had to wait over four months to start looking at these papers.
After I gave my deposition last week, I sat down and began to read through the
material. I saw nothing that changes my recollection.
Let me layout for you what my basic recollection is about these matters.
First, I read in the press sometime in October about criminal referrals and
Madison Guaranty. Second, on February 1, Roger Altman and Jean Hanson came to my
office. Roger told me he was thinking of recusing himself, and the other subject that
came up was the legislation on extending the statute of limitations. Later that month
Roger told me he had decided not to recuse himself.
On February 23rd, I met with Roger and Jean Hanson briefly in advance of the
RTC oversight hearing the 24th. I again told Roger the recusal issue was a personal
issue for him. On the 25th of February, I learned that Roger had testified the day
before as to one meeting with people from the White House, and that he had recused
himself. On March 3rd, I read in the press about two additional meetings. It was then
that I asked for the OGE examination of the contacts and issued my statement.
Now, I would like to review the subsequent events.
Our Treasury Department Inspector General's office was asked to support the
aGE examination. Mr. Fiske, the Independent Counsel, was already looking at this
from the standpoint of the criminal statutes.
After I asked the OGE to examine the ethics issues involved, Mr. Fiske asked the
Treasury IG to suspend his work while Mr. Fiske's investigation was under way. And the
aGE also independently decided it would hold off until Mr. Fiske's work was complete
so as not to interfere.
I want to point out the lengths to which the Treasury Department, at my
direction, went to cooperate with Mr. Fiske, with the IG and with the congressional
committees.
Every scrap of paper that remotely looked like it might conceivably have some
relation to the Madison Guaranty savings and loan, or to contacts with the White House,
was turned over to various investigators -- something on the order of 6,500 pages. We
went through hundreds of thousands of documents with investigators to find the ones
they needed. We used extra warehouse space to hold back our trash.
4
I brought in professional investigators from the IRS to go through the top offices
in Treasury -- mine included. We removed computers from the offices of those involved,
including those used by the support staff, and had experts go through them to find
anything that would be useful. We worked around the clock, quite literally. We
searched offices nationwide to see what could be found. And my staff was always
promptly available to Mr. Fiske, the IG, and congressional investigators to answer
questions.
Now, when Mr. Fiske completed his report on this phase of his investigation and
concluded that no criminal laws were broken, I asked the OGE to complete its
examination of the contacts and report back to me.
Over the past weekend I received the OGE report. I released it to the public,
and then I sent it to the President's counsel. I also sent it to every member of this
committee and the House Banking Committee.
The Office of Government Ethics, after a careful analysis of the independentlygathered facts, says I can conclude that those working at the Treasury did not, repeat did
not violate any of the standards of ethical conduct for employees of the executive branch
of government.
I heard a senator say something the other day that stuck with me. He said that in
this town, an allegation is synonymous with conviction, without benefit of a trial or
hearing.
Oearly, in retrospect, it might have been better if some of these meetings or
contacts had not taken place, or had occurred in a different context. But when you boil
it down, no criminal law was broken, and the people who work at Treasury did not
violate the ethical standards. And no one at Treasury intervened in any way or
interfered in any RTC action.
The OGE report did say it was troubled by some of the contacts, and it raised
important issues that I believe should be addressed.
The OGE said it appeared there were misconceptions by Treasury officials that
may have contributed to the contacts. Those include a possible lack of appreciation of
the difference between a Treasury function and one belonging to the Resolution Trust
Corporation, and what rules apply. They also include a misconception about the
standard on the use of nonpublic information, and a misconception about the function of
a recusal.
5
Those are very good points. I would point out the unique situation in which these
contacts occurred no longer exists. Mr. Altman is no longer acting CEO of the RTC.
And there no longer are lines of responsibility here that could give rise to
misconceptions about job functions and the rules that apply. So the possibility for a
jumbling of roles and a confusion about the rules has been greatly lessened.
I've only had this report for a few days, and I'm not going to make any knee-jerk
reaction to what clearly are complex issues involving management of Treasury functions.
I want to reserve judgment on that. I'm not going to make my decisions in the heat of
debate. I will study this information -- and any thoughts the committee might have -and take whatever steps I consider appropriate.
Before I conclude my testimony, I want to remind the committee of one important
point: The Treasury Department has a law enforcement role, as do a number of other
government agencies. It is critical that the Department be able to communicate with
other agencies, and the White House when necessary. Let me give you some examples:
The White House may need to know that the Secret Service is investigating a crime in
which a visiting dignitary is involved. Or ATF and Customs might have an arms export
case involving high officials of this government, or of a foreign country.
Clearly, there i.s a legitimate need to discuss matters, in the proper forums, with
the proper individuals. There must be a mechanism in which public officials can
communicate with one another without fear they're stepping over the line.
We've seen how grey areas can be -- where there's one set of rules at the RTC,
and another at Treasury. And we've seen how there sometimes is no bright white line
that gives public officials the guidance they need.
I have written the Attorney General, our Inspector General, and the Office of
Government Ethics. I want to work with them -- and the members of this committee -to see what remedies might be available to offer our employees better guidance. And it
should be clearer for our officials how to handle the issue of confidential information as
it regards press inquiries.
Mr. Chairman, members of the committee, two quick points in closing. First, I've
been in public service for nearly 30 years. I've seen everything from the McCarthy
hearings to Watergate, Iran-Contra, the Church Committee, all of it. What you have
here is a unique confluence of circumstances that, when you strip away all the rhetoric,
resulted in actions that broke no criminal law, did not violate the ethics rules and did not
in any way affect the Madison case. I think that when Congress concludes these
hearings, Congress and Americans who have followed this matter, will conclude the
same. And finally, I am proud that throughout it all the Treasury Department has
continued to operate at 100 percent and done a good job.
-30-
DEPARTMENT
'IREASURY
OF
THE
TREASURY
f') NEW S
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
AUGUST 4, 1994
contact: Howard Schloss
202-622-2960
BENTSEN ASKS AGENCIES TO ASSIST ON CONTACT GUIDELINES
Treasury Secretary Lloyd Bentsen Thursday asked the Justice
Department, the Office of Government Ethics and Treasury's senior
investigator to help better define the rules under which law
enforcement officials discuss sensitive information.
Acting on issues pointed out in an Office of Government
Ethics report on contacts between senior Treasury officials and
the White House, Bentsen wrote the agencies seeking assistance in
helping to "develop guidance for senior officials and career
employees."
The letter went to Attorney General Janet Reno, OGE Director
Stephen Potts, and Robert Cesca, Deputy Inspector General of the
Treasury Department.
"This issue cuts across agency lines," Bentsen said in
releasing the letters.
"It is not unique to the Treasury
Department.
Every law enforcement agency faces similar problems
in contacts not only with the White House but with other
agencies."
The OGE report, while it said Treasury officials violated no
ethical guidelines in discussing the Madison Guaranty S&L case
with White House officials, pointed up areas of concern it
labeled "troubling." The report said it appeared there were
misconceptions that might have contributed to the contacts.
Those included a possible lack of appreciation of the difference
between a Treasury function and a Resolution Trust Corp.
function, and what rules applied to each role.
It also noted a
misconception about standards on the use of nonpublic
information, on the function of a recusal, and on the handling of
nonpublic information in responding to press inquiries.
Bentsen asked Under Secretary for Enforcement Ron Noble to
work with the three agencies in examining ways to provide clearer
guidelines for senior political and career officials.
-30-
LB-999
DEPARTMENT OF THE TREASURY
WASHINGTON, D.C.
SECRETARY OF THE TREASURY
August 4, 1994
The Honorable Janet Reno
Attorney General of the United states
U.s. Department of Justice
10th & constitution Avenue, N.W.
Washington, D.C. 20530
Dear Madam Attorney General:
As you may have read, a number of meetings of White House and
Treasury senior officials occurred over the past ten months.
These meetings, and other contacts, have been the subject of
investigations by the Independent Counsel, the Office of
Government Ethics (OGE) and the House and Senate Banking
Committees.
The OGE review was done at my request.
Mr. Fiske determined in late June that there was insufficient
evidence to bring any criminal prosecution, and the Office of
Government Ethics recently issued a Report to me, a copy of
which is enclosed, which stated that I might "reasonably
conclude that the conduct detailed in the report of officials
presently employed by the Department of the Treasury did not
violate the Standards of Ethical Conduct for Employees of the
Executive Branch."
The Report noted, however, that many of the contacts were
troubling.
One aspect the OGE found troubling was in the area
of the disclosure of non-public information to the White
House, especially that which deals with a law enforcement
matter.
In that regard, I informed the Senate Committee
yesterday and intend to inform the House Committee this
morning that I will be conferring with your Department, the
Office of the Inspector General and the OGE to develop
guidance for senior officials and career employees.
Mr. Edward S. Knight, my Executive Secretary and Senior Advisor,
spoke with Deputy Attorney General Gorelick Tuesday evening in
order to initiate this process.
I look to you for counsel and
assistance in this area because the issue cuts across all
Departments and agencies which have law enforcement functions.
Under Secretary Noble will be assisting me in this effort, and
I hope you will provide advice and leadership in this matter.
Enclosure
DEPARTMENT OF THE TREASURY
WASHINGTON, D.C.
ECRETARY OF THE TREASURY
August 4, 1994
The Honorable stephen D. Potts
Director
Office of Government Ethics
1201 New York Avenue, N.W. #500
Washington, D.C. 20005
Dear Director Potts:
Let me thank you again for the outstanding work the men and
women of your Office did in the review of the White
House-Treasury contacts relating to Madison Guaranty Savings &
Loan. As usual, the work was performed in a manner that was
thorough, objective and professional.
As you know last Sunday I released the Report prepared by your
Office to the public and to Congress. The Report stated that I
might "reasonably conclude that the conduct detailed in the
report of officials presently employed in the Department of the
Treasury did not violate the Standards of Ethical Conduct for
Employees of the Executive Branch." We, of course, were very
happy to receive this information.
However, the Report noted that many of the contacts were
troubling.
One aspect the OGE found troubling was in the area
of the disclosure of non-public information to the White
House, especially that which deals with a law enforcement
matter.
In that regard, I informed the Senate Banking
Committee yesterday and intend to inform the House Banking
Committee this morning that I will be conferring with your
Office, the Department of Justice and Treasury's Office of
Inspector General to develop guidance for senior officials and
career employees.
Given the experience and expertise of your Office, I look to
you for advice and assistance in this area.
Under secretary
Ronald K. Noble will be assisting me in this effort, and I
hope that you will assist us in this matter.
Enclosure
•
DEPARTMENT OF THE TREASURY
WASHINGTON, D.C.
,ECRETARY OF THE TREASURY
August 4, 1994
Mr. Robert P. Cesca
Deputy Inspector General
Office of the Inspector General
u.s. Department of the Treasury
1500 Pennsylvania Ave., N.W.
Washington, D.C. 20220
Dear Mr. Cesca:
Let me thank you again for the outstanding work the men and
women of your Office did in support of the work of review by
the Office of Government Ethics of the White House-Treasury
contacts relating to Madison Guaranty Savings & Loan. As usual,
the work was performed in a manner that was thorough, objective
and professional.
As you know last Sunday I released the OGE Report to the
public and to Congress.
I have enclosed a copy for your
information. The Report stated that I might "reasonably
conclude that the conduct detailed in the report of officials
presently employed in the Department of the Treasury did not
violate the Standards of Ethical Conduct for Employees of the
Executive Branch."
However, the Report noted that many of the contacts were
troubling.
One aspect the OGE found troubling was in the area
of the disclosure of non-public information to the White
House, especially that which deals with a law enforcement
matter.
In that regard, I informed the Senate Banking
Committee yesterday and intend to inform the House Banking
Committee this morning that I will be conferring with your
Office, the Department of Justice and the OGE to develop
guidance for senior officials and career employees.
Given the experience and expertise of your Office, I look to
you for advice and assistance in this area.
Under Secretary
Ronald K. Noble will be assisting me in this effort, and I
hope that you will assist us in this matter.
Enclosure
I
D EPA R T 1'1 E N T
() F
THE
lRFASURY {(I)}
T R E :\ S II R Y
NEW S
178<)
1500 PENNSYLVANIA AVENUE, N.W.· WASHINGTON, D.C.· 20220· (202) 622-2960
CONTACT:
FOR IMMEDIATE RELEASE
August 4, 1994
Office of Financing
202/219-3350
AMENDED CASH MANAGEMENT BILL ANNOUNCEMENT
The cash management bill offering which was announced
yesterday, August 3, 1994, understated the amount currently
outstanding. The total amount maturing September 22, 1994, should
have been shown as $46,845 million (so as to include the 69-day
cash management bill issued July 15, 1994, in the amount of $6,035
million), rather than the $40,810 million stated in the press
release.
All other particulars in the announcement remain the same.
000
LB-IOOO
PUBLIC DEBT NEWS
lepartment of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR RELEASE AT 3:00 PM
August 4, 1994
Contact: Peter Hollenbach
(202) 219-3302
PUBLIC DEBT ANNOUNCES ACTIVI1Y FOR
SECURITIES IN THE STRIPS PROGRAM FOR JULY 1994
Treasury's Bureau of the Public Debt announced activity figures for the month of July 1994,
of securities within the Separate Trading of Registered Interest and Principal of Securities
program (STRIPS).
Dollar Amounts in Thousands
Principal Outstanding
(Eligible Securities)
$778,599,149
Held in Unstripped Form
$556,069,297
Held in Stripped Form
$222,529,852
Reconstituted in July
$7,794,918
The accompanying table gives a breakdown of STRIPS activity by individual loan description.
The balances in this table are subject to audit and subsequent revision. These monthly figures
are included in Table VI of the Monthlv Statement of the Public Debt, entitled "Holdings of
Treasury Securities in Stripped Form."
Information about "Holdings of Treasury Securities in Stripped Form" is now available on the
Department of Commerce's Economic Bulletin Board (EBB). The EBB, which can be
accessed using personal computers, is an inexpensive service provided by the Department of
Commerce. For more information concerning this service call 202-482-1986.
000
PA-153
(LB-lOOl)
TABLE VI--HOLDINGS OF TREASURY SECURITIES IN STRIPPED FORM. JULY 31. 1994
(In thousands)
---------------------------------------------------------------------------------------------- -----------------
an Oescri pt ion
I
I
I
I
I
I
Principal Amount Outstanding
1----------------------------------------------------1
Maturity Date
I
I
Total
I
I
Portion Held in
Unstripped Form
I
I
Portion Held in
Stripped Form
I
I
Reconstituted
This Month#1
-------------------1--------------------1----------------1-----------------1-----------------1
% Note C-1994 .... .
% Note A-1995 .... .
% Note B-1995 .... .
% Note C-1995 .... .
Note 0-1995 ..... .
Note A-1996 ..... .
Note C-1996 ..... .
Note 0-1996 ..... .
Note A-1997 ..... .
Note 8-1997 ..... .
Note C-1997 ..... .
Note A-1998 ..... .
e 8-1998 ......... .
Note C-1998 ..... .
Note 0-1998 ..... .
Note A-1999 ..... .
Note 8-1999 ..... .
e C-1999 ......... .
Note 0-1999 ..... .
Note A-2000 ..... .
Note 8-2000 ..... .
Note C-2000 ..... .
Note 0-2000 ..... .
Note A-2001 ..... .
e 8-2001 ......... .
Note C-2001 ..... .
Note 0-2001 ..... .
Note A-2002 ..... .
Note 8-2002 ..... .
Note A-2003 ..... .
Note 8-2003 ..... .
Note A-2004 ..... .
Note 8-2004 ..... .
Yo 80nd 2004 ...... .
,d 2005 .......... .
Yo Bond 2005 ...... .
Bond 2006 ....... .
Yo Bond 2009-14 ... .
Yo Bond 2015 ...... .
Yo Bond 2015 ...... .
Bond 2015 ....... .
Bond 2016 ....... .
Bond 2016 ....... .
Bond 2016 ....... .
..... 11/15/94 .... .
..... 2/15/95 ..... .
· .... 5/15/95 ..... .
..... 8/15/95 ..... .
..... 11/15/95 .... .
..... 2/15/96 ..... .
..... 5/15/96 ..... .
..... 11/15/96 .... .
..... 5/15/97 ..... .
..... 8/15/97 ..... .
..... 11/15/97 .... .
..... 2/15/98 ..... .
..... 5/15/98 ..... .
· .... 8/15/98 ..... .
..... 11/15/98 .... .
..... 2/15/99 ..... .
..... 5/15/99 ..... .
..... 8/15/99 ..... .
..... 11/15/99 .... .
..... 2/15/00 ..... .
..... 5/15/00 ..... .
..... 8/15/00 ..... .
..... 11/15/00 .... .
..... 2/15/01 ..... .
. .... 5/15/01 ..... .
. ... . 8/15/01 ..... .
..... 11/15/01 .... .
..... 5/15/02 ..... .
. .... 8/15/02 ..... .
..... 2/15/03 ..... .
..... 8/15/03 ..... .
· .... 2/15/04 ..... .
. .... 5/15/04 ..... .
... 11/15/04 .... .
..... 5/15/05 ..... .
..... 8/15/05 ..... .
..... 2/15/06 ..... .
..... 11/15/14 ... .
..... 2/15/15 ..... .
· .... 8/15/15 .
..... 11/15/15 .... .
· .... 2/15/16 ..... .
..... 5/15/16 ..... .
..... 11/15/16 ... .
$6.658.554
6.933.861
7.127.086
7.955.901
7.318.550
8.446.008
20.085.643
20.258.810
9.921.237
9.362.836
9.808.329
9.159.068
9.165.387
11.342.646
9.902.875
9.719.623
10.047.103
10.163.644
10.773.960
10.673.033
10.496.230
11.080.646
11.519.682
11.312.802
12.398.083
12.339.185
24.226.102
11.714.397
23.859.015
23.562.691
28.011.028
12.955.077
14.440.372
8.301. 806
4.260.758
9.269.713
4.755.916
6.005.584
12.667.799
7.149.916
6.899.859
7.266.854
18.823.551
18.864.448
$4.468.154
5.697.701
4.536.846
5.255.101
3.778.150
6.975.608
18.823.243
17.973.210
8.734.837
7.914.836
7.779.529
8.286.108
6.784.187
9.301.846
7.142.875
8.153.223
6.717.503
8.004.369
8.068.360
9.359.833
6.197.030
8.066.086
9.025.282
9.412.802
10.020.358
10.497,585
22.857.142
10,970.637
23.446.215
23.534.339
27.867,828
12.955.077
14.440.372
5.559.406
3.238,258
8.474.513
4.755.276
2.007.184
4.936.279
2,197.596
2.352.659
6.316.454
18.406.751
17.959.888
$2.190.400
1.236.160
2,590,240
2,700.800
3.540.400
1.470.400
I
I
I
I
I
I
1.262.400 "
2.285,600 "
1. 186,400 II
1. 448.000 II
2,028.800 "
872,960 I I
2,381.200 "
2.040.800 I I
2,760.000 II
1. 566.400 II
3.329.600 II
2.159.275 I I
2.705.600 I I
1.313.200 II
4.299.200 II
3.014.560 I I
2.494.400 II
1. 900.000 II
2.377,725 II
1. 841. 600 II
1.368.960 II
743,760 II
412,800 II
28.352 II
143.20011
-0-0-
II
II
II
II
2,742.400
1.022.500
795.20011
640 II
3.998.400 II
7.731.520 II
4.952.320 II
4.547.20011
950.400 II
416.800 II
904.560 II
$32,000
108.800
24.800
35.600
45,200
-096,000
38,400
16.800
28.800
38.400
90,880
52.000
105,600
120.000
38.400
52,800
34.100
-0-
29,600
-0-
24,800
24,800
75.200
-0-
72.000
163.680
85.040
-0-
-0-0-0-
-0-
64.000
230.000
90.400
-0-
319.200
402.080
133.120
36.800
-0-
4.800
6.240
TABLE VI--HOLDINGS OF TREASURY SECURITIES IN STRIPPED FORM, JULY 31, 1994
(In thousands)
---------------------------------------------------------------------------------------------------- -----------------
I
Principal Amount Outstanding
I
1----------------------------------------------------1
Maturity Date
Loan Description
I
I
Total
I
I
I
Portion Held in
Unstripped Form
I
I
Portion Held in
Stripped Form
I
Reconstituted
This Month'l
I
------------------------- --------------------1----------------1----------------- ----------------- ----------------8-3/4X Bond 2017. .......
8-7/8X Bond 2017........
9-1/8X Bond 2018........
9X Bond 2018............
8-7/8X Bond 2019 ....... .
8-1/8X Bond 2019 ....... .
8-1/2X Bond 2020 ....... .
8-3/4X Bond 2020 ....... .
8-3/4X Bond 2020 ....... .
7-7/8X Bond 2021 ....... .
8-1/8X Bond 2021 ....... .
8-1/8X Bond 2021 ....... .
8X Bond 2021 ........... .
7-1/4X Bond 2022 ....... .
7-5/8X Bond 2022 ....... .
7-1/8X Bond 2023 ....... .
6-1/4X Bond 2023 ....... .
. .... 5/15/17 ......
. .... 8/15/17 ......
. .... 5/15/18 ......
. .... 11/15/18 .....
· .... 2/15/19 ..... .
..... 8/15/19 ..... .
..... 2/15/20 ..... .
..... 5/15/20 ..... .
..... 8/15/20 ..... .
· .... 2/15/21. .....
..... 5/15/21. .....
· .... 8/15/21. .....
· .... 11/15/21. ....
..... 8/15/22 ..... .
· .... 11/15/22 .....
..... 2/15/23 ..... .
. .... 8/15/23 ..... .
I
I
I
I
18,194,169
14,016,858
8,708,639
9,032,870
19,250,798
20,213,832
10,228,868
10,158,883
21.418,606
11,113,373
11,958,888
12,163,482
32,798,394
10,352,790
10,699,626
18,374,361
22,909,044
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
1
6,044,889
6,485,658
2,243,039
1.291.470
4,509,998
17,515,592
4,377,668
3,525,443
4,101,326
9,340,573
4,325,608
4,872,922
7,724,594
8,551,990
3,986,026
15,067,161
22,854,804
I
12,149,280
7,531,200
6,465,600
7,741,400
14,740,800
2,698,240
5,851,200
6,633,440
17,317,280
1,772,800
7,633,280
7,290,560
25,073,800
1. 800,800
6,713,600
3,307,200
54,240
II
II
II
II
II
I I
694,400
867,200
446,400
89,400
488,000
174,720
224,800
152,640
481,760
105,600
127,680
283,200
533,050
142,400
177 ,600
81.600
4,128
----------------1-----------------1-----------------1 1----------------Total ................ .
778,599,149
I
556,069,297
1
222,529,852
I I
7,794,918
======================================================================================================================
#lEffective May I, 1987, securities held in stripped form were eligible for reconstitution to their unstripped form.
Note: On the 4th workday of each month Table VI will be available after 3:00 pm eastern time on the Commerce Department's
Economic Bulletin Board (EBB). The telephone number for more information about EBB is (202) 482-1986. The balances
in this table are subject to audit and subsequent adjustments.
DEPARTMENT
OF
THE
TREASURY
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C .• 20220. (202) 622-2960
STATEMENT BY DENNIS I. FOREMAN, DEPUTY GENERAL COUNSEL,
DEPARTMENT OF THE TREASURY,
BEFORE THE SENATE COMMITTEE ON BANKING, HOUSING
AND URBAN AFFAIRS
AUGUST 2, 1994
LB-1002
STATEMENT BY DENNIS I. FOREMAN,
DEPUTY GENERAL COUNSEL, DEPARTMENT OF THE TREASURY,
BEFORE THE
SENATE COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS.
August 2, 1994
Good morning, Mr. Chairman, Members of the Committee.
My name is Dennis Foreman and I am the Deputy General
Counsel of the Treasury Department.
I have been in the public service
for nearly 24 years. I am a Vietnam veteran, having served in the
U.S. Army's Airborne Special Forces. I was with the U.S. Foreign
Service for five years, including postings to Beirut, Tunis, and the U.S.
Mission to the United Nations in New York. I have worked in four
executive branch legal offices. In 1989, I was selected to be the
Assistant Legal Advisor for Ethics and Personnel at the Department of
State, which was my first position with ethics responsibilities. In
January, 1 991, I was appointed to the Treasury Deputy General
Counsel position, which carries with it the responsibilities of the
Designated Agency Ethics Official.
Page 2 - Statement of Dennis I. Foreman
August 2, 1994
I am appearing here today at the committee's request to discuss
matters pursuant to Senate resolution 229. Because of my position as
the senior ethics official at Treasury, I have certain responsibilities. To
put those responsibilities in proper perspective, I think it is appropriate
to briefly review some of the events in which I was involved.
My involvement in, and knowledge of, the events leading up to
the February 2, 1994 meeting at the White House was very limited. In
January, 1994, I read press stories about Madison Guaranty which
stated that some type of civil claims were being reviewed by the
Resolution Trust Corporation. I also specifically remember reading a
letter from Senator 0' Amato to Mr. Altman dated January 25, 1994
that referred to civil claims involving Madison, the statute of
limitations, and "tolling agreements." Senator 0' Amato's letter noted
that there was a deadline for action in late February. At that time,
someone -
I have no recollection as to who it may have been -
explained to me that these terms related to normal RTC procedural
actions relating to insolvent thrifts. I was told that the civil claims
were being reviewed under routine procedures within the RTC. I
believe I also read this comment in Mr. Altman's February 1, 1994
Page 3 - Statement of Dennis I. Foreman
August 2, 1994
response to Senator D' Amato.
I also understood that action on the substance of the civil claims
might eventually be presented to the interim CEO for decision, although
no proposed action was yet on his desk. This, then, brought up the
question as to whether Mr. Altman should recuse himself from
consideration of the matter even before it arrived. In late January or
early February, Jean Hanson asked me for my views on whether Mr.
Altman should recuse himself because of his friendship with the
President. I told her that I had not undertaken any legal analysis to
determine whether there was a legal requirement that he recuse, but
that my own first reaction was that he should recuse himself. Ms.
Hanson commented that she agreed with me.
Sometime after our first discussion, Ms. Hanson told me that she
had discussed the recusal with Mr. Altman, and that he was "leaning"
toward recusal. In mid-afternoon of Wednesday, February 2, Ms.
Hanson entered my office and said something like: "We're going over
to the White House in a few minutes. Please look at these talking
points." I remember scanning the points quickly and recognizing that
they noted generally the same procedural points regarding the statute
Page 4 - Statement of Dennis I. Foreman
August 2, 1994
of limitations and tolling agreements that I had seen mentioned
previously in the press and in Senator 0' Amato's letter. The talking
points did not mention anything about the substance of the Madison
civil claims.
I believe that I said aloud something like "This is OK. This is
public information." I based my comment in general on information I
had seen in the press and the congressional letters. I did not believe
that this was "nonpublic information." If it had been, I would have
considered the matter further in terms of the Standards of Conduct,
particularly section 5 C.F.R. 2635.703, the "Use of nonpublic
information. "
The final talking point indicated that Mr. Altman had already
decided to recuse himself. I remembered that Ms. Hanson had told me
that he was "leaning" toward recusal, and I questioned whether he had
made a final decision. I do not remember Ms. Hanson's response, if
any.
My review of the talking points and the brief discussion with Ms.
Hanson lasted no longer than 2-3 minutes and my analysis centered on
the public information issue. Based on the talking points I reviewed, I
Page 5 - Statement of Dennis I. Foreman
August 2, 1994
do not believe that the meeting violated any ethics regulation.
The
Office of Government Ethics has agreed with my conclusion.
Based on press comments, there seems to be some confusion
about the issue of appearance of impropriety. For there to be an
appearance that leads to a violation of the regulations, it is not enough
that there is public controversy, or criticism, or even a public uproar.
The standard, under the regulations, is whether a reasonable person,
with knowledge of the relevant facts, would believe that the
regulations have been violated. According to the talking points I
reviewed, the information to be discussed at the meeting was
procedural and generally public. Moreover, to the best of my
knowledge, no action was taken relating to the actual handling of the
substance of the Madiso:1 civil claims themselves.
Hence, I do not
believe that a reasonable person with knowledge of the relevant facts
would believe that the ethics regulations were violated. Again, I am
pleased that the Office of Government Ethics reached the same
conclusion.
On February 3, Mr. Altman received a letter from Congressman
Leach, asking him to confer with "Treasury's General Counsel and
Page 6 - Statement of Dennis 1. Foreman
August 2, 1994
ethics officers" to consider a recusal from the Madison matter. On the
evening of February 2 , or on February 3, Ms. Hanson told me that Mr.
Nussbaum thought that I, as the Treasury ethics lawyer, should talk to
the senior ethics lawyer for his office, Beth Nolan, about the question
of Mr. Altman's possible recusal. I talked to Ms. Nolan on February 4
and informed her that Treasury, RTC and OGE were going to undertake
the legal analysis related to recusal. I also informed her that I was only
going to discuss procedure, and that I had no knowledge about any of
the substantive issues related to Madison. Ms. Nolan's notes indicate
that we had a similar phone conversation on February 9. The only
comment I remember Ms. Nolan making on this subject was that the
conclusion could become a precedent for similar circumstances in the
future.
Later, on February 4, I went to the Office of Government Ethics,
and had a similar conversation with Donald Campbell, the Deputy
Director, and Gary Davis, the General Counsel. I noted again that I had
no knowledge of the substance of the civil claims relating to Madison,
explained the procedural framework, and said that I had informed Ms.
Nolan that we were going to analyze the legal issues with OGE and
Page 7 - Statement of Dennis I. Foreman
August 2, 1994
RTC ethics officials. The OGE officials said they would work with
Treasury and the RTC on the question.
A few days later, Mr. Altman, Ms. Hanson, Ellen Kulka, RTC's
General Counsel, and Arthur Kusinski, RTC's senior ethics official, and
I met with Mr. Altman to discuss the recusal issue. Mr. Altman
directed us to ensure that our legal research and analysis was
complete, thorough, and accurate.
In the following days, I worked
on, and concurred in, the legal analysis and ethics opinion that was
sent to Mr. Altman on February 18, 1994, by Mr. Kusinski. The Office
of Government Ethics also concurred in that opinion. In essence, that
opinion said that there was no legal requirement that Mr. Altman
recuse himself from Madison related matters. I sent Mr. Kusinski's
memorandum with my own cover note reiterating my concurrence to
Mr. Altman on February 23 to ensure that there was no doubt about
Treasury, RTC and OGE consensus on this issue.
I believe that there is another source of confusion in the public
discussion about these meetings. Do they present issues of "ethics" or
questions of "judgment." The word "unethical" has a connotation of
something improper. The word "judgment" goes to the subjective
Page 8 - Statement of Dennis 1. Foreman
August 2, 1994
reasoning power of human beings and possible human error, not
improper behavior.
In my years as an ethics lawyer, I have always said to federal
employees that if they check with us about some proposed action, and
give us information about the context, and if we don't object to the
activity, then criticism for the ethics call should shift to the ethics
lawyer. For the February 2 meeting talking points, that ethics lawyer
is me. I had an opportunity to object to the meeting, but didn't do so.
I didn't object because there was nothing objectionable. It is not only
unfair but inaccurate to criticize Mr. Altman or Ms. Hanson for doing
something "unethical" in relation to the February meeting. That is my
responsibility.
That leaves the issue of judgment. As I noted before, I suggest
that this be analyzed as a question of human reasoning power, rather
than one of improper behavior.
Finally, one more comment. In my experience, ethics
issues arise all the time in federal agencies, both as considerations in
decision-making and in connection with financial disclosure and other
requirements applicable to officials appointed by the President.
Page 9 - Statement of Dennis I. Foreman
August 2, 1994
Secretary Bentsen introduced me to his new staff on the morning of
January 21, 1993 and turned that first staff meeting over to me for a
ninety minute seminar on government ethics. The Secretary made it
clear that ethical considerations were a matter of great importance for
him. Based on my frequent interaction with the senior officials at
Treasury for the last 18 months, I believe that those officials have
worked hard to conform to the many complex ethics rules applicable to
senior federal officials. I have the highest regard for their ability,
integrity and professionalism.
Thank you, Mr. Chairman. I will be pleased to respond to any
questions by members of the committee.
DEPARTMENT
OF
THE
TREASURY
I
~/78~9~. . . . . . . . . . . . . . . . . . . . . ..
........................
OmCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.· WASHINGTON, D.C.. 20220. (202) 622-2960
Prepared Remarks of J. Benjamin H. Nye
before the Senate Committee on Banking, Housing, and Urban Affairs
August 2, 1994
Mr Chairman and members of the Committee. My name is Benjamin Nye and I welcome
the opportunity to appear here today.
I would like to provide you with a brief summary of my background for the benefit of
the committee and an outline of my role in the matter at hand. Prior to working at Treasury I
worked in Boston as a business consultant in the strategy group of a firm called Mercer
Management Consulting. I left in early February of 1993 to begin work in public service, and
have since worked at the Treasury Department for the past one and a half years.
I first joined Treasury as the special assistant to the Assistant Secretary for Economic
Policy. There I served as both a chief of staff, managing 54 people and the office budget, as
well as a policy advisor to the Assistant Secretary on issues such as the 1993 budget bill, the
earned income tax credit expansion, the auto task force, and several other issues.
I then succeeded Josh Steiner as special assistant to the Deputy Secretary.
working for Roger Altman in early September of 1993, and I still do so today.
I began
My involvement in events related to Madison Guaranty comes through meetings I
attended within Treasury and at the RTC. I did not attend any of the White House meetings that
have been the subject of these hearings. Furthermore, I did not have any phone conversations
with anyone at the White House on this matter. And finally, I did not know of the TreasuryWhite House meetings which occurred before February 2nd and which did not include the
Deputy Secretary himself.
In conclusion, I would like to state for the record that I have the utmost respect for the
integrity of the people with whom I work at Treasury, Roger Altman, Jean Hanson, and Joshua
Steiner are friends yes, but more importantly I know them to be honest, forthright, and credible.
I trust that at the conclusion of these hearings you will know them to be so too.
Now, I would be happy to answer any questions you may have,
LB-lO03
DEPARTMENT
OF
THE
TREASURY
TREASURY
NEWS
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
EMBARGOED UNTIL DELIVERY
Expected at 9:30 A.M.
STATEMENT OF JOSHUA L. STEINER
CHIEF OF STAFF
U.S. DEPARTMENT OF THE TREASURY
BEFORE THE COMMITTEE ON BANKING,
HOUSING, AND URBAN AFFAIRS
UNITED STATES SENATE
AUGUST 2, 1994
1004
August 2, 1994
Mr. Chairman, Senator D'Amato, Members of this committee:
My name is Joshua steiner and I serve as the Chief of Staff
at the Department of the Treasury. Before joining the Treasury
Department, I was Executive Assistant to Timothy Healy, the
President of the New York Public Library.
I am here today to answer your questions and help clarify any
outstanding issues concerning contacts between the Treasury
Department and the White House on the Resolution Trust
Corporation's investigation of Madison Guaranty.
I have
cooperated fully with all investigations into this matter
including those conducted by Mr. Fiske, the Office of Government
Ethics and Congressional committees.
Several members of this Committee have commented on my
personal diary and, if I might, I would like to make one brief
point about it.
I started keeping this diary nearly six years ago. I would
write in it fairly infrequently -- sometimes every two weeks,
other times six weeks would go by before I made an entry.
Indeed, some of the entries of interest to this Committee
describe events that occurred nearly a month before I wrote about
them.
I made no effort to check the accuracy of my diary because
this was never intended to be a precise narrative or a verbatim
account of what took place. At times, it included impressions of
meetings that I did not even attend.
It was, more than anything,
a way to reflect on events and draw lessons from my personal and
professional experiences.
Today, you will ask me questions under oath and I hope my
answers will clarify the entries I made in my diary.
Since the
time I first made these entries, I have had a chance to reflect
about precisely what I know.
I wish that my diary was more accurate, but I take my
responsibility to this Committee very seriously and I feel
obligated to present the facts as truthfully as I possibly can.
Thank you.
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
August 4, 1994
Contact: Peter Hollenbach
(202) 219-3302
JULY SAVINGS BONDS SALES REACH $626 MILLION
Savings Bonds sales in July reached $626 million, pushing the value of U.S. Savings Bonds held
by Americans to $177.7 billion, up 6 percent over a year ago.
Savings Bonds issued on or after March I, 1993, and held five years or longer, earn the
market-based interest rate if it averages more than the guaranteed minimum of 4 percent. If
redeemed during the first five years, bonds earn 4 percent. Bonds issued before March 1993
retain their existing guaranteed minimum rates until they enter a new extended maturity period.
The current semiannual market-based rate effective May 1, 1994, through October 31, 1994, is
4.70 percent.
Interest earnings on Savings Bonds are exempt from State and local income taxes, and Federal
income taxes on the interest earnings can be deferred.
Current rate information can be obtained by calling the Savings Bonds Marketing Office's
toll-free number, 1-800-4US-BOND.
-more-
PA-154
(LB-100S)
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: 5
Author(s):
Title:
CNN Interview With Deputy Treasury Secretary Roger Altman, Interviewer: Bernard Shaw
Date:
1994-08-01
Journal:
Volume:
Page(s):
URL:
Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
August 8, 1994
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $12,430 million of 13-week bills to be issued
August 11, 1994 and to mature November 10, 1994 were
accepted today (CUSIP: 912794N91).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
4.42%
4.44%
4.43%
Investment
Rate
4.53%
4.55%
4.54%
Price
98.883
98.878
98.880
$100,000 was accepted at lower yields.
Tenders at the high discount rate were allotted 63%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
T¥pe
Competl.tive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
Received
$42,118,569
Accepted
$12,429,904
$36,678,808
1.465,505
$38,144,313
$6,990,143
1,465,505
$8,455,648
3,186,210
3,186,210
788,046
$42,118,569
788,046
$12,429,904
An additional $224(354 thousand of bills will be
issued to foreign officl.al institutions for new cash.
LB-I006
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
August 8, 1994
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTI0N OF·26-WEEK BILLS
Tenders for $12,457 million of 26-week bills to be issued
August 11, 1994 and to mature February 9, 1995 were
accepted today (CUSIP: 912794Q49).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
4.92%
4.93%
4.93%
Investment
Rate
5.11%
5.13%
5.13%
Price
97.513
97.508
97.508
$10,000 was accepted at lower yields.
Tenders at the high discount rate were allotted 42%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
Received
$48,139,089
Accepted
$12,457,070
$42,167,352
1,301,683
$43,469,035
$6,485,333
1, 301, 683
$7,787,016
3,400,000
3,400,000
1,270,054
$48,139,089
1, 270,054
$12,457,070
An additional $361,646 thousand of bills will be
issued to foreign official institutions for new cash.
LB-I007
DEPARTMENT
OF
THE
TREASURY
~~/78~g~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
..................................
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.. 20220· (202) 622-2960
EMBARGOED ~ 1:00 P.M.
August 9, 1994
STATEMENT OF
GLEN A. KOHL
TAX LEGISLATIVE COUNSEL
DEPARTMENT OF THE TREASURY
BEFORE THE
WAYS AND MEANS SUBCOMMI'ITEE ON SELECT REVENUE MEASURES
AND THE
WAYS AND MEANS SUBCOMMI'ITEE ON OVERSIGHT
U.S. HOUSE OF REPRESENTATIVES
Honorable Chairmen and members of the Subcommittees:
Thank you for the opportunity to present the views of the Administration on the proposal to
modify the legal restrictions on the use of tax-exempt bonds for certain non-profit healthcare
providers. Specifically, the proposal would eliminate the $150 million cap on the amount of
tax-exempt bonds that may be outstanding for the benefit of certain health-related facilities
operated by qualifying section 501(c)(3) organizations. In summary, for the reasons outlined
below, the Administration does not oppose the proposal, provided it is financed with an
appropriate revenue offset.
Background
General rules for tax-exempt bonds. Generally, the interest on the obligations of a
State or political subdivision is excluded from gross income. Tax-exempt bonds provide a
subsidy to the ultimate borrower in the form of lower interest rates. Under the tax-exempt
bond rules, State and local governments are generally permitted to borrow on a tax-exempt
basis to finance their direct activities. By contrast, unless a statutory exception applies,
interest on private activity bonds-that is, bonds issued by State or local governments to
fmance the activities of private, nongovernmental entities-is taxable.
Tax:exempt private activity bonds. Exceptions to the general rule that interest on
private activity bonds is taxable include bonds issued to provide funding for airports, rental
housing, single family mortgages, and student loans, as well as bonds issued for the benefit
of section 501 (c)(3) organizations; Qualified private activity bonds are subject to a number
of limitations that do not apply to other tax-exempt bonds. Most importantly, tax-exempt
private activity bonds are generally subject to an annual volume cap that limits the amount of
private activity bonds that can be issued in each year on a State-by-State basis. Thus, the
aggregate volume of most tax-exempt private =\ctivity bonds is strictly limited.
1008
2
However, this State volume cap does not apply to private activity bonds issued for
section 50l(c)(3) organizations. Instead, current law places a volume limitation on the
particular section 50l(c)(3) organization. Specifically, no single section 50l(c)(3)
organization may be the beneficiary of more than $150 million of outstanding tax-exempt
bonds. However, in recognition of the large amounts of capital that these institutions
require, this limitation does not apply to bonds to finance hospitals. Thus, there is currently
no limitation on the amount of tax-exempt bonds that may be issued for the benefit of a
section 50l(c)(3) hospital. The term ·hospital· is defined in the legislative history to mean
acute care, primarily inpatient facilities.
Proposal and Administration's Position
The proposal would expand the exception to the $150 million limitation so that, rather
than being limited to • hospitals , • it would cover a broader class of health-related facilities.
We do have some reservations regarding the proposal. First, the proposal would result in a
revenue loss to the federal government. Second, tax-exempt bonds are an inefficient means
of providing a subsidy when compared to other, more direct programs such as grants and
direct loans. Also, the proposal may result in a greater than optimal percentage of healthcare
resources being spent on capital intensive activities. Finally, we are also concerned that the
proposal is inconsistent with the general tax policy objective of limiting tax-exempt bonds.
The characterization of bonds for 501(c)(3) organizations as private activity bonds subject to
the $150 million limitation is the only significant statutory limitation on the potential volume
of these bonds.
.
Each of these matters is of concern to the Administration. Nevertheless, we
recognize the importance of facilitating healthcare providers' ability to adapt to a changing
healthcare environment. The range of healthcare providers needing large amounts of capital
is no longer limited to ·hospitals" within the current tax law definition. For example, the
current definition of hospital does not appear to apply to a healthcare provider that wishes to
build and finance more efficient, satellite clinics and similar facilities, in addition to its more
traditional, inpatient facilities.
The proposal would also eliminate the arbitrariness of the $150 million limitation.
Unlike the private activity bond volume cap, which is established based on the population of
each State, the $150 million limitation is a flat limit that applies uniformly to both large and
small institutions without regard to need or the relative scope of an organization's activities.
In summary, although we have concerns regarding the expanded use of tax-exempt
bonds, this proposal provides important benefits, particularly with regard to healthcare
reform. Therefore, we do not oppose the proposal to exempt health-related facilities from
the $150 million limitation, provided that it is financed with an appropriate revenue offset.
•
•
•
3
This concludes my prepared remarks. I would be happy to answer any questions that you
may have and Treasury would be pleased to work with your subcommittees as the proposal
moves forward.
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
August 9, 1994
CONTACT~
Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 3-YEAR NOTES
Tenders for $17,015 million of 3-year notes, Series X-1997,
to be issued August 15, 1994 and to mature August 15, 1997
were accepted today (CUSIP: 912827Q70).
The interest rate on the notes will be 6 1/2%. The range
of accepted bids and corresponding prices are as follows:
Low
High
Average
yield
6.59%
6.62%
6.61%
Price
99.759
99.678
99.705
$56,000 was acce~ted at lower yields.
Tenders at the h1gh yield were allotted 45%.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$43,994,012
Accepted
$17,014,837
The $17,015 million of accepted tenders includes $1,318
million of noncompetitive tenders and $15,697 million of
competitive tenders from the public.
In addition, $1,098 million of tenders was awarded at the
average ~rice to Federal Reserve Banks as agents for foreign and
internat10nal monetary authorities. An add1tional $2,013 million
of tenders was also accepted at the average price from Federal
Reserve Banks for their own account in exchange for maturing
securities.
LB-I009
DEPARTMENT
OF
THE
TREASURY
TREASURY
(~<ll NEW S
....................~~<~~'~I~~~.~....................
•
1782-,...
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR RELEASE AT 2:30 P.M.
August 9, 1994
CONTACT:
Office of Financing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $24,800 million, to be issued August 18,
1994. This offering will result in a paydown for the Treasury of
about $550 million, as the maturing weekly bills are outstanding
in the amount of $25,341 million.
Federal Reserve Banks hold $6,497 million of the maturing
bills for their own accounts, which may be refunded within the
offering amount at the weighted average discount rate of accepted
competitive tenders.
Federal Reserve Banks hold $1,910 million as agents for
foreign and international monetary authorities, which may be
refunded within the offering amount at the weighted average
discount rate of accepted competitive tenders. Additional
amounts may be issued for such accounts if the aggregate amount
of new bids exceeds the aggregate amount of maturing bills.
Tenders for the bills will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public
Debt, Washington, D. C. This offering of Treasury securities
is governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes, and
bonds.
Details about each of the new securities are given in the
attached offering highlights.
000
Attachment
LB - 1010
HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED AUGUST 18, 1994
August 9, 1994
Offering Amount .
.
.
.
.
Description of Offering:
Term and type of security .
CUSIP number
Auction date
Issue date
Maturity date
Original issue date
Currently outstanding
Minimum bid amount
Multiples . . . . . .
$12,400 million
$12,400 million
91-day bill
912794 L9 3
August 15, 1994
August 18, 1994
November 17, 1994
November 18, 1993
$28,399 million
$10,000
$ 1,000
182-day bill
912794 Q5 6
August 15, 1994
August 18, 1994
February 16, 1995
August 18, 1994
$10,000
$ 1,000
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids
Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids
(1) Must be expressed as a discount rate with
two decimals, e.g., 7.10%.
(2) Net long position for each bidder must be
reported when the sum of the total bid
amount, at all discount rates, and the net
long position is $2 billion or greater.
(3) Net long position must be determined as of
one half-hour prior to the closing time for
receipt of competitive tenders.
Competitive bids
Maximum Recognized Bid
at a Single Yield
Maximum Award .
.
.
.
Receiot of Tenders:
Noncompetitive tenders
Competitive tenders
Payment Terms .
35% of public offering
.
35% of public offering
Prior to 12:00 noon Eastern Daylight Saving time
on auction day
Prior to 1:00 p.m. Eastern Daylight Saving time
on auction day
Full payment with tender or by charge to a funds
account at a Federal Reserve Bank on issue date
DEPARTMENT
OF
THE
TREASURY (~.~
. . ~.<~
~~i)
TREASURY
NEW S
..................................~~iJ78fq~~..· ..l •.•.•..•'..........................
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
Text as Prepared for Delivery
August 10, 1994
REMARKS OF TREASURY SECRETARY LLOYD BENTSEN
DEMOCRATIC BUDGET GROUP
WASHINGTON D.C.
Last month, I was at the G-7 with the President. And we asked our trading
partners: is it time to think about what we do after the Uruguay Round? What we do
next? And they pointed back at us and said: we'll be glad to talk -- once Congress
ratifies what's on the table now. They put the monkey right back on our backs.
The other countries don't have the problem we do. Britain, Germany, and France
don't have a budget that says "Go make up $11-12 billion in lost revenues." We get no
credit that once business expands because of this more revenues will come in. No credit
that over the next 10 years, because of the increase in business, this could reduce the
deficit by $60 billion.
Having been in the Senate, I know what happens if you waive the budget. It's a
slippery slope down. And think about what would happen in the financial markets.
They finally respect Washington for cutting the budget deficit. Do you want interest
rates headed up because of the Uruguay Round?
The timing on this is bad. It's too close to an election. You know what happens
when it gets close to an election -- you don't want to take tough votes. I don't blame
you. And you have enough tough ones between health care and crime.
But we have to do this -- and now. Can you imagine the shockwave this would
send around the world if the country that led the effort for seven years didn't ratify it?
I'm being told by CEOs that GAlT is five times bigger for them than NAFfA.
But GAlT numbers are Washington's best-kept secrets.
This will help us export an extra $150 billion per year in 10 years. It will create
between 300,000 and 700,000 jobs. Right now 10 million Americans owe their jobs to
exports.
LB-IOll
2
It will reduce global tariffs by one-third on manufactured goods. Overall, tariff
cuts are far larger abroad, than in the U.S .. For example, in India it's 15 percent;
Argentina, 13 percent; New Zealand, 12 percent; Thailand, 10 percent; Chile, 10 percent;
and the European Union, 2.3 percent. In America, it's 1.6 percent.
This will protect intellectual property, especially in the pharmaceutical and
software industries. Right now, the U.S. loses up to $60 billion a year in intellectual
property rights violations. It also will open up service industry markets and require other
countries to reduce quotas that keep out American products.
We did a study at Treasury and found the Uruguay Round will reduce worldwide
tariffs on industrial commodities by $750 billion over the next 10 years. That makes it
one of the biggest international tax cuts in history. I would think if congressmen were
voting on a tax cut, you'd all be with us. We'd have 535 co-sponsors. But you're not all
with us -- because some of you don't see it as a tax cut. And this may hurt some of your
industries and some of your constituents. It's easier to criticize than to be positive.
But we have to start asking -- how can we in this country prepare for a world that
10 years from now, won't look anything like it does today? In the coming decades, threequarters of all growth in world trade will come from developing countries. By the year
2010, countries like Argentina, Brazil, China, India, Indonesia, South Korea, Poland,
Turkey, and South Africa will generate $900 billion in new export opportunities.
During the NAFTA and budget debates, I argued that you need to pass
something, or else all you're left with is the status quo. This one's different.
No Uruguay Round, and we don't even keep the status quo.
If we don't implement this, we'd be inviting other countries to cut preferential
deals. This means our exporters may be paying higher tariffs than their competitors.
That's not keeping the status quo, that's putting American companies 10 points down.
Sixty years ago, the average tariff on foreign goods was 60 percent in the United
States. There have been eight GATT bargaining rounds -- and with completion of the
Uruguay Round, average tariffs in industrial countries will be brought down to about 4
percent. From 60 percent to 4 percent.
Now, we're the fastest growing G-7 country -- growing three times faster than
Japan. Our companies have done the restructuring. They've done the cutting that the
Europeans are only beginning. They're the ones in the best shape to benefit from the
Uruguay Round. The bottom line: we need American trade policies that are as
competitive as American producers.
-30-
DEPARTMENT
OF
THE
TREASURY (~.:.:
. .~.~~
~ "i,It. ~~
~~17&q
TREASURY
NEW
S
.
....................................
omCE OF PUBLIC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.. 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
August 10, 1994
Contact: Michelle Smith
(202) 622-2960
STATEMENT BY TREASURY SECRETARY LLOYD BENTSEN
I commend the House and the Senate for passing the foreign operations bill, which
includes vital funding for the multilateral development banks.
The development banks are in the thick of the action on the international economic
front. Together, they are the largest single source of official financing for economic growth
and development. The economic policies they promote increase growth and support U. S.
interests around the world.
The House and Senate action helps the U. S. retain its leadership position in these
banks. For years, we allowed our commitments to go unmet and our arrears to these banks
skyrocketed. But now, with this responsible vote, we've turned the corner and are taking an
important first step in fulfilling our promises.
-30-
LB-1012
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
August 10, 1994
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 10-YEAR NOTES
Tenders for $12,073 million of 10-year notes, Series C-2004,
to be issued August 15, 1994 and to mature August 15, 2004
were accepted today (CUSIP: 912827Q88).
The interest rate on the notes will be 7 1/4%. The range
of accepted bids and corresponding prices are as follows:
Low
High
Average
yield
7.32%
7.33%
7.33%
Price
99.510
99.440
99.440
$90,000 was accepted at lower yields.
Tenders at the high yield were allotted 96%.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$29,142,649
Accepted
$12,073,181
The $12,073 million of accepted tenders includes $524
million of noncompetitive tenders and $11,549 million of
competitive tenders from the public.
In addition, $500 million of tenders was awarded at the
average price to Federal Reserve Banks as agents for foreign and
international monetary authorities. An additional $750 million
of tenders was also accepted at the average price from Federal
Reserve Banks for their own account in exchange for maturing
securities.
The minimum par amount required for STRIPS is $800,000.
Larger amounts must be in multiples of that amount.
LB-I013
·
DEPARTMENT
OF
THE
rIRE~ASURY ~(~~f~
~~i/
'<'~~,
TREASURY
NEW S
~'~/78r9~. . . . . . . . . . . . . . . . . . . . . . . . . . . .. .
..............................
OFFICE OF PUBUC AFFAIRS ·1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.. 20220. (202) 622-2960
Contact: Jon Murchinson
(202) 622-2960
FOR IMMEDIATE RELEASE
August 10, 1994
STATEMENT BY SECRETARY BENTSEN ON COMMUNITY DEVELOPMENT ACT
I commend the members of the House and Senate for the strong support they showed
by passing the Riegle Community Development and Regulatory Improvement Act of 1994.
This legislation reaffirms our commitment to economic and social redevelopment based
on entrepreneurial spirit, fiscal responsibility and private sector funding. In addition to
establishing the Community Development Financial Institutions Fund, this broad act will take
steps to make credit more available to small businesses and reduce paperwork burdens on
financial institutions. The bill also reforms the Bank Secrecy Act to improve detection of
money laundering, protects consumers of second mortgages from abusive practices and
strengthens the National Flood Insurance Program.
This act, in addition to the RTC Completion Act and the Credit Availability Program,
highlights the success of our incremental approach to financial services legislation as opposed
to the omnibus approach favored by previous administrations. The Community Development
Act was passed with overwhelming bipartisan support in Congress. I am also pleased that the
House passed the Interstate Banking Bill with widespread bipartisan support, and I hope the
Senate will do so in the near future.
I look forward to President Clinton signing the Riegle Community Development Act
into law and implementing the initiative he announced on July 15, 1993.
-30-
LB-1014
Major Provisions of the Riegle Community Development
and Regulatory Improvement Act of 1994
Community Development Financial Institutions:
•
The Riegle Community Development and Regulatory Improvement Act of 1994
implements the initiative announced by President Clinton on July 15, 1993.
•
This legislation reaffirms the Administration's commitment to helping communities
help themselves by ensuring greater access to capital and credit.
•
The Act sets forth a program of federal support for a wide range of specialized lenders
known as community development financial institutions (CDFIs), including
"community partnerships" formed by CDFIs and other traditional institutions.
CDFIs provide basic banking services, lending, equity investment, and
development services to economically distressed areas and populations.
•
The Act establishes a Community Development Financial Institutions Fund (Fund) and
authorizes $382 million over four years.
The Fund will be administered by an Administrator, who is appointed by the
President and confirmed by the Senate, and advised by a 15-member Advisory
Board consisting of government officials and private citizens.
The Fund will promote the formation and expansion of community
development financial institutions by providing them with equity, loans, grants,
deposits and technical assistance; and the Fund may provide assistance to
organizations for the purpose of enhancing the liquidity of CDFIs.
The Fund also will administer a new deposit insurance assessment credit
program built largely on the Bank Enterprise Act to award credits to traditional
lenders based on increases in qualifying activities.
•
Fund assistance may be used by CDFIs to support activities, such as small business
credit extensions, low income housing development, community facilities development,
provision of basic financial services, and training.
•
Among other things, to be eligible for Fund assistance applicants must have a primary
mission of community development, provide for community input into the operations
of the institution, leverage private funds, and demonstrate the capacity to be selfsustaining.
•
This Act is not a substitute for active community lending by institutions subject to the
Community Reinvestment Act (CRA). Rather, this Act complements the CRA.
Other Provisions:
•
In addition to creating the Community Development Financial Institutions Fund, the
legislation addresses a number of other issues. It will:
authorize $10 million in appropriations for the Community Development Credit
Union Revolving Loan Fund over the next four years;
protect consumers from exorbitant fees, high interest rates, and abusive terms
of second mortgages;
increase the availability of credit to small businesses by removing regulatory
barriers that hinder the securitization of small business loans and by authorizing
a small business capital access program administered by the states;
reduce the regulatory and paperwork burden on financial institutions by
removing unnecessary and outdated legislative requirements and by providing
for the federal banking agencies to streamline and simplify regulatory
requirements;
reform the Bank Secrecy Act to improve the detection of money laundering
while reducing the regulatory burden of Currency Transaction Reports;
strengthen the National Flood Insurance Program and reduce the risk to the
flood insurance fund by increasing compliance, providing incentives for
community flood plain management, and providing for mitigation assistance.
Department of the Treasury
Office of Financial Institutions Policy
August 10, 1994
DEPARTMENT
OF
THE
TREASURY (~'l;
~~ ~
-l>'
'<'~~
TREASURY
NEW S
~/7kq~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .
................................
OFFICE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C.. 20220. (202) 622-2960
STATEMENT OF GERALD MURPHY
FISCAL ASSISTANT SECRETARY
UNITED STATES DEPARTMENT OF THE TREASURY
BEFORE THE JOINT HEARING OF THE HOUSE BANKING SUBCOMMITTEES ON
CONSUMER CREDIT AND INSURANCE; AND FINANCIAL INSTITUTIONS
SUPERVISION, REGULATION AND DEPOSIT INSURANCE
AUGUST 11, 1994
Good morning, Chairman Kennedy and Chairman Neal, and members of
the subcommittees.
Thank you for providing me with the
opportunity to testify at this hearing.
My name is Gerald Murphy, and I am the Fiscal Assistant Secretary
for the United States Department of the Treasury.
While I have
many duties, perhaps the most important are to oversee Treasury's
payments and collections system.
During the present Fiscal Year,
Treasury's Financial Management service (FMS) will process and
deliver roughly 840 million Treasury payments, and collect
approximately $1.2 trillion in Federal revenues.
My other
responsibilities include promoting sound financial management
pra~tices
throughout the Federal Government, overseeing the
Government's central accounting and reporting system, and
providing a number of other financial services.
LB-IOI5
2
I am here today to convey the Administration's commitment to
developing an efficient, electronic system to deliver Federal
benefits and payments to those who lack bank accounts, the so
called unbanked.
Our program is referred to as Electronic
Benefit Transfer, or EBT.
EBT will enable thQ Government to electronically deliver a full
array of benefits and payments to the unbanked, including food
stamps, Aid to Families with Dependent Children (AFDC), and
Supplemental Security IncomQ (SSI).
be replaced with plastic cards.
under EBT, paper checks will
Basically,
unbank~d
will be issued debit cards by the Government.
recipients
The debit cards
will then be utilized to access Automated Teller Machines (ATMs)
to
~ithdraw
cash and Point-of-Sale (POS) terminals for the
purchase of food and other retail commodities.
Before I report on our efforts to make EBT a National reality,
let me briefly detail the Department of the Treasury's
advancement into Electronic Funds Transfer (EFT) systems.
Treasury is the leader in promoting the use of electronic methods
for making Federal Government payments.
fir~t
In FY 1993, for the
time ever, Treasury made more than 50 percent of direct
Federal benefit payments electronically, using primarily direct
deposit.
These payments include Social Security, 5S1, Veterans
Pension and Compensation, and civil Service and Railroad
3
Retirement benefit programs.
Disbursing these payments
eleotronically saves the taxpayers nearly $100 million per year.
It also provides recipients with significantly greater safety and
convenience compared with receiving and cashing Government
checks.
Treasury's long-term goal is to create an all-electronic
Treasury, with all payments and collections made electronically.
By 1999, our objective is to make 80 percent of all benefit
payments electronically.
But, we cannot depend exclusively on
direct deposit to achieve that objective.
To use direct deposit, recipients must have a bank account.
Unfortunately, an estimated 20-30 million Americans, including 10
million recipients of direct Federal benefits, do not have bank
accounts, and thus cannot participate in the direct deposit
/
program.
since the late-1980's, Treasury has been testing the
use of EBT to make payments electronically to these unbanked
Federal benefit recipients.
As stated previously, EBT simply
enables recipients to use plastic cards to access their benefits
through ATMs and retail pos terminals.
Treasury has demonstrated that recipients of direct Federal
benefits, who do not have bank accounts, can receive the greater
safety and convenience of electronic payments in a cost-effective
manner using EST.
Baltimore, Maryland was the site of Treasury's
4
first pilot in 1989.
Currently, we are testing EBT in Texas,
specifically the Houston and Dallas/Ft. Worth metropolitan areas.
We believe that the Government-wide use of EBT for not only
Federal benefits, but state-administered program payments as
well, will promote sound Government financial management.
Current EBT pilots have delivered food stamps, AFDC and other
State-administered programs, in: Readin9, pennsylvania; Bernallio
County (Albuquerque), New Mexico; Ramsey County (St. Paul),
Minnesota; Linn County, Iowa; Dayton, Ohio; Camden County, New
Jersey; and the entire state of Maryland.
Evaluations of these
pilots have shown that such benefits can be delivered costeffectively using EBT.
Furthermore, all of the pilots, Federal as well as State-run,
have demonstrated that, as compared with paper check
disbursement, EBT:
*
is safer and reduces crime
*
provides convenience for recipients as well
as food stamp retailers
*
empowers low-income recipients and enhances a
sense of dignity
*
has the potential to save taxpayer dollars
through more efficient disbursement and by
combating fraud in welfare programs.
5
The real opportunity, and challenge, in EBT is in combining both
the Federal and state programs in a single, unified EBT payment
process that is modelled closely after, and uses to the extent
possible, the commercial banking infrastructure.
Vice president Gore's September 1993 report of the National
Performance Review called for the rapid development of a
nationwide, integrated system to deliver Government benefits
electronically.
An EBT Task Force, comprised of the Federal Government Agencies
that have the greatest interest in EBT, was chartered in November
1993 to meet this challenge.
In May 1994, the Task Force issued
its implementation plan for nationwide EBT, with the concept of
EBT as a one card, user friendly, unified electronic delivery
method for all Government funded benefits under a Federal-State
partnership.
The plan projects that once fully implemented, a broad range of
Federal and state benefits, including food stamps, AFDC, state
General Assistance, Social Security, and SSI will be delivered
using EBT.
$11~
The Task Force estimates that benefits totalling over
billion annually will be delivered electronically to over
31 million recipients.
Based on our experience in EBT and our role in Government
6
financial management, Treasury has been an active participant in
the EBT Task Force, along with the Office of Management and
Budget, the United States Department of Health and Human
Services, and the United states Department of Agriculture.
Deputy and I represent Treasury on the Task Force.
My
We have
detailed staff to work with the Task Force executive staff, and
we have an in-house staff to support Treasury's commitments to
the
~'ask
Force.
These commitments relate closely to Treasury's
traditional role in payments and financial services, and include
acquisition of EBT banking services, development of EBT
settlement services, development of EBT audit and certification
requirements, and coordination with the financial industry.
We
at Treasury are also continuing our active role in promoting the
use of direct deposit and EBT for direct Federal benefit programs
to ensure we achieve our 80 percent objective by 1999.
Treasury's acquisition of EBT services will support both of the
strategic paths endorsed by the Task Force for nationwide EBT,
which are: The development of one or more EBT prototypes in joint
venture partnership between one or more states and the Federal
Government; and, The State-initiated approach in which Treasury
provides direct Federal and settlement services that states can
access through their own acquisition processes.
t~e
In either case,
Task Force will provide states a foundation, including base
service requirements, operating rules, and funding agreements,
that will ensure a consistent operating environment among states,
7
enabling true interstate access of benefits and reduced costs
through standard requirements and operations.
CUrrently, one of the Task Force's highest priorities is to work
with seven southern states, known as the Southern Alliance of
states, to develop the first of the joint-venture partnership EBT
prototypes.
The seven States are: Alabama, Arkansas, Florida,
Georgia, Missouri, North Carolina, and Tennessee.
These states
began working together over a year ago, and formally asked the
Federal Government to work with them to define, develop, and
implement an integrated regional Federal/State EBT system.
The
Southern Alliance plans to have a pilot system running by early
1996.
The Task Force has consulted, and continues to consult closely,
with the key non-government parties with a crucial interest in
EBT: retailers, financial institutions, and recipient advocacy
groups.
The input and support of these stakeholder groups is
critical to the success of EBT, and by understanding each group's
needs, will provide the opportunity to design a more efficient,
cost-effective process.
For example, retailer groups have
expressed a willingness to invest in point-of-sale infrastructure
that can be used by EST if the Government can ensure a standard
retailer interface in all EBT systems.
This sort of trade-off
can make EBT more cost-effective for both Government and
retailers.
8
The EBT Task Force's plan for nationwide EBT is clear and in
writing: (1) establish partnerships with states, (2) build the
foundation to ensure consistency among States and with commercial
processes, (3) implement EBT both in joint-venture partnerships
and state-initiated projects, (4) expand EBT to include
additional benefit programs, and (5) enhance EBT by adopting new
and evolving technologies such as smart cards.
provides for nationwide EBT by 1999.
focus, Treasury
~ill
-
This plan
While maintaining this
not miss opportunities to expand EBT for
direct Federal benefits where it makes sense, and adding these
benefits to extsting state EBT programs to help reduce the cost
and increase the level of service to recipients who receive both
a Federal and a state benefit.
We at Treasury, and I think I can speak for the other members of
the EBT Task Force, are very excited about the prospects for EBT.
This is truly a win-win situation--recipients get greater safety
and convenience, and an enhanced sense of dignity: Federal and
State Governments have a way to improve service to our customers
at reduced cost; and the private sector will save money compared
to the cost of processing paper checks and food coupons.
There
are still numerous issues that need to be resolved to make
nationwide EBT a reality.
But EST can reflect Government- at its
best, working better and costing less.
Thank you again for the opportunity to appear at this joint
hearing and discuss EBT.
I am available to answer any questions.
-30-
DBLIe DEBT NEWS
Department of the Treasury •
Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
August 11, 1994
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 38-DAY BILLS
Tenders for $7,005 million of 38-day bills to be issued
August 15, 1994 and to mature September 22, 1994 were
accepted today (CUSIP: 912794L77).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
4.35%
4.39%
4.37%
Investment
Rate
4.43%
4.47%
4.45%
Price
99.541
99.537
99.539
Tenders at the high discount rate were allotted 33%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
TOTALS
LB-I016
Received
$29,573,000
Accepted
$7,004,500
$29,572,000
1,000
$29,573,000
$7,003,500
1,000
$7,004,500
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
August 11, 1994
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 30-YEAR, 3-MONTH BONDS
Tenders for $11,006 million of 30-year, 3-month bonds to be
issued August 15, 1994 and to mature November 15, 2024 were
accepted today (CUSIP: 912810ES3).
The interest rate on the bonds will be 7 1/2%. The range
of accepted bids and corresponding prices are as follows:
Low
High
Average
yield
7.55%
7.59%
7.56%
Price
99.373
98.904
99.256
$2,000 was accepted at lower yields.
Tenders at the high yield were allotted 72%.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$21,588,686
Accepted
$11,005,549
The $11,006 million of accepted tenders includes $323
million of noncompetitive tenders and $10,683 million of
competitive tenders from the public.
In addition, $450 million of tenders was also acce~ted
at the average price from Federal Reserve Banks for the~r own
account in exchange for maturing securities.
The minimum par amount reguired for STRIPS is $80,000.
Larger amounts must be in mult~ples of that amount.
Also, accrued interest of $18.75000 per $1,000 of par must
be paid for the period May 15, 1994 to August 15, 1994.
LB-I017
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National Vaccine Injury Compensation Program:
Financing the Post-1988 Program and Other Issues
A Report to The Congress
Department of the Treasury
August 1994
National Vaccine Injury Compensation Program:
Financing the Post-1988 Program and Other Issues
A Report to the Congress
Department of the Treasury
August 1994
DEPARTMENT OF THE TREASURY
WASHINGTON
ASSISTANT SECRETARY
August 10, 1994
The Honorable Sam Gibbons
Acting Chairman
Committee on Ways and Means
United States House of Representatives
Washington, D.C. 20515
Dear Mr. Chairman:
The Conference Report on H.R. 2264 (Public Law 103-66), the
Omnibus Budget Reconciliation Act of 1993, provides that the
Secretary of the Treasury, in consultation with the Secretary of
Health and Human Services, conduct a study of the Vaccine Injury
compensation Trust Fund and several related matters and submit a
report of that study to the House Committee on Ways and Means and
the senate Committee on Finance within one year after the date of
enactment.
Pursuant to that Conference Report, I hereby submit "Vaccine
Injury Compensation: Financing the Post-1988 Program and Other
Issues."
I hope you will find this report informative.
similar letter to Representative Bill Archer.
I am sending a
Sincerely,
'e~S-~
Leslie B. Samuels
Assistant Secretary
(Tax Policy)
DEPARTMENT OF THE TREASURY
WASHINGTON
ASSISTANT SECRETARY
August 10, 1994
The Honorable Daniel Patrick Moynihan
Chairman
Committee on Finance
united states Senate
washington, D.C. 20510
Dear Mr. Chairman:
The Conference Report on H.R. 2264 (Public Law 103-66), the
Omnibus Budget Reconciliation Act of 1993, provides that the
Secretary of the Treasury, in consultation with the Secretary of
Health and Human Services, conduct a study of the Vaccine Injury
Compensation Trust Fund and several related matters and submit a
report of that study to the House Committee on Ways and Means and
the Senate Committee on Finance within one year after the date of
enactment.
Pursuant to that Conference Report, I hereby submit "Vaccine
Injury Compensation: Financing the Post-1988 Program and other
Issues."
I hope you will find this report informative.
similar letter to Senator Bob Packwood.
I am sending a
Sincerely,
Leslie B. Samuels
Assistant Secretary
(Tax Policy)
EXECUTIVE SUMMARY
The National Vaccine Injury Compensation Program (VICP) was made permanent by the
Omnibus Budget Reconciliation Act of 1993 (OBRA '93). For vaccinations occurring after
September 30, 1988, VICP compensates for injuries and deaths associated with vaccines
routinely administered to children. Compensation is paid out of a trust fund supported by excise
taxes levied on vaccine manufacturers.
The Conference Report on OBRA '93 mandated that the Secretary of the Treasury, in
consultation with the Secretary of Health and Human Services, conduct a study of several
specific aspects of VICP and its financing. This report is rendered in response to that mandate.
The major findings of the report are as follows:
•
VICP compensation awards are expected to be $55 million per year during the latter half
of the 1990s. VICP has not been in existence long enough to project future outlays with
confidence. All cases arising from vaccinations in the first full year of operation have
yet to be adjudicated. As the program matures sufficient program data will become
available to permit more sophisticated methods of estimating future outlays to be used.
•
The scientific literature indicates that most injuries and deaths of a type compensable
under VICP cannot be said with certainty to have been caused by vaccines covered by
VICP. VICP awards are extremely rare in comparison to the number of vaccines
administered .
•
The principle of imposing excise taxes on vaccine manufacturers to support a trust fund
used to compensate victims of adverse effects associated with vaccinations is sound.
•
The Secretary of Health and Human Services is expected to add hepatitis B and Rib
vaccines to VICP's Vaccine Injury Table. Following this action, taxes on these vaccines
should be enacted so that any related adverse events are covered by VICP.
•
Current tax rates on vaccines generate more revenue than needed to support the Vaccine
Trust Fund. Based on current projections, the trust fund balance will be about $1.2
billion by the year 2000. Rates could be cut roughly in half and still retain a trust fund
balance sufficient to cover an unexpected increase in VICP awards.
•
Vaccines produced by State governments should be taxed on the same basis as vaccines
produced by private companies.
•
As an alternative to maintaining the current risk-related method of setting tax rates on
each vaccine covered by VICP, Congress may need to consider a flat-rate tax on all
covered vaccines because changing vaccine technology and other factors may make risk
assessment problematic.
-v-
TABLE OF CONTENTS
Page
EXECUTIVE SUMMARY
v
TABLE OF CONTENTS
VB
LIST OF TABLES
IX
CHAPTER 1. INTRODUCTION AND SUMMARY
1
I. INTRODUCTION
1
A. Congressional Mandate
1
B. Description of the National Vaccine Injury Compensation Program (VICP)
C. Amendments Made by OBRA '93
7
II. SUMMARY
2
7
CHAPTER 2. ESTIMATED COMPENSATION PAYMENTS
I. SUMMARY
9
9
II. FACTORS AFFECTING FUTURE COMPENSATION PAYMENTS
9
III. VICP OUTLAYS
10
IV. VICP AWARDS ASSOCIATED WITH 1989 VACCINATIONS
12
CHAPTER 3. RATES OF INJURY AND DEATH RELATED TO VACCINATIONS
13
I. SUMMARY
13
II. CASES ASSOCIATED WITH 1989 VACCINATIONS
13
III. THE SCIENTIFIC EVIDENCE
14
IV. THE VACCINE ADVERSE EVENT REPORTING SYSTEM (VAERS)
16
CHAPTER 4. NEW VACCINES AND IMMUNIZATION PRACTICES THAT
MAY BE COVERED BY VICP
17
I. SUMMARY
17
-Vll-
II. RECOMMENDATIONS OF THE CENTERS FOR DISEASE CONTROL
AND PREVENTION
17
III. DE FACTO VICP COVERAGE OF UNTAXED VACCINES
17
IV. CONSEQUENCES FOR THE VACCINE TRUST FUND
18
CHAPTER 5. INCLUDING ADDmONAL VACCINES IN VICP
19
1. SUMMARY
19
II. THE RATIONALE FOR TAXING VACCINES
19
A. The Cost of Vaccinations
B. Appropriate Tax Rates
C. Tax Rate Recommendation of the Advisory Commission
on Childhood Vaccines
19
20
23
III. TAXING ADDITIONAL VACCINES
24
CHAPTER 6. TAXING VACCINES PRODUCED BY STATE AGENCIES
25
1. SUMMARY
25
II. THE RATIONALE FOR TAXING VACCINES PRODUCED BY STATES
Ill. THE RATIONALE FOR PUBLIC PROVISION OF VACCINATIONS
TABLES
25
25
following page 26
APPENDICES
A. Fact Sheet: Vaccine Injury Compensation Program, Post-1988 Program and
Fact Sheet: Vaccine Injury Compensation Program, Pre-1988 Program
B. Vaccine Inj ury Table
C. Schedule of Vaccinations Recommended for Children
D. Adverse Effects of Penussis and Rubella Vaccines - Executive Summary
E. Adverse Events Associated with Childhood Vaccines: Evidence Bearing on
Causally - Executive Summary
-VllI-
LIST OF TABLES
(tables appear following page 26)
Table 1. Vaccine Injury Compensation Trust Fund, Fiscal Years 1988-1999
Table 2. Disposition of VICP cases arising from Vaccinations Administered after
September 30, 1988
Table 3. Net Doses of Vaccines Available and Implicit Taxes, Calendar Year 1989
Table 4. Disposition of VICP Cases Arising from 1989 Vaccinations
Table 5. Payments for VICP Cases Arising from 1989 Vaccinations
Table 6. Average Time Between Vaccination and Payment for VICP Cases Arising from
1989 Vaccinations
Table 7. VICP Compensations Payments by Year: Cases Arising from 1989 Vaccinations
CHAPTER 1. INTRODUCTION AND SUMMARY
I. INTRODUCTION
A. Congressional Mandate
The Conference Report on H.R. 2264 (public Law 103-66), the Omnibus Budget
Reconciliation Act of 1993 (OBRA '93), provides that the Secretary of the Treasury, in
consultation with the Secretary of Health and Human Services (HHS), conduct a study of the
Vaccine Injury Compensation Trust Fund and several related matters and submit a report of that
study to the House Committee on Ways and Means and the Senate Committee on Finance within
one year after the date of enactment. 1 The Conference Report referenced the House bill which
directed that the following items be studied:
1)
The estimated amount that will be paid from the Vaccine Injury
Compensation Trust Fund with respect to vaccines administered after
September 30, 1988;
2)
The rates of vaccine-related injury or death with respect to various types
of vaccines;
3)
New vaccines and immunization practices being developed or used for
which amounts may be paid from the Trust Fund;
4)
Whether additional vaccines should be included in the National Vaccine
Injury Compensation Program; and
5)
The appropriate treatment of vaccines produced by State governmental
agenCIes.
H.R. Rept. 103-213, August 4, 1993, pp. 730-33. OBRA '93 was enacted August 10,
1993. The Report of the House Committee on the Budget indicated that the mandated report
should "determine whether additional vaccines should be induded in the Program or other
modifications (such as adjustments to the excise tax rates) are warranted." H.R. Rept. 103-111,
p.810.
1
-1-
B. Description of the National Vaccine Injury Compensation Program (VICP)
VICP is a no-fault alternative to State tort law and private liability insurance systems for
compensating individuals, including adults, who have been injured by vaccines routinely
administered to children. It was established by the National Childhood Vaccine Injury Act of
1986, title III of P.L. 99-660 (the 1986 Act), enacted on November 14, 1986. 2
VICP was established to improve the then current approach to compensating individuals
damaged by a vaccine, and to improve the stability and predictability of the childhood vaccine
market. The legislative history of the 1986 Act states, in part:
... for the relatively few who are injured by vaccines -- through no fault of their
own -- the opportunities for redress and restitution are limited, time-consuming,
expensive, and often unanswered. Currently, vaccine-injured persons can seek
recovery for their damages only through the civil tort system or through a
settlement arrangement with the vaccine manufacturer. Over time, neither
approach has proven satisfactory. Lawsuits and settlement negotiations can take
months and even years to complete. Transaction costs -- including attorneys' fees
and court payments -- are high. And in the end, no recovery may be available.
Yet futures have been destroyed and mounting expenses must be met.
Manufacturers have become concerned not only with the problems of time
and expense, but with the issue of the availability of affordable product liability
insurance that is used to cover losses related to vaccine injury cases. Whether
current problems with liability insurance arise from a crisis in the tort system or
from a particularly bad downturn in the business cycle of the insurance industry
has been and remains a matter of great controversy. Nevertheless, there is little
doubt that vaccine manufacturers face great difficulty in obtaining insurance.
This lack of insurance was the stated reason for one manufacturer to withdraw
temporarily from the vaccine market in 1984. Others have suggested that they
may follow a similar course of action. This factor, coupled with the possibility
that vaccine-injured persons may recover substantial awards in tort claims, has
prompted manufacturers to question their continued participation in the vaccine
market.
The loss of any of the existing manufacturers of childhood vaccines at this
time could create a genuine public health hazard in this country. Currently, there
is only one manufacturer of the polio vaccine, one manufacturer of the measles,
mumps, rubella (MMR) vaccine, and two manufacturers of the DPT vaccine.
The VICP provisions of the 1986 Act, as subsequently amended, appear as Subtitle 2 of
Title XXI of the Public Health Service Act (title 42 United States Code).
2
-2-
Two states, Michigan and Massachusetts, produce their own DPT vaccine.
Despite Congressional support, Federal vaccine stockpiles maintained by the
Centers for Disease Control [and Prevention] (CDC) have never reached CDC's
recommended level of six-months' supply. Thus, the withdrawal of even a single
manufacturer would present the very real possibility of vaccine shortages, and,
in turn, increasing numbers of unimmunized children, and, perhaps, a resurgence
of preventable diseases. 3
The Vaccine Injury Compensation Trust Fund (the Vaccine Trust Fund) was created by
the Omnibus Budget Reconciliation Act of 1987 (OBRA '87) to provide an appropriate funding
mechanism for the ongoing portion of VICP. Prior to being made permanent by OBRA '93,
compensation payments only with respect to injuries and deaths from vaccines administered after
September 30, 1988, and before October 1, 1992, were to be paid out of the Vaccine Trust
Fund. In addition to compensation payments for injuries and deaths, attorney fees and certain
administrative costs of VICP are also paid out of the Vaccine Trust Fund.
Trust Fund Revenues. Net revenues from excise taxes imposed on certain vaccines are
transferred into the Vaccine Trust Fund. In addition, interest income is received by the Vaccine
Trust Fund on fund balances invested in special-issue Treasury securities. The excise taxes are
imposed on the following vaccines, at the following per-dose rates: 4
Diphtheria, pertussis, and tetanus (DPT)
$4.56
Diphtheria and tetanus (DT)
0.06
Measles, mumps, and rubella (MMR)
4.44
Polio
0.29
Gross excise tax receipts are reduced by 25 percent before being transferred from the
General Fund (into which these excise taxes are initially deposited) to the Vaccine Trust Fund.
This reduction follows the statutory requirement in OBRA '87 that net revenues be transferred
and committee report language indicating that a 25 percent factor be used to account for the
3
H.R. Rept. 99-908, Part I, September 26, 1986, pp. 6-7.
These excise taxes became effective for vaccines sold after December 31, 1987. If a
vaccine includes more than one of the enumerated vaccines then the tax on the combination
vaccine is the sum of the taxes separately imposed on the components. A single-antigen vaccine
(e.g., for measles) is taxed at the rate applicable to the taxable vaccine of which the single
antigen is a part (e.g., $4.44 per dose for a measles vaccine).
4
-3-
reduction in income and payroll tax receipts resulting from imposition of an eXCIse tax. 5
Exported vaccines are not subject to these excise taxes. 6
As provided in OBRA '87, the excise taxes supporting the Vaccine Trust Fund expired
after December 31, 1992, as a result of the Treasury Secretary's determination that the Trust
Fund balance was sufficient to compensate individuals for the adverse effects of vaccines
administered after September 30, 1988, and before October 1, 1992.7
Pre-1988 Program. Compensation for injuries related to vaccines administered prior to
October 1, 1988, is paid out of General Fund appropriations. This "Pre-1988 Program"
component of VICP is limited to claims filed before February 1, 1991 and is not further
discussed in this report; a Fact Sheet regarding that program appears in Appendix A.
Compensation Under the Post-1988 Program. To qualify for compensation from the
Vaccine Trust Fund a petitioner must either prove that the vaccine caused the death or injury,
or that a death or injury set forth in the Vaccine Injury Table occurred within the time periods
specified in the Table. Additional information regarding the "Post-1988 Program" component
of VICP is provided in a Health Resources and Services Administration Fact Sheet, which
appears in Appendix A. The Vaccine Injury Table appears in Appendix B.
An individual is, in general, barred from bringing a civil action in State or Federal court
against a vaccine manufacturer or administrator for damages in excess of $1,000 (or in an
unspecified amount) arising from a vaccine administered after September 30, 1988. The courts
are barred from awarding amounts in excess of $1,000 for such damages, unless a petition has
been filed for compensation under VICP for such injury or death, the U.S. Court of Federal
Claims has issued a judgment on such petition, and the petitioner files an election to file a civil
action or withdraw the petition.
The 25 percent factor is the standard offset used when excise tax provisions are scored
for budget purposes during the legislative process. Budget estimating conventions are that gross
domestic product (GDP) and the price level are fixed. Excise and other indirect business taxes
are a wedge between GDP and payments to labor and capital (wages and other employee
compensation, interest, profits, and rents). Thus an increase in excise taxes, with GDP and the
price level fixed, must reduce payments to labor and capital (the "offset"), and therefore reduce
income and payroll taxes. The Vaccine Trust Fund is the only trust fund financed with
dedicated excise taxes where net, rather than gross, excise tax revenues are transferred from the
General Fund.
5
6
Exports to U.S. possessions are taxed and residents of U.S. possessions are covered by
VICP.
7
Treasury Announcement 93-11, January 25, 1993.
-4-
A petition for compensation under VICP must show that the person who suffered the
injury, or who died, received a taxable vaccine set forth in the Vaccine Injury Table or
contracted polio from another person who received an oral polio vaccine. A petition must also
show that the person sustained, or had significantly aggravated, any illness, disability, injury,
or condition set forth in the Vaccine Injury Table, or died from the administration of the
vaccine, and the first symptom or manifestation of that condition occurred within the time period
after vaccine administration set forth in the Vaccine Injury Table.
A petition does not require evidence proving a causal relationship between vaccine
administration and an adverse reaction. However, a petition may provide evidence supporting
a causal relationship between a listed vaccine and an adverse reaction specified in the Vaccine
Injury Table occurring outside the time periods specified in the Table. A petition may also
provide evidence supporting a causal relationship between a listed vaccine and an adverse
reaction not specified in the Vaccine Injury Table.
In addition, the petition must show that the person (i) suffered the residual effects or
complications of such illness, disability, injury, or condition for more than six months after the
administration of the vaccine; (ii) incurred unreimbursable expenses due in whole or in part to
such illness, disability, injury, or condition in an amount greater than $1,000, or (iii) died from
the administration of the vaccine. Finally, the petition must show that the petitioner has not
previously collected an award or settlement of a civil action for damages for such vaccine-related
injury or death.
Petitions must be filed within 36 months after the date of the fITst symptom of a vaccinerelated injury. Petitions with respect to a death must be filed within 24 months from the date
of the death, and within 48 months after the date of the first symptom of the injury resulting in
death.
The U.S. Court of Federal Claims has jurisdiction over the proceedings to determine if
a petitioner is entitled to compensation under the program and the amount of the compensation.
In general, a person files a petition in the U.S. Court of Federal Claims naming the Secretary
of Health and Human Services as the respondent. Following receipt of the petition, the U.S.
Court of Federal Claims designates a special master who has the authority to require written
information or testimony and to conduct hearings as may be appropriate for the preparation of
proposed findings of fact and conclusions of law with respect to whether compensation is to be
provided under VICP and the amount of the compensation.
VICP provides compensation for the following costs associated with the adverse effects
of vaccines administered after September 30, 1988:
•
Actual and reasonable projected unreimbursable expenses before and after the date
of judgment, including expenses which result from the vaccine-related injury,
expenses incurred by or on behalf of the person who suffered the injury, expenses
for diagnosis and medical or other remedial care, and expenses for rehabilitation,
-5-
developmental evaluation, special education, vocational training and placement,
case management services, counseling, emotional or behavioral therapy,
residential and custodial care and service expenses, special equipment, related
travel, and facilities;
•
Actual and anticipated loss of earnings after the age of 18;
•
Actual and projected pain and suffering and emotional distress from the vaccinerelated injury, not to exceed $250,000;
•
$250,000 for the estate of the deceased in the case of a vaccine-related death; and
•
Reasonable attorney fees and other costs incurred in any proceeding on a petition,
even if no other compensation is provided under VICP.
After the judgment of the U.S. Court of Federal Claims or the appellate court, the
petitioner files either an election to receive compensation (if compensation was awarded) or to
accept the judgment (if compensation was not awarded), or an election to file a civil action. If
the election is not filed within 90 days from the date of judgment, the petitioner is deemed to
have filed an election to accept the judgment of the court.
VICP compensation is secondary to all insurance coverage except Medicaid.
Compensation payments for injury awards are usually paid in the form of an annuity purchased
from an insurance company. Death awards are paid as a lump sum.
Modifications to the Vaccine Injury Table. The 1986 Act granted the Secretary of HHS
authority to promulgate regulations modifying the Vaccine Injury Table. Such modifications
may involve adding or removing injuries, disabilities, illnesses, conditions, and deaths for which
compensation may be provided or changing the time periods during which the first symptom or
manifestation of the onset or the significant aggravation of any such injury, disability, illness,
condition, or death must occur. That authority did not extend to adding new vaccines to the list
of vaccines covered by VICP.
Based on an Institute of Medicine (lOM) study of the adverse effects of the pertussis and
rubella vaccines, the Secretary of RRS promulgated proposed changes to the Vaccine Injury
Table on August 14, 1992.8 Final regulations modifying the Vaccine Injury Table in response
to the 10M study had not been issued as of July 31, 1994. A second 10M report, released in
September 1993, studied the remaining vaccines on the Vaccine Injury Table, as well as hepatitis
B and Rib vaccines. During 1994, The Secretary of HHS is expected to begin the rulemaking
process to further modify the Table, using this second 10M report as a key document addressing
the adverse events that may be related to these vaccines.
8
Federal Register, Vol. 57 , No. 158, August 12, 1992, pp. 36878-85.
-6-
c.
Amendments Made by OBRA '93
OBRA '93 permanently extended the excise taxes on the four categories of vaccines,
effective August 10, 1993. It also authorized compensation to be paid from the Vaccine Trust
Fund under VICP for certain damages resulting from vaccines administered after September 30,
1988, without respect to the October 1, 1992 cutoff date contained in OBRA '87.
OBRA '93 required the Secretary of HHS to revise the Vaccine Injury Table to include:
1) vaccines which are recommended to the Secretary by the Centers for Disease Control and
Prevention (CDC) for routine administration to children; 2) the injuries, disabilities, illnesses,
conditions, and deaths associated with such vaccines; and 3) the time period in which the fIrst
symptoms or manifestations of onset or other significant aggravation of such injuries, disabilities,
illnesses, conditions, and deaths associated with such vaccines may occur. With respect to CDC
recommendations made prior to August 1, 1993, the Vaccine Injury Table is to be revised by
the Secretary of HHS prior to August 1, 1995. With respect to CDC recommendations made
after August 1, 1993 the Secretary is required to revise the Vaccine Injury Table within two
years of such recommendation. Under the terms of OBRA '93, those vaccinated with vaccines
added to the Vaccine Injury Table pursuant to this administrative procedure are not covered by
VICP until taxes on those vaccines are enacted.
n.
SUMMARY
This report addresses the issues of future outlays and rates of vaccine-related deaths and
injuries that the Congress directed to be studied by analyzing fInancial and programmatic data
relating to petitions fIled seeking compensation for injuries and deaths which petitioners
attributed to vaccinations occurring after September 30, 1988. In particular, data are analyzed
regarding petitions fIled with respect to vaccinations administered in 1989, the fIrst full year the
Post-1988 Program operated. This analysis provides information regarding future outlays for
compensation from the Vaccine Trust Fund and rates of injury and death associated with
particular vaccines.
The report notes that the CDC has recommended that two additional vaccines be routinely
administered to children, thus potentially adding to the scope of injuries and deaths for which
compensation may be sought from the Vaccine Trust Fund. Some economic reasoning is used
to address the question of whether additional vaccines should be subject to tax and the issue of
how to treat vaccines produced by State governments.
-7-
The five topics listed in Section LA are separately addressed in the five chapters which
follow. The report includes the following Appendices:
A. Fact Sheet: Vaccine Injury Compensation Program, Post-1988 Program and
Fact Sheet: Vaccine Injury Compensation Program, Pre-1988 Program
B. Vaccine Injury Table
C. Schedule of Vaccinations Recommended for Children
D. Adverse Effects of Penussis and Rubella Vaccines - Executive Summary
E. Adverse Events Associated with Childhood Vaccines: Evidence Bearing on
Causalty - Executive Summary
-8-
CHAPTER 2. ESTIMATED COMPENSATION PAYMENTS
I. SUMMARY
This chapter discusses the estimation of future outlays from the Vaccine Trust Fund,
presents the assumptions used to make such estimates for the President's FY 1995 budget, and
compares those assumptions to VICP administrative data. The analysis concludes that the budget
estimates for compensation awards in FY 1994 ($69.6 million) and FY 1995 ($54.5 million),
are too high. The estimates for FY 1996 - FY 1999 ($54.5 million per year) are high based on
experience to date, but are not unreasonable if cases where there is a long lag between
administration of the vaccine and adjudication of the claim result in higher average awards than
awards made to date. Some additional awards may result from adding Hib and hepatitis B
vaccines to the Vaccine Injury Table, presuming excise taxes are enacted on these vaccines
(Chapter 4).
ll. FACTORS AFFECTING FUTURE COMPENSATION PAYMENTS
Future outlays from the Vaccine Trust Fund for VICP compensation awards cannot be
estimated with any degree of certainty. Adverse reactions to vaccinations are rare events.
Petitions for compensation are typically filed well after the vaccination was administered and
judicial review of petitions is time-consuming. Even though the program of making
compensation payments out of the Vaccine Trust Fund began on October 1, 1988, not enough
time has elapsed to observe final resolution of all cases arising from the administration of a
cohort of vaccinations.
Aggregate awards paid from the Vaccine Trust Fund, with respect to vaccinations
administered during a particular year, by type of vaccine, depend upon: the number of
vaccinations administered in that year; the frequency of adverse reactions; the probability that
petitions will be filed following an adverse reaction;9 the filing of petitions not in fact
attributable to the adverse consequences of a vaccination; the probability that a petitioner will
be awarded compensation; the size of compensation awards; the probability that attorney fees
will be awarded; and the size of attorney fee awards.
The payment of awards occurs several years after the vaccination occurred. The total
time lag between vaccination and payment of an award depends upon the time between
vaccination and the filing of a petition, the time expended in reaching a judicial decision with
respect to a petition, and the time between the decision to grant an award and payment.
9 Some victims of adverse reactions may be compensated through ordinary health insurance.
-9-
ID. VICP OUTLAYS
Since the first cohort of Post-1988 Program cases has not been fully resolved, outlays
from the Vaccine Trust Fund have not reached a "steady state" such that expected future levels
would only be affected by underlying trends in the number of vaccinations administered and
other factors, such as inflation and other factors determining average awards and the impact of
health care reform. lO Actual outlays from the Vaccine Trust Fund for compensation through
FY 1993 (including attorney fees) are shown in Table 111 along with projections for FY 1994
through FY 1999. Transfers out of the Vaccine Trust Fund to other Federal government
accounts to cover administrative expenses for three Federal agencies are also shown. The
agencies are the Public Health Service, the Department of Justice, and the Court of Federal
Claims. 12
Outlay estimates for FY 1995 through FY 1999 were made in preparation for the FY
1995 budget by the Division of Vaccine Injury Compensation, Bureau of Health Professions,
Health Resources and Services Administration in the Department of Health and Human Services.
They are based on the following assumptions: 150 cases filed per year, beginning in 1994; all
cases filed in one year are settled in the second following year; 78 percent of cases filed are
injury cases and 22 percent death cases; 30 percent of injury claims and 48 percent of death
cases ruled compensable; and average awards (including attorney fees) for injury cases are $1.5
million and $257,000 for death cases. These assumptions result in an estimated outlay of $54.4
million each fiscal year from 1995 through 1999.
Some of these assumptions can be compared with actual VICP data regarding all cases
filed as of May 10, 1994, shown in Table 2. Despite the fact that the average injury award has
been about $955,000, rather than the $1.5 million used to make budget forecasts, the latter
amount may not be unreasonable as a long-run "steady state" estimate. 13 Average awards to
date are not representative of averages in the future because VICP is not a mature program.
Average awards to date are disproportionately weighted by cases adjudicated within a relatively
few years of the vaccination giving rise to the claim. Cases filed later, and that take longer to
adjudicate, are likely to result in higher awards.
10 Health insurance extended to those now uninsured would pay for some medical expenses
currently included in VICP awards.
11 All tables follow page 26.
The $6 million limit on administrative expenses paid out of the Vaccine Trust Fund as
provided in Section 9510(c)(1) of the Internal Revenue Code has been overridden by
appropriations acts.
12
As of May 10, 1994, 35 injury awards had been paid out of the 42 judged compensable
by that date. There is typically about a two-month time lag between adjudication and payment.
13
-10-
The number of post-1988 cases filed declined from 191 in FY 1992 to 137 in FY 1993.
If the filing of claims continues at the same pace for the entirety of FY 1994 as for the period
through May 1994, 118 cases will be filed for the fiscal year as a whole. The declining number
of cases filed may simply reflect a better understanding on the part of petitioners and their
attorneys as to what circumstances constitute a compensable claim. In future years, compensable
claims as a percentage of claims filed may therefore increase as petitions expected to be
dismissed simply are not filed.
Awards for FY 1994 through that same date were on a pace that would result in a total
of $23.8 million for the entire year, considerably below the budget forecast of $69.6 million.
The outlay estimates for compensation contained in the FY 1995 budget for FY 1994 therefore
appear to be too large. For FY 1995 the estimate of $54.5 million is also likely to be too large
because the program is unlikely to have reached a steady-state in that year. The program should
be mature by about FY 1996, in the sense that at least one full cohort of cases will have all been
adjudicated. While compensation payments at a steady-state rate of $54.5 million per year
appears high based on awards through May 1994, that level may be reached if awards for cases
that take a long time to adjudicate are higher than average awards have been so far and if some
additional outlays are associated with adding new vaccines to the Vaccine Injury Table (Chapter
4). Other proposed changes to the Vaccine Injury Table may also affect the steady-state level
of awards. As the program matures, sufficient program data will be available to permit more
sophisticated methods of estimating future outlays to be used.
Significant and growing balances in the Vaccine Trust Fund are apparent from Table 1.
Excise taxes transferred to the Trust Fund each year are expected to be about twice the level of
trust fund outlays. 14 Significant interest receipts also contribute to the build up of the Trust
Fund balance. By the end of FY 1999, the balance in the Trust Fund is expected to be nearly
20 times as large as annual outlays. Tax rates required to maintain an adequate trust fund
balance are discussed in Chapter 5.
14
In FY 1990 there was a catch-up transfer of excise taxes from the General Fund to the
Vaccine Trust Fund to account for the excess of liabilities recorded from excise tax returns over
earlier estimates of receipts which were used as a basis for transfers in 1988 and 1989. Trust
fund receipts were lower than usual in 1993 because taxes on vaccines terminated on December
31, 1992 and were reenacted by OBRA '93, effective August 10, 1993. Relatively high receipts
during 1994 - 1996 reflect the additional vaccines expected to be manufactured and administered
in those years in order to implement the Childhood Vaccination Program. This program intends
to speed up vaccinations to assure that two-year olds receive all recommended vaccinations in
part by making vaccines freely available to low-income and uninsured children. Once the catchup process is completed, vaccine production is expected to return to a steady-state level.
-11-
IV. VICP AWARDS ASSOCIATED WITH 1989 VACCINATIONS
Evidence that average awards for injury cases will eventually reach a higher level than
that experienced to date may be found in the data regarding injury cases arising from
vaccinations administered in 1989. About 71 million vaccines were available to be administered
in 1989 (fable 3). Average injury awards for the 12 injury cases ruled compensable to date
were about $1.2 million. But 104 out of 170 of these injury cases remained pending as of May
12, 1994 (fable 4), and could ultimately involve larger average compensation payments.
A total of $18.2 million had been paid out, through May 12, 1994, in VICP awards with
respect to all cases arising from 1989 vaccinations (fable 5). The portion of total awards
associated with each vaccine was 74.0 percent for DPT, 1.5 percent for DT, 19.4 percent for
MMR, and 5.1 percent for polio. The largest average award to petitioners, $1.4 million, went
to those claiming injury with respect to the DPT vaccine. The largest single award was for $3.3
million.
VICP has not matured sufficiently to estimate with confidence the dollar volume of
awards that may yet be paid with respect to the undecided 55 percent of the 1989 cases.
Because of the considerable time lags inherent in VICP, on average over 1000 days between
vaccination and compensation payment (fable 6), the payment of awards has been spread out
over the years since 1989 (fable 7)Y Payments with respect to cases still pending may be
spread out over several future years, with possibly large payments yet to come.
Th~ ~verage of over 1053 ~ays is for cases that have already been adjudicated. The
average will Increase when all pendmg cases associated with vaccinations in 1989 are decided.
15
-12-
CHAPTER 3. RATES OF INJURY AND DEATH RELATED TO VACCINATIONS
I. SUMMARY
This chapter presents data regarding VICP claims filed with respect to vaccinations
administered in 1989. Based on the somewhat less than half of these claims that had been
adjudicated by May 12, 1994, it appears that injuries and deaths compensable under VICP occur
about once out of every one million vaccinations administered. The scientific literature indicates
that most injuries and deaths of a type compensable under VICP cannot be said with certainty
to have been caused by vaccines.
ll. CASES ASSOCIATED WITH 1989 VACCINATIONS
Administrative records of VICP related to cases arising from vaccinations administered
in 1989, the first full calendar year the Post-1988 Program was in effect, are used here, along
with information taken from reports made by vaccine manufacturers to the Centers for Disease
Control and Prevention (CDC), to estimate the rate at which compensable deaths and injuries
occur.
There is no direct information on the number of vaccines administered in the United
States each year. CDC does, however, maintain the Biologics Surveillance Reporting System
which records reports made voluntarily by vaccine manufacturers of the number of net doses
distributed each year. 16 These data for 1989, along with taxes paid, estimated on the basis of
those amounts, are reported in Table 3. This estimate of $150.1 million in taxes paid is very
close to the $151.1 million in excise tax liabilities reported on tax returns filed with the Internal
Revenue Service (IRS) by manufacturers with respect to vaccines sold during calendar year
1989Y The IRS figure is also a net number in the sense that taxes paid on out-of-date or
otherwise unusable vaccines returned to manufacturers are credited against current liabilities.
The slight difference between tax liabilities reported to the IRS and estimated taxes based on
CDC data may be explained by differences in timing between the two reporting systems. 18 The
16
The CDC data are net in the sense that vaccines returned to manufacturers are subtracted.
17 Department of the Treasury, Internal Revenue Service, News Release, "Internal Revenue
Report of Excise Taxes," various dates.
The number of doses of specific vaccines reported to the IRS cannot be revealed here
because to do so would disclose individual taxpayer information. In some cases there is only
(continued ... )
18
-13-
CDC reports are an upper-bound estimate of the number of vaccines administered. Some
unknown amount would have been discarded without being returned to the manufacturer and
some net inventory accumulation may have occurred.
As an indication of how rare severe adverse reactions to vaccinations are, only 211 VICP
petitions have been fIled with respect to vaccinations occurring in 1989 (Table 4) out of the
approximately 70 million vaccines purchased, and presumably administered, that year. 19 About
45 percent of these cases had been decided by May 12, 1994. Only 27 petitioners have been
awarded compensation. If pending cases result in awards in the same proportion as decided
cases, then about 60 compensation awards can be expected when all cases arising from 1989
vaccinations are finally settled. This would mean less than one award for each one million
vaccines administered. Because petitioners do not have to prove that the vaccination caused the
injury upon which the petition is based, so long as the injury is listed on the Vaccine Injury
Table, some unknown portion of these less than one-in-a-million cases are likely to be chance
occurrences rather than deaths or injuries caused by vaccinations.
ill. THE SCIENTIFIC EVIDENCE
The National Childhood Vaccine Injury Act of 1986 (the 1986 Act) directed, in Section
312, that a review of scientific and other information on possible adverse consequences of
pertussis (whooping cough) and rubella vaccines be conducted. The Institute of Medicine (lOM)
established an II-member interdisciplinary committee to conduct the study, the results of which
continued)
a single producer of a particular vaccine. The difference between the $151.1 million in vaccine
excise tax liabilities reported to the IRS for 1989 and the $98.7 million transferred into the
Vaccine Trust Fund in FY 1989 (Table 1) is only in part due to the difference between fiscal
and calendar years. Transfers to the Vaccine Trust Fund are made on a current basis based on
Office of Tax Analysis estimates of taxes received and are reduced by 25 percent of expected
receipts to recognize an offset for reduced income and payroll taxes (see footnote 5). Transfers
are adjusted in future years for differences between those estimates and liabilities reported by
the IRS. Liabilities for a particular quarter are reported with a time lag. For additional
information on excise tax accounting see Bruce F. Davie, "Excise Taxes, Fiscal Year 1992"
Statistics of Income Bulletin, Fall 1993. pp. 36-52.
18( ••.
19 This data set covers cases filed through May 12, 1994. The last of these 211 cases was
filed in August of 1993. It is possible that a few additional cases pertaining to 1989 vaccinations
may yet be filed.
-14-
were published in 1991. 20 The committee reviewed five types of evidence: (1) human
experiments; (2) animal experiments; (3) case-comparison, cohort, and other controlled studies;
(4) case reports and case series; and (5) biologic plausibility. 21 Of the 22 types of adverse
events studied, the evidence was judged to indicate a causal relation to vaccines with respect to
three types of adverse events. The evidence was judged to be consistent with a casual relation
to vaccines with respect to three other types of adverse events. 22 Partly on the basis of the
findings of this committee, the Secretary of Health and Human Services (HHS) has proposed to
amend the Vaccine Injury Table (see Chapter 1).
Section 313 of the 1986 Act mandated that a study be conducted of adverse events
associated with vaccines commonly administered during childhood, other than pertussis and
rubella vaccines. 10M created the Vaccine Safety Committee, a 14-member interdisciplinary
group, to undertake this review which was published in 1994. 23 The scope of the study was
expanded beyond those vaccines covered by VICP to include haemophilus injluenzae type b
(Rib) and hepatitis B vaccines because of the expectation that these vaccines would be added to
the list of vaccines covered by VICP (see Chapter 4).
The Committee noted the difficulty in assessing causality when several vaccines are
commonly administered at once, and when vaccines contain more than one antigen. The
Committee indicated the impossibility, based on the material it reviewed, of calculating the
proportion of individuals whose condition is causally related to a vaccination. 24
Christopher P. Howson, Cynthia J. Howe, and Harvey V. Fineberg, eds. , Adverse Effects
of Pertussis and Rubella Vaccines Washington, D.C.: National Academy Press, 1991. The
complete Executive Summary appears in Appendix D.
20
21
Ibid, p.4.
22
Ibid, P 7.
Kathleen R. Stratton, Cynthia J. Howe, and Richard B. Johnson, Jr., eds., Adverse
Events Associated with Childhood Vaccines, Evidence Bearing on Causality Washington, D.C.:
National Academy Press, 1994. The complete Executive Summary of this study appears in
Appendix E.
23
24
Ibid, p. 17.
-15-
IV. THE VACCINE ADVERSE EVENT REPORTING SYSTEM (VAERS)
The 1986 Act required that manufacturers and health care providers who administer
vaccines report serious adverse events following vaccinations to the Secretary of HHS. VAERS
was created to implement this requirement, and became fully operational on November 1, 1990.
V AERS is not expected to provide sufficient information to make epidemiological assessments
of caUsality. VAERS may, however, be useful in identifying hypotheses that may be testable
using other data bases. 25
25
Robert T. Chen, et al, "The Vaccine Adverse Event Reporting System (VAERS) "
Vaccine, 1994 Vol. 12, No.6, pp. 542-50.
-16-
CHAPTER 4. NEW VACCINES AND IMMUNIZATION PRACTICES
THAT MAY BE COVERED BY VICP
I. SUMMARY
The Secretary of Health and Human Services (HHS) is expected to exercise authority
granted by OBRA '93 to add hepatitis B and Hib vaccines to the Vaccine Injury Table.
Following that action, enactment of taxes on these vaccines will expand VICP to cover
vaccinations using them. Some additional petitions for compensation under VICP will probably
be filed and compensation payments made as a result.
II. RECOMMENDATIONS OF THE CENTERS FOR DISEASE CONTROL AND
PREVENTION
The Centers for Disease Control and Prevention (CDC), through the Advisory Committee
on Immunization Practices, recommended prior to August 1, 1993, that two additional vaccines
be routinely administered to children. These two vaccines are the Haemophilus injluenzae type
b (Rib) and hepatitis B vaccines. 26 The Secretary of HHS is required by OBRA '93 to revise
the Vaccine Injury Table by August 1, 1995, to include these vaccines in the Table. Recipients
of these vaccines will not be covered by VICP , however, until excise taxes are in place for
these vaccines. Neither the Secretary of HHS nor the Secretary of the Treasury has the
authority to impose any tax on manufacturers of these vaccines when they are included in VICP
by virtue of their addition to the Vaccine Injury Table.
ID. DE FACTO VICP COVERAGE OF UNTAXED VACCINES
Vaccinations are commonly administered at the same time using several different
vaccines. So long as one of the vaccines being administered, whether to children or adults, is
subject to excise tax and is listed on the Vaccine Injury Table, an adverse reaction covered by
the table can be compensated under VICP, even if the reaction is to a vaccine not covered by
the table. A VICP petitioner need not prove that the adverse event was caused by a currently
covered vaccine, rather than by another vaccine administered at the same time.
The children'S vaccination schedule currently recommended by the American Academy
of Pediatrics and CDC's Advisory Committee on Immunization Practices appears in Appendix
26
C.
-17-
IV. CONSEQUENCES FOR THE VACCINE TRUST FUND
Some additional outlays from the Vaccine Trust Fund may be caused by the addition of
Rib and hepatitis B vaccines to the Vaccine Injury Table, presuming taxes are enacted on these
vaccines. The effect is not expected to be major, however, because many children already
receive these vaccines at the same time they receive other vaccines. In these cases, adverse
events, such as anaphylaxis, are already covered in connection with the other vaccines. Other
conditions may be added to the Vaccine Injury Table for these vaccines as a result of mandated
rulemaking. Furthermore, petitioners may receive compensation for a condition not listed on
the Table, if they can prove that the vaccine caused that condition. Adults to whom Rib and
hepatitis B vaccines are administered would be covered, but are less likely to receive vaccines
currently covered by the Vaccine Injury Table at the same time. Additional outlays from the
Vaccine Trust Fund as a result of including these two vaccines on the Vaccine Injury Table are
thus likely to be related primarily to petitions filed on behalf of adults.
-18-
CHAPTER 5. INCLUDING ADDITIONAL VACCINES IN VICP
I. SUMMARY
A strong economic rationale exists for taxing vaccines to cover the costs of compensating
those adversely affected by vaccinations, so long as compensation is to be paid out of public
funds. Taxes on individual vaccines have been set in an attempt to relate them to the expected
compensation payments associated with each covered vaccine. On the basis of this rationale,
present law tax rates may need to be adjusted and Haemophilus injluenzae type b (Rib) and
hepatitis B vaccines should be added to the list of taxed vaccines when these two vaccines are
added to the Vaccine Injury Table. Changes in vaccine technology, pending revisions to the
Table, and other factors suggest that Congress may need to consider shifting away from riskrelated taxation to a flat tax on each antigen contained in vaccines.
II. THE RATIONALE FOR TAXING VACCINES
A. The Cost of Vaccinations
The manufacture of vaccines involves certain labor, capital and raw material costs, like
the production of any other commodity. The capital costs include the costs of research and
development necessary to bring a vaccine into production and meet the requirements of
regulatory agencies seeking to assure that the vaccine is safe and effective. In addition,
administering vaccines incurs costs for the labor services of doctors and nurses and some capital
costs. In the United States, the costs of manufacturing vaccines have traditionally been incurred
by private drug companies who sell vaccines to the private physicians, health maintenance
organizations, and public agencies who administer vaccinations.
There is another cost of vaccinations, beyond the costs of manufacturing and
administering vaccines. This is the cost of adverse events. These adverse events are rare, and
difficult to associate causally with particular vaccines or antigens when several are administered
at the same time. When they do occur, adverse events associated with vaccinations can result
in death and impose significant medical and personal care costs on the individuals and families
involved, in addition to emotional burdens.
There are three ways in which the costs of adverse events associated with vaccinations
are accommodated. First, individuals receiving vaccinations could bear the risk of incurring the
costs associated with adverse events. Health insurance, or other forms of insurance, would be
used by some individuals to protect against incurring such costs directly. In the absence of
universal health insurance, others would not be insured against such risks, or only partially
-19-
insured. Insurance would be unlikely to cover some of the costs, such as long term care, pain
and suffering, and death.
A second approach is for vaccine manufacturers to pay the costs of adverse events. The
difficulty of proving manufacturer negligence under traditional tort law, plus the understandable
tendency of juries to award huge settlements when confronted with a severely damaged child,
was regarded by the Congress as an unsatisfactory method of covering these costs when VICP
was established in 1986.
The third approach is to use public funds to compensate the individuals who directly bear
the costs of adverse events associated with vaccinations. The strong public interest served by
widespread vaccination practices, as implemented by requirements that children be vaccinated
before entering school, is a reason for treating the costs of these adverse events as eligible for
compensation from public funds. T7 Vaccinations protect not only those who are vaccinated, but
reduce the risk that others contract diseases. Over the years, publicly supported vaccination
programs have eliminated smallpox and virtually eliminated polio. As further examples,
diphtheria cases have been reduced from about 207,000 in 1921 to 2 in 1993, pertussis from
265,000 in 1943 to about 6,000 in 1993, and rubella from about 58,000 in 1969 to 188 in
1993. 28 Protecting the very few who endure adverse events from vaccinations can benefit the
many, because protection can be expected to encourage participation in vaccination programs.
Current practice in the United States is to use a combination of all three approaches to
covering the costs of adverse vaccination events. For some persons, ordinary health insurance
covers the cost. VICP is available to those experiencing events covered by the Vaccine Injury
Table or who can prove that a covered vaccine was responsible for the adverse event.
Individuals may also seek relief through the tort law if they reject the decision rendered with
respect to a VICP petition.
B. Appropriate Tax Rates
The reason to finance public compensation for victims of adverse vaccination events out
T7
Vaccinations against rubella and hepatitis B are also required for many health care
workers. Any adverse event suffered by one of these adults with respect to a rubella vaccination
is already covered by VICP because these vaccinations are currently covered by the Vaccine
Injury Table and are subject to excise tax. Because vaccination with a hepatitis B vaccine is now
recommended for children, those adults for whom these vaccinations are required (and others
as well) will also be covered when the Vaccine Injury Table is amended to include hepatitis B
and Hib vaccines and the excise tax is extended to these vaccines.
28
Chen et al (1994), op. cit., p. 543.
-20-
of funds derived from excise taxes on vaccine manufacturers, rather than general revenues, is
to assure that the cost of vaccines reflects not only manufacturing costs, but the costs of adverse
events as well. 29 The costs of adverse events are as much a cost of vaccinations as the costs
of raw materials. If tort law were the primary means of assuring compensation payments for
adverse events, then these costs would also be reflected in the prices charged by those who
produce and administer vaccines.
The principle of using excise taxes to cover the cost of adverse vaccination-related events
paid for out of public funds could be implemented in one of two ways. The first, which
Congress followed in creating the Vaccine Trust Fund, is to tax individual vaccines in proportion
to the costs of the adverse events with which they are individually associated. The second,
discussed in the next section, is to impose a tax on all covered vaccines at a flat rate.
There is a major advantage to the approach of having the costs of compensating for
adverse events reflected in vaccine prices. If the prices of particular vaccines reflect the costs
of compensating for the adverse events associated with them, then these prices act as a signaling
device, directing research and development activities to the search for new vaccines that reduce
the risk of adverse events.
There are several disadvantages associated with this risk-related approach to setting excise
tax rates. The relative risks associated with specific vaccines are likely to change over time as
new forms of vaccines (such as the acellular pertussis vaccine recently introduced and approved
by the Food and Drug Administration for use in the fourth and fifth series of childhood DPT
inoculations) that are expected to reduce the incidence of adverse events come into use. As
more antigens are bundled into single vaccinations, it becomes increasingly difficult to attribute
adverse events to any particular antigen. Changes in the recommended schedule of vaccinations
will also change these relative risks. Changing the specifics of the Vaccine Injury Table will
also change the relative costs of compensation awards associated with different vaccines.
Finally, as new vaccines are added to the list of those recommended for children, accurate
information on the costs of adverse events associated with those vaccines is likely to be
unavailable. New vaccines may be proven to be completely acceptable on the basis of clinical
trials involving thousands of doses, yet a few adverse events may occur once they are
administered routinely to millions of children.
Theoretically, the principle of internalizing the costs of adverse events into the price of
vaccinations could be achieved by imposing a tax on the administration of vaccinations rather
than the manufacture of vaccines. As a practical matter, however, taxing a few manufacturers
is vastly easier, as an administrative matter, and minimizes both private and public compliance
costs than would taxing thousands of persons who administer vaccinations.
29
-21-
Present law tax rates were set with the expectation that the relative amounts of revenue
from the separately taxed vaccines would be in the following proportions, expressed in
percentage terms:
76.98
DPT
0.05
DT
MMR
18.75
Polio
4.22
These proportions took into account the number of vaccines recommended for children and
reflected" ... currently accepted views regarding the relative reactogenicty of vaccines. ,,30 They
can be compared to the percentage distribution of VICP awards arising from 1989 vaccinations,
through May 12, 1994, derived from the data in Table 5, and with the percentage distribution
of estimated 1989 tax receipts, by vaccine (based on data reported to CDC as shown in Table
3).
Awards
Revenues
74.0
66.5
1.5
0.8
MMR
19.4
29.0
Polio
5.1
3.7
DPT
DT
Comparing the percentage distributions of awards and revenues suggests that the tax rate
on DPT vaccines is somewhat too low and the rate on MMR vaccines is somewhat too high, in
relative terms. The relative distribution of VICP awards for 1989 may, of course, change when
all pending cases have been adjudicated. If the risk-related approach to setting excise tax rates
is to be maintained, relative tax rates may need to be altered so that the distribution of receipts
as among different vaccines better matches the distribution of awards. Making such a change
should wait until the adjustment can be based on at least a few cohorts of cases arising from
vaccinations in a given year that have been fully adjudicated.
Setting relative tax rates on vaccines is only half the job required to determine
appropriate tax rates on vaccines. Rates should also be set, in terms of absolute amounts per
dose, at levels that will generate an appropriate amount of Vaccine Trust Fund receipts. To
date, excise taxes transferred to the Vaccine Trust Fund have exceeded trust fund outlays in
every year (Table 1). As a consequence, the trust fund has been accumulating a growing
surplus. The surplus is invested in Treasury securities and interest earnings on those securities
H.R. Rept. 99-908, September 26, 1986, p. 34. Congressional deliberations regarding
relative tax rates occurred in conjunction with the 1986 Act even though the taxes were not
enacted until OBRA '87.
30
-22-
are also deposited into the trust fund. By the end of FY 1999 the balance in the Vaccine Trust
Fund is expected to reach $1.2 billion. Some positive trust fund balance is appropriate to assure
that compensation payments can be made should there be an unusual outbreak: of adverse events
leading to an increase in compensation awards. A balance equal to three times steady-state
annual outlays, or about $200 million, should be sufficient for such a precautionary purpose. 31
Reducing the absolute levels of tax rates would be necessary to prevent any additional increase
in the ratio of fund balances to annual outlays.
C. Tax Rate Recommendation of the Advisory Commission on Childhood Vaccines
The second approach to setting excise tax rates is to impose a flat tax on all vaccines,
or all antigens, so as to generate the desired aggregate amount of revenue. The Advisory
Commission on Childhood Vaccines has recommended to the Secretary of Health and Human
Services (HHS) that a flat rate of $.50 per dose be applied to all vaccines covered by the
Vaccine Injury Table. 32 The Commission intends that the tax be applied on a per antigen basis
so that, for example, DPT and MMR would each be taxed at a rate of $1.50 per dose. 33 The
major advantage of the Commission's recommendation is that it addressed concerns that
epidemiological evidence was becoming increasingly uncertain with respect to the association
of adverse events with particular antigens. They were advised that changing vaccine technology,
changes to the Table, and other factors would make the problem of determining such
associations even more difficult in the future. Another purpose of the recommendation was to
address the concern that taxes on vaccines were too high relative to VICP outlays. . Reducing
vaccine taxes in the aggregate is consistent with the goal of adequately funding the Vaccine Trust
Fund, given the current and projected fund balances.
The disadvantage of a flat-rate approach to setting excise tax rates is that it forecloses the
ability to relate excise taxes on specific vaccines to the level of compensation payments related
to those vaccines. Even if petitioners need not prove that their adverse event was caused by a
vaccine when the event falls within the terms of the Vaccine Injury Table, it still will be the case
that compensation payments are disproportionately related to some vaccines rather than others.
The Advisory Commission on Childhood Vaccines (ACCV), created by the National
Childhood Vaccine Injury Act of 1986, has recommended that the Vaccine Trust Fund balance
be maintained at a level equal to three years' of awards. (Letter from Gerald M. Fenichel,
M.D. Chairman, ACCV to The Honorable Donna E. Shalala, Secretary, Department of Health
and Human Services, December 14, 1993.)
31
32
The Secretary of HHS has not endorsed this recommendation.
Ibid. This feature of the Commission's recommendation, that vaccines be taxed on a per
antigen basis, is appropriate whether tax rates are set on a risk-related basis or on a flat rate
basis.
33
-23-
ID. TAXING ADDITIONAL VACCINES
As indicated in Chapter 4, two additional vaccines, Rib and hepatitis B, are expected to
be added to the Vaccine Injury Table by the Secretary of HHS. It is recommended that after
this occurs, Section 4131 of the Internal Revenue Code be amended to add these two vaccines
to the list of taxable vaccines so that related adverse events are covered by VICP. Because
sufficient information is not available to assess the probable future costs associated with
compensating expected adverse events associated with these vaccines and the new provisions of
the Table, a flat rate tax should be considered. The Advisory Commission on Childhood
Vaccines has recommended a rate of $.50 per vaccine. Another option is to set the rate equal
to the lowest tax rate on any other vaccine.
If other vaccines are subsequently added to the Vaccine Injury Table by administrative
action of the Secretary of Health and Human Services, Section 4131 of the Code should be
similarly amended. As an alternative method of accommodating new vaccines approved for
public use by the Food and Drug Administration and recommended for routine administration
to children by CDC's Advisory Committee on Immunization Practices, the Code could be
amended to establish an excise tax, at a preset rate, triggered by the formal recommendation of
the Committee or the inclusion of the vaccine in the Vaccine Injury Table. The tax rate could
be adjusted by subsequent legislative action to comport with actual experience regarding
compensation awards related to a new vaccine.
-24-
CHAPfER 6. TAXING VACCINES PRODUCED BY STATE AGENCIES
I. SUMMARY
Two States, Massachusetts and Michigan, manufacture vaccines to supply publiclysupported vaccination programs. A 1988 technical amendment to Section 4132 of the Internal
Revenue Code34 made it clear that vaccines manufactured by States are to be taxed. 35 Taxing
these vaccines is consistent with the rationale for funding VICP with revenue from excise taxes,
even though there is also a rationale for public provision of vaccinations.
ll. THE RATIONALE FOR TAXING VACCINES PRODUCED BY STATES
VICP covers adverse events associated with vaccinations using vaccines produced by
States as well as those produced by private drug companies. The cost of compensating those
who suffer adverse events associated with vaccinations using State-produced vaccines are a part
of the total cost of those vaccinations. The rationale for taxing vaccinations outlined in Section
II of Chapter 5 applies equally to State-produced vaccines and privately-produced vaccines. If
State-produced vaccines were untaxed, those vaccines would appear to be artificially cheaper
than privately-produced vaccines. States maintaining extensive free or low-cost vaccination
programs might thereby be encouraged to produce their own vaccines even though actual
production costs might be higher, due to economies of scale, than production costs for private
firms.
ill. THE RATIONALE FOR PUBLIC PROVISION OF VACCINATIONS
Vaccinations benefit the public at large by limiting or preventing the spread of certain
diseases. Young children, if not vaccinated, are particularly susceptible to the diseases for
which vaccines have been developed and which are covered by VICP. Despite evidence that the
risk of adverse events is extremely low, and despite covering those risks through VICP, many
34
Technical and Miscellaneous Revenue Act of 1988 (p.L. 100-647), Section 2006.
35
If a State produces vaccines and uses them in a "free" vaccination program, there is no
sale of the vaccine. The 1988 amendment made it clear that the taxable event in this case was
the use of the vaccine. This follows general excise tax principles that taxable articles used by
their manufacturer are taxed. For example, gasoline used by a refiner to fuel its own trucks is
taxable even though it is never sold.
-25-
children in the United States are not vaccinated at recommended times. For example, the
Centers for Disease Control and Prevention (CDC) reported that, for 1991, only 37.2 percent
of two year olds and 42.1 percent of one to four year olds were up to date on vaccinations. 36
Cost may be a factor explaining these low vaccination rates. The tax-included 1993 catalogue
price to those who administer vaccinations privately of the full series of vaccines recommended
for children (including Hib and hepatitis B vaccines) was $252. The tax component of the price
was $32.84. 37 To address the concern that vaccine prices discourage immunization, a recently
enacted Federal program will, in FY 1995, purchase $425 million of vaccines for low-income
and uninsured children and provide them to these children free of charge. 38
CDC anticipates that nearly 55 million doses of vaccines currently covered by VICP will
be purchased by State and Federal agencies during FY 1995. If public purchases occur at this
level, the major part of total Vaccine Trust Fund receipts for FY 1995 will come out of State
and Federal budgets. To exempt these public purchases from vaccine excise taxes would be
inappropriate. If there were such an exemption, public entities would not be paying for the full
cost of the vaccination programs they support. The cost of adverse events associated with those
vaccinations would go uncovered. There is nothing inconsistent with publicly providing or
subsidizing vaccinations and at the same time taxing vaccines purchased or produced with
government outlays as a means of funding VICP.
36
Statistical Abstract of the United States, 1993, p. 133.
37
Data supplied by VICP staff.
!he VIC.P staff repor:t that the 1993 contract price to the Federal government for the
full senes of childhood vaccmes was $111 per child, including the tax component of $32.84.
38
-26-
Table 1
VACCINE INJURY COMPENSATION TRUST FUND, FISCAL YEARS 1988 - 1999
(thousands of dollars)
Fiscal Year
Opening
Balance
Excise Tax
Receiets
1988
1989
77,547
1990
190,300
1991
368,560
1992
476,000
1993
601,564
1994 est.
643,227
1995 est.
733,261
1996 est.
833,011
1997 est.
933,516
1998 est.
1,018,087
1999 est.
1,105,158
Department of the Treasury
Office of Tax Analysis
°
*
74,038
98,719
158,551
80,884
117,788
37,868
147,605
140,576
140,576
121,642
121,642
121,642
Interest
Received
*
**
580
10,857
21,600
29,158
28,381
25,957
19,200
21,900
24,900
27,900
30,400
33,100
Aeeroeriations
Compensation Administrative
Payments
Costs
°°
261
4,200
13,022
14,993
69,611
54,476
54,476
54,476
54,476
54,476
°°
2,844
4,928
6,811
7,169
7,160
8,250
8,250
8,250
8,250
8,250
Ending
Balance
77,547
190,930
368,560
476,000
602,336
643,227
733,261
833,011
933,516
1,018,087
1,105,158
1,194,929
Reflects termination of taxes on December 31,1992 and reenactment of taxes effective August 10, 1993.
** Reflects assumed success of program to assure timely vaccinations of all children by age two (see text).
Note: Opening balances plus receipts and minus appropriations do not necessarily equal ending balances
because of changed trust fund accounting concepts.
Source: Budget of the United States Govemment, Appendix, various years and VICP forecast.
Table 2
DISPOSITION OF VICP CASES ARISING FROM
VACCINATIONS ADMINISTERED AFTER SEPTEMBER 30,1988
(through May 10, 1994)
Vaccine/
Death or
Injury
Cases Adjudicated
Compensation Cases
Not
Cases
Pending
Paid
Dismissed Compensable Compensable
Cases
Filed
4
12
29
25
43
149
7,337
27,640
0
1
1
1
0
18
273
67
2
6
3
1
2
5
6
98
512
3,719
4
3
5
0
0
2
4
1
19
521
1,980
88
78
21
69
334
42,049
22
66
36
42
7
14
34
35
50
284
8,643
33,406
96
226
19
35
3
24
2
4
MMR - Death
MMR - Injury
11
128
0
23
Polio - Death
Polio - Injury
5
28
521
DPT - Death
DPT - Injury
DT - Death
DT - Injury
TOTAL
Death
115
406
Injury
Department of the Treasury
Office of Tax Analysis
30
30
• Only cases where compensation paid to petitioners.
Source: VICP administrative data.
Awards·
(thousands
of dollars)
Table 3
NET DOSES OF VACCINES AVAILABLE AND ESTIMATED TAXES,
CALENDAR YEAR 1989*
Net Doses
Available
(millions)
Vaccine
Tax
Rate
Estimated
Taxes
(millions
of dollars)
Percentage
of Total
Implicit
Taxes
DPT
22.0
$4.56
$100.1
66.5
DT
20.3
$0.06
$1.2
0.8
MMR
9.8
$4.44
$43.6
29.0
Polio
19.1
$0.29
$5.5
3.7
$150.1
100.0
71.1
TOTAL
Department of the Treasury
Office of Tax Analysis
* "Implicit taxes are net doses available times tax rates and are not
ll
equal to tax liabilities reported to the Internal Revenue Service (see text).
Note: Detail may not add to totals due to rounding.
Source: Centers for Disease Control and Prevention, Biologics
Surveilance Reporting System.
Table 4
DISPOSITION OF VICP CASES ARISING FROM 1989 VACCINATIONS
(through May 12, 1994)
Vaccine/
Death or
Injury
Attorney
Compensation Fees Awarded Cases
Only
Pending
Awards
Cases
Decided
Cases
Filed
36
95
25
43
13
7
3
15
11
52
2
6
2
2
1
0
0
1
0
4
MMR - Death
MMR - Injury
1
57
1
17
0
3
0
10
0
40
Polio - Death
Polio - Injury
2
12
1
4
1
2
0
1
1
8
211
95
27
30
116
29
66
15
12
3
27
12
104
OPT - Death
OPT - Injury
DT - Death
DT - Injury
TOTAL
Death
41
Injury
170
Department of the Treasury
Office of Tax Analysis
Source: VICP administrative data.
Table 5
PAYMENTS FOR VICP CASES ARISING FROM 1989 VACCINATIONS
(through May 12, 1994)
Vaccine/
Death or
Injury
OPT - Death
OPT - Injury
Awards to
Petitioners
Total Payments
Attorney
Fees
Total
Average Payments
Award to
Attorney
Total
Petitioners
Fees
Award*
$2,935,000
$9,962,693
$279,985
$278,946
$3,214,985
$10,241,639
$225,769
$1,423,242
$17,499
$12,679
$246,039
$1,446,079
$250,000
$0
$22,940
$2,978
$272,940
$2,978
$250,000
$0
$22,940
$2,978
$272,940
$0
MMR - Death
MMR - Injury
$0
$3,221,109
$0
$304,169
$0
$3,525,278
$0
$1,073,703
$0
$23,398
$0
$1,099,173
Polio - Death
Polio - Injury
$250,000
$626,562
$3,279
$42,606
$253,279
$669,168
$250,000
$313,281
$3,279
$14,202
$253,279
$332,328
$17,245,364
$934,903
$18,180,267
$638,717
$16,402
$659,610
Death
$3,435,000
Injury
$13,810,364
Department of the Treasury
Office of Tax Analysis
$306,204
$628,699
$3,741,204
$14,439,063
$229,000
$1,150,864
$17,011
$8,428
$248,315
$1,173,727
DT - Death
DT - Injury
TOTAL
* Excludes cases where payments of attorney fees were made but no award was made to
petitioner.
Source: VICP administrative data.
Table 6
AVERAGE TIME BETWEEN VACCINATION AND PAYMENT
FORVICP CASES ARISING FROM 1989 VACCINATIONS
(through May 12, 1994)
Vaccine/
Death or
Injury
Average Number of Days Between:
Vaccination
Judgment
Vaccination Filing and
Judgment and Payment* and Payment*
and Filing
DPT - Death
DPT - Injury
676
865
481
701
56
88
1,048
1,296
DT - Death
DT - Injury
789
911
558
311
68
na
1,293
na
MMR - Death
MMR - Injury
811
943
373
683
na
53
na
1,402
Polio - Death
Polio - Injury
958
865
346
465
60
27
1,506
995
AVERAGE
855
Department of the Treasury
Office of Tax Analysis
543
63
1,053
* Excludes cases where only attorney fees were awarded.
na = not applicable (no compensation awarded in these cases)
Table 7
VICP COMPENSATION PAYMENTS, BY YEAR:
CASES ARISING FROM 1989 VACCINATIONS
Calendar
year
Com~ensation ~ayments:*
Number
Amount
1990
1
$261,247
$261,247
1991
7
$3,019,210
$431,316
1992
8
$3,334,327
$416,791
1993
9
$10,645,141
$1,182,793
1994**
2
$549,531
$274,766
$17,809,457
$659,610
27
TOTAL
Department of the Treasury
Office of Tax Analysis
*
**
Average
Excludes cases where only attorney fees were awarded.
Through May 12.
Source: VICP administrative data.
APPENDIX A
Fact Sheet: Vaccine Injury Compensation Program, Post-1988 Program
and
Fact Sheet: Vaccine Injury Compensation Program, Pre-1988 Program
HEALTH
OFFICE
OF
RESOURCES
AND
COMMUNICATIONS
SERVICES
PROGRAM
SERIES
ADMINISTRATION
SEPTEMBER
1993
VACCINE INJURY COMPENSATION PROGRAM
POST·1988 PROGRAM
Program Description
The Vaccine Injury Compensation Program (VICP)
is a no-fault alternative to the tort system for resolving
claims resulting from adverse reactions to covered vaccines. Vaccines covered by the Act include diphtheria,
tetanus, pertussis (DTP, OT, TT, or Td); measles,
mumps, rubella (MMR or any components); and polio
(OPV or IPV). The VICP is administered jointly by the
United States Court of Federal Claims (the Court), the
Department of Health and Human Services (HHS), and
the Department of Justice (DOJ). An individual claiming
injury or death from a vaccine files a petition for compensation with the Court. A physician at the Division of
Vaccine Injury Compensation, HHS, reviews each petition to determine whether it meets the criteria for compensation and makes a recommendation in the form of
a respondent's report that is filed with the Court by DOJ.
. There are two means to qualify for compensation:
(1) a petitioner must prove that the vaccine caused the
injury, or (2) a petitioner must prove that an injury listed
on the Vaccine Injury Table, as set forth in the Act,
occurred within the specified time periods.
The Act distinguishes in terms of the date of vaccination, the elements of compensation, source of funds,
and court processing time between vaccines administered prior to October 1, 1988 (pre-1988 claims), and
those administered on or after this date (post-1988
claims). This fact sheet provides general information
relevant to all claims and specific information on post1988 claims.
Filing Claims
For post-1988 claims involving an injury, the effects
must have continued for at least 6 months after vaccine
administration and the claim must be filed within 36
months after the first symptorTI appeared. For post-1988
u.s.
DEPARTMENT
OF
MEALTH
l
HUMAN
claims involving a death, the claim must be filed within
24 months of the death and within 48 months after the
onset of the vaccine-related injury from which the death
occurred.
Elements of Compensation
for Post·1988 Claims
For death-related claims, the total benefit allowed
by law is $250,000. In injury claims, the amount of
compensation is determined by the Court based on the
needs of the individual and the extent of the injury. The
award may include past and future non-reimbursable
medical, residential, custodial and rehabilitation expenses not otherwise covered by a third-party payor. In
addition, an amount may be awarded for lost earnings,
pain and suffering, and reasonable attomeys' fees and
costs.
Adjudication
Petitions for compensation are adjudicated by the
Court, and the Secretary of HHS is named as the respondent. Attorneys from DOJ represent HHS in hearings before a "Special Master", appointed by the Court,
who makes the initial decision on the petition for compensation. Either party may file an objection to the
decision of a Special Master and request review by the
Court. Appeals of judgments by the Court are heard by
the Federal Circuit Court of Appeals.
The responsibility for determining the order in which
petitions will be heard lies with the Court. The Court has
indicated that the processing order for each claim depends on issues germane to each specific claim, e.g.,
adequacy of medical documentation, type of vaccine
involved, etc. For additional information pertaining to
how claims are scheduled to be heard, an individual
SERVICES
PUBLIC
MEALTM
SERVICE
FACT SHEET
may write to the Clerk of the United States Court of
Federal Claims, 717 Madison Place, N.W., Washington,
D.C. 20005, or call (202) 219-9657.
Advisory Commission on Childhood Vaccines
The Court has approximately 14 months from the
date a petition is filed to render a decision on post-1988
claims, counting all available suspension time. After the
deadline has passed, the Court may retain jurisdiction
over a petition with the consent of the petitioners.
The ACCV meets quarterly and is composed of
nine appointed voting members -three health professionals, three members of the general public and three
attorneys and four ex-offlCio members. The ACCV ad·
vises the Secretary on implementation of the compensation program and recommends changes in the vaccine injury table.
Payment of Awards
Additional Information
For post-1988 claims, awards are paid from the
Vaccine Injury Compensation Trust Fund, which is
funded by an excise tax on covered vaccines as follows: OPT, or any Pertussis containing combination $4.56; DT, 0 or T - $0.06; MMR, MM, MR, M, or R $4.44; and Polio - $0.29.
For more information about the Program, write the
National Vaccine Injury Compensation Program, Hea~h
Resources and Services Administration, Parklawn Building, Room 8-05, 5600 Fishers Lane, Rockville, Mary·
land 20857; or call 301-443-6593. For specific informa·
tion on how to file a claim call: 1-800-338-2382 toll free.
Status of Funds
Based on awards thus far for post-1988 claims, the
amount of funds available is sufficient.
For more information. contact the Office of Communications, HRSA. 5600 Fisfi~rs lane. Room 14-43. Rockvine
Mary1and 20857. or telephone (301) 443-33761 fax {:lQ1) 113 19BI
HEALTH
OFFICE
OF
RESOURCES
AND
CO .... UNICATIONS
•
SERVICES
PROGRAM
ADMINISTRATION
SERIES
SEPTEMBER
1993
VACCINE INJURY COMPENSATION PROGRAM
PRE-1988 PROGRAM
(Legislative Deadline for Filing Claims Expired January 31, 1991)
Program Description
The Vaccine Injury Compensation Program (VICP)
is a no-fault alternative to the tort system for resolving
claims resulting from adverse reactions to covered vaccines. Vaccines covered by the Act include diphtheria.
tetanus. pertussis (DTP. DT. TT. or Td); measles.
mumps. rubella (MMR or any components); and polio
(OPV or IPV). The VICP is administered jointly by the
United States Court of Federal Claims (the Court). the
Department of Health and Human Services (HHS). and
the Department of Justice (DOJ). An individual claiming
injury or death from a vaccine files a petition for compensation w~h the Court. A physician at the Division of
Vaccine Injury Compensation. HHS. reviews each petition to determine whether it meets the criteria for compensation and makes a recommendation in the form of
a r~spondent's report that is filed with the Court by DOJ.
There are two means to qualify for compensation:
(1) a petitioner must prove that the vaccine caused the
injury. or (2) a petitioner must prove that an injury listed
on the Vaccine Injury Table. as set forth in the Act.
occurred within the specified time periods.
The Act distinguishes in terms of the date of vaccination. the elements of compensation. source of funds.
and court processing time between vaccines administered prior to October 1, 1988 (pre-1988 claims). and
those administered on or after this date (post-1988
claims). The deadline for filing pre-1988 claims under
the program expired on January 31, 1991. This fact
sheet provides general information relevant to all claims
and specific information on pre-1988 claims.
Elements of Compensation for Pre-1988 Claims
For death-related claims, the total benefit allowed
by law is $250,000. In injury claims, the amount of
compensc:tion is determined by the Court ba:;ed on the
u.s.
DEPARTMENT
OF
HE.LTH
&
HU .... N
needs of the individual and the extent of the injury. The
award may include future non-reimbursable medical.
residential. custodial and rehabilitation expenses not
otherwise covered by a third-party payor. In addition. up
to a total of $30.000 for pre-1988 claims may be awarded
for lost earnings. pain and suffering. and reasonable
attorneys' fees and costs.
Adjudication
Petitions for compensation are adjudicated by the
Court. and the Secretary of HHS is named as the respondent. Attorneys from DOJ represent HHS in hearings before a "Special Master". appointed by the Court.
who makes the initial decision on the petition for compensation. Either party may file an objection to the
decision of a Special Master and request review by the
Court. Appeals of judgments by the Court are heard by
the Federal Circuit Court of Appeals.
The responsibility for determining the order in which
will be heard lies with the Court. The Court is
now seeking input from HHS on whether cases are
sufficiently documented to proceed to full review; the
intial review is based on the assignment of cases by the
Court, generally in the order received by the Court, as
reflected by the Court's docket numbers. For additional
information pertaining to how claims are scheduled to
be heard. an individual may write to the Clerk of the
United States Court of Federal Claims, 717 Madison
Place, N.W.• Washington. D.C. 20005, or call (202) 2199657.
pet~ions
The Court has approximately 44 months from the
date a petition is filed to render a decision on pre-1988
claims. including all available suspension time. After the
deadline has passed. the Court may retain jurisdiction
over a petijion with the consent of the petitioners.
SERVICES
PUBLIC
HE.LTH
SERVICE
FACT SHEET
Payment of Awards
For pre-1988 claims, awards are paid from general
fund appropriations authorized by the Congress at $1 10
million per year. HHS pays awards for pre- 1988 claims
based on the order in which the Court resolves claims.
Advisory Commission on Childhood Vaccines
The ACCV meets quarterly and is composed of
nine appointed voting members--three health professionals, three members of the general public and three
attorneys and four ex-officio members. The ACCV advises the Secretary on implementation of the compensation program and recommends changes in the vaccine injury table.
Additional Information
For more information about the Program, write the
National Vaccine Injury Compensation Program, Heatth
Resources and Services Administration, Parklawn Building, Room 8-OS, 5600 Fishers Lane, Rockville, Maryland 20857; or call 301-443-6593. For specific information on how to file a claim call: 1 -800-338-2382 toll free.
For more information. contact the Office of Communications, HRSA. 5600 Fisfi~rs lane. Room 14-43, Rockvine
Maryland 20857. or telephone (301) 443-33761 fax {:lQ1) 113 19BI
APPENDIX B
Vaccine Injury Table
TABLE 1:
VACCINE INJURY TABLE
TIME PERIOD FOR FIRST SYMPTOM
OR MANIFESTATION OF ONSET OR
ILLNESS, DISABILITY, INJURY
OF SIGNIFICANT AGGRAVATION
OR CONDITION COVERED*
AFTER VACCINE ADMINISTRATION
I.OTPj Pj OTj Td; or Tetanus Toxoidj or in any
combination with Polio; or any other Vaccine
Containing Whole Cell Pertussis Bacteria,
or Partial Cell Pertussis Bacteria, or
Specific Pertussis Antigen(s)
A.
Anaphylaxis or anaphylactic shock. • •
B.
Encephalopathy (or encephalitis)
3 days
C.
Shock-collapse or hypotonic or
hyporesponsive collapse • •
3 days
Residual seizure disorder as defined
below**.
• • • • • • • • • • • • • •
3 days
O.
• 24 hours
II. Measles, mumps, rubella, or any vaccine containing any of the foregoing as a component;
A.
Anaphylaxis or anaphylactic shock. .
B.
Encephalopathy (or encephalitis) • •
24 hours
. 15 days (for mumps, rubella,
measles, or any vaccine
containing any of the foregoing
as a component)
3 days (for OT, Td, or
tetanus toxoid)
C.
III.
. • same as for encephalopathy
Polio Vaccines (other than Inactivated Polio Vaccine)
A.
IV.
Residual seizure disorder as
defined below**.
Paralytic Polio
in a non-immunodeficient
recipient . . • • .
in an immunodeficient
recipient . . . . • . . •
in a vaccine associated
community case . • . • •
. . . . • 30 days
.6 months
. . .Not applicable
Inactivated Polio Vaccine
A.
Anaphylaxis or anaphylactic shock. . . • . . 24 hours
* For any covered vaccine the following applies:
Any acute complication Or sequela including
death) of an illness, disability, injury or condition referred to above that arose within
the time period prescribed is also subject to the presumption of causation.
** A petitioner may be considered to have suffered a residual seizure disorder if the
petitioner did not suffer a seizure or convulsion unaccompanied by fever or
accompanied by a fever of less than 102 degrees F before the first seizure or convulsion
after the administration of the vaccine involved and if:
(a) in the case of measles, mumps, or rubella vaccine or any combination of such
vaccines, the first seizure or convulsion occurred within 15 days after administration of
the vaccine and two or more seizures or convulsions occurred within one year after the
administration of the vaccine which were unaccompanied by fever or accompanied by a fever
of less than 102 degrees F. and;
(b) in the c~se of any other vaccine, the first seizure or convulsion occurred within
three days afcer the administration of the vaccine and two or more seizures or convulsions
ocCurred within one year after the administration of the vaccine which were unaccompanied
by a fever or accompanied by a fever of less than 102 degrees F.
APPENDIX C
Schedule of Vaccinations Recommended for Children
Recommended schedule for active immunization of normal infants and
children*
Recommended age t
Vaccine(s)'
Comments
2 mos
DTP#1·,OPV#1··
OPV and OTP can be given earlier in areas of high
endemicity
4 mos
OTP#2,OPV#2
6-wk to 2-mo interval desired between OPV doses
6 mos
OTP#3
An additional dose of OPV at this time is optional
in areas with a high risk of poliovirus exposure
1S mos"
MMRH, OTP#4,
OPV#3
Completion of primary series of OTP and OPV
18 mos
HbCV"
Conjugate preferred over polysaccharide vaccine···
4-6 yrs
DTP#5"',OPV#4
At or before school entry
14-16 yrs
Tdu~
Repeat every 10 yrs throughout life
·See Table 3 for the recommended immunization schedules for infants and children up to their
seventh birthday not immunized at the recommended times.
'These recommended ages should not be construed as absolute, e.g., 2 months can be ~10
weeks. However, MMR should not be given to children < 12 months of age. If exposure to
measles disease is considered likely, then children 6 through 11 months old may be immunized
with single-antigen measles vaccine. These children should be reimmunized with MMR when
they are approximately 15 months of age.
~For all products used, consult the manufacturers' package enclosures for instructions regarding
storage. handling, dosage. and administration. Immunobiologics prepared by different manufacturers can vary, and those of the same manufacturer can change from time to time. The
package inserts are useful references for specific products. but they may not always be
consistent with current ACIP and American Academy of Pediatrics immunization schedules.
'DTP = Diphtheria and Tetanus Toxoids and Pertussis Vaccine. Adsorbed. DTP may be used up
to the seventh birthday. The first dose can be given at 6 weeks of age and the second and third
doses given 4-8 weeks after the preceding dose.
"OPV = Poliovirus Vaccine Live Oral, Trivalent: contains poliovirus types 1, 2, and 3.
T'Provided at least 6 months have elapsed since OTP#3 or, if fewer than 3 doses of OTP have
been received, at least 6 weeks since the last previous dose of DTP or OPV. MMR vaccine should
not be delayed to allow simultaneous administration with DTP and OPV. Administering MMR at
15 months and OTP#4 and OPV#3 at 18 months continues to be an acceptable alternative.
BMMR = Measles, Mumps, and Rubella Virus Vaccine. Live. Counties that report ~5 cases of
measles among preschool children during each of the last 5 years should implement a routine
2-dose measles vaccination schedule for preschoolers. The first dose should be administered at
9 months or the first health-care contact thereafter. Infants vaccinated before their first birthday
should receive a second dose at about 15 months of age. Single-antigen measles vaccine should
be used for children aged < 1 year and MMR for children vaccinated on or after their first
birthday. If resOurces do not allow a routine 2-dose schedule, an acceptable alternative is to
lower the routine age for MMR vaccination to 12 months.
.
"HbCV = Vaccine composed of Haemophilus influenzae b polysaccharide antigen conjugated to
a protein carrier. Children <5 years of age previously vaccinated with polysaccharide vaccine
between the ages of 18 and 23 months should be revaccinated with a single dose of conjugate
vaccine if at least 2 months have elapsed since the receipt of the polysaccharide vaccine.
···If HbCV is not available. an acceptable alternative is to give Haemophilus influenzae b
polysaccharide vaccine (HbPV) at age ;.-24 months. Children at high risk for Haemophilus
influenzae type b disease where conjugate vaccine is not avadable may be vaccinated with
HbPVat 18 months of age and revaccinated at 24 months.
T"Up to the seventh birthday.
\HTd = Tetanus and Diphtheria Toxoids, Adsorbed (for use in persons aged ~7 years)' contains
the same amount of tetanus toxoid as OTP or OT but a reduced dose of diphtheria toxoid.
Minimum age for initial vaccination and minimum interval between vaccine
doses, by type of vaccine
Vaccine
OTP (OT)'
Combined OTP-Hlb
OTaPHib (primary series)
HbOC
PAP-T
PAP-OMP
OPV
IPV··
MMA
Hepatitis B
OTP
OTaP
Hib
IPV
MMA
OPV
Minimum age
for first dose·
6 weeks§
6 weeks
15 months
6 weeks
6 weeks
6 weeks
6 weeks§
6 w('eks
12 months H
birth
Minimum
interval from
dose 1 to 2*
Minimum
interval from
dose 2 to 3·
4 wep.ks
1 month
4 weeks
6 months
1 month
6 months
6 months
month
month
1 month
6 weeks
4 weeks
1 month
1 month
1 month
1 month
,
Minimum
interval from
dose 3 to 4-
,,
6 weeks
6 months tt
2 months"
Oiphtheria-tetanus-pertussis
Oiphtheria-tetanus-acellular pertussis
Haemophilus influenza type b conjugate
Inactivated poliovirus vaccine
Measles-mumps-rubella
Live oral polio vaccine
-These minimum acceptable ages and intervals may not correspond with the optimal
recommended ages and intervals for vaccination_ See tables 3-5 for the current
recommended routine and accelerated vaccination schedules.
tOTaP can be used in place of the fourth (and fifth) dose of OTP for children who are at least
15 months of age. Children who have received all four primary vaccination doses before
their fourth birthday should receive a fifth dose of OTP (OT) or OTaP at 4-6 years of age
before entering kindergarten or elementary school and at least 6 months after the fourth
dose. The total number of doses of diphtheria and tetanus toxoids should not exceed six
each before the seventh birthday ( 14 ).
§The American Academy of Pediatrics permits OTP and OPV to be administered as early as
4 weeks of age in areas with high endemicity and during outbreaks.
'The booster dose of Hib vaccine which is recommended following the primary vaccination
series should be administered no earlier than 12 months of age and at least 2 months after
the previous dose of Hib vaccine (Tables 3 and 4).
-·See text to differentiate conventional inactivated poliovirus vaccine from enhanced-potency
IPV.
ttFor unvaccinated adults at increased risk of exposure to poliovirus with <3 months but
>2 months available before protection is needed, three doses of IPV should be administered
at least 1 month apart.
§§Although the age for measles vaccination may be as young as 6 months in outbreak areas
where cases are occurring in children <1 year of age, children initially vaccinated before
the first birthday should be revaccinated at 12-15 months of age and an additional dose of
vaccine should be administered at the time uf school entry or according to local policy.
Doses of MMA or other measles-containing vaccines should be separated by at least
1 month.
"This final dose is recommended no earlier than 4 months of age.
APPENDIX D
Adverse Effects of Pertussis and Rubella Vaccines
Executive Summary
Adverse Iffects of
PERTUSSIS and RUBELLA
Vaccines
A Report of the
Committee to Review the Adverse Consequences of
Penussis and Rubella Vaccines
Christoph~r
P. Howson, Cynthia J. How~,
and Harv~ v. Fin~b~rg, Editors
Division of Health Promotion and
Disease Prevention
INSTITUTE OF MEDICINE
NATIONAL ACADEMY PRESS
Washington. D.C. 1991
1
Executive Summary
Next to clean water, no single intervention has had so profound an effect
on reducing monality from childhood diseases as has the widespread introduction of vaccines. Immunization, the process in which the body's own
protective mechanisms are primed to thwan the invasion or multiplication
of pathogens, is effective and relatively inexpensive. simple. 'and easy to
deliver.
The use of vaccines is not entirely without risk, however. Vaccines.
inclUding the whole-cell penussis (whooping cough) vaccine and the rubella (German measles) vaccine. the subjects of this repon, typically contain small quantities of material derived from disease-causing organisms.
The penussis vaccine contains dead bacteria and is termed a killed or inactivated vaccine; the rubella vaccine contains laboratory-weakened live viruses and is termed a live, artenuated vaccine.
This study responds to a request to the Institute of Medicine (10M) to
conduct a thorough review of the evidence penaining to a set of serious
adverse events and immunization with penussis or rubella vaccine. The
request to 10M originated in the 1986 National Childhood Vaccine Injury
Act (public Law 99-660), whose primary purpose was to establish a federal compensation scheme for persons potentially injured by a vaccine.
Section 312 of Public Law 99-660 called for 10M review of scientific and
other information on specific adverse consequences of penussis and rubella vaccines. The II-member interdisciplinary committee, constituted
J
2
ADVERSE EFFECTS OF PERTUSSIS AND RUBElLA VACCINES
by 10M to conduct this study. recognized that its charge was to focus on
questions of causation and not broader topics. such as cost-benefit or riskbenefit analyses of vaccination. These topics are therefore not addressed
in the repon.
After fonnation of the committee. additional adverse events were added
both by the committee and at the request of the Advisory Commission on
Childhood Vaccines. During the 20 months of the study. the committee
reviewed altogether 17 advt!rst! evt!nts for pt!rtussis vaccint!-infantile spas~;
hypsarrhythmia; aseptic meningitis; encephalopathy (including acute encephalopathy and chronic neurologic damage); deaths classified as sudden infant
death syndrome (SIDS); anaphylaxis; autism; erythema multiforme or other
rashes; Guillain-Barre syndrome (polyneuropathy); peripheral mononeuropathy; hemolytic anemia; juvenile diabetes; learning disabilities 'and hyperactivity; protract~d inconsolable crying or screaming; Reye syndrome; shock
and ··unusual shock-like state" with hypotonicity. hyporesponsiveness. and
shon-lived convulsions (usually febrile); and thrombocytopenia-and J advt!rse events for rubella vaccint!--arthritis (acute and chronic); radiculoneuritis
and other neuropathies; and thrombocytopenic purpura. Although the committee was not asked expressly to examine febrile seizures. afebrile seizures. or epilepsy in relation to diphtheria-penussis-tetanus (OPT) vaccine.
it did so because these conditions may also be serious and are considered by
some to be components of encephalopathy. Conclusions regarding these
conditions are given in Chapter 4. The committee's conclusions on acute
encephalopathy, also presented in Chapter 4, refer only to conditions diagnosed as encephalopathy, encephalitis. or encephalomyelitis. (For additional infonnation on the committee's charge and the events leading to the
enactment of Public Law 99-660, see the Preface and Appendix B. Penussis
and Rubella Vaccines: A Brief Chronology.)
The following three sections of this summary briefly review the methods
used by the committee to evaluate the evidence relating the 20 adverse
events to penussis or rubella vaccine, the evidence considered and the conclusions reached for each adverse event. and the research directions recommended by the committee .
.METHODOLOGIC CONSIDERATIONS IN
EVALUATING THE EVIDENCE
The committee undenook the task of judging whether each of a set of
adverse events can occur as a result of exposure to pertussis or rubella
vaccine. These judgments have both quantitative and qualitative aspects;
they reflect the nature of the exposures, events, and populations at issue; the
specific questions to be considered; the characteristics of the evidence examined; and the approach taken to evaluate that evidence. To facilitate the
EXECUTIVE SUMMARY
3
independent assessment of the comminee' s conclusions, the comminee wishes
to make the process of its evaluation as explicit as possible.
The adverse events under consideration by the committee are. in most
instances. rare in the exposed population. .They -also are known to occur in
the absence of vaccinati~n. are clinically iII-defined, and are generally of
unknown causation in the-general population. The exposures-penussis
and rubella vaccinations-are very widespread in the population. so that the
absence of exposure may itself require an explanation in the interpretation
of comparative studies. These and other features raise a number of difficulties both in the investigation and in the evaluation of the resulting evidence.
The committee considered causal questions of three kinds in connection
with adverse events that have been reponed to occur after administration of
penussis or rubella vaccine. The fD'St of these questions about exposure to
penussis or rubella vaccine is. in general. can it caus.! the specified adverse
condition? For example, can rubella vaccine cause chronic arthritis? If the
conclusion is affirmative, a second question becomes pertinent: How frequently does it cause that condition? Or, how frequently is anhritis a result
of rubella vaccination? The third question. which applies to a particular
instance or case of an adverse event. is did it cause that specific event? Or,
did rubella vaccine cause this particular individual to develop arthritis?
The committee has undenaken its evaluation from a neutral posture. presuming neither the existence nor the absence of association between these
vaccines and the events under consideration.
The identification and acquisition of the relevant evidence were major
tasks of the committee throughout the course of its work. The preponderance of this material comprised either reports of controlled. observational
epidemiologic studies (case-comparison or cohon studies) or uncontrolJed
case reports or case series. There was no experimental evidence, whether in
humans or animals. that clearly proved or disproved a causal relation. Each
study or repon reviewed by the committee was fD'St assessed individually
and then. as appropriate. incorporated into the collective results that underlie the committee's conclusions.
Both quantitative and qualitative approaches to integration of the evidence were utilized. Fonnal meta-analysis was applied when it was feasible
and appropriate. All of the studies were assessed insofar as possible with
respect to the roles of error, bias. confounding. and chance in producing the
observed results. Several considerations bearing on the inference that an
association may reflect a true causal relation were also included in the
committee's evaluation of the overall body of evidence penaining to each
type of adverse event under review. These included the strength of association. temporal relation between exposure and event. consistency of results
between studies. specificity of the relation between exposure and event, and
biologic plausibility of such a rehtic-n.
4
ADVERSE EFFECTS OF PERTUSSIS AND RUB~ VACCINES
SUMMARY AND CONCLUSIONS
Table I-I summarizes the categories of evidence reviewed for each adverse event and the respective contribution of each to the committee's judgments about causation. The evidence is organized under five headings: (1)
human experiments; (2) animal experiments: (3) case-comparison, cohort.
and other controlled studies, (4) case reports and case series: and (5) biologic plausibility. Methods for interpreting evidence in the fIrSt four categories are discussed in Chapter 3. The fifth category, biologic plausibility,
includes background knowledge concerning the pathophysiology of an adverse event. attributes of a panicular vaccine, or other biologic information
derived from research in such areas as immunology and physiology. The
evidence in these five categories. elaborated in the body of the report. forms
the basis of the committee' s conclusions.
Where evidence was available in a panicular category, the committee
judged whether that evidence was generally supportive or not supportive of
causation or whether it was insufficient for a determination. For example,
where there were relevant controlled studies Which, overall, found relative
risks greater than I. the evidence was classified as "supportive of causation." Blanks for any given category of evidence indicate that evidence of
that type was lacking. It is important to note that anyone category of
evidence generally was not sufficient in itself to suppon a conclusion of
causality. since other aspects of the evidence. including the details of the
results and the number and quality of contributing studies, as well as the
assessment of the other categories of evidence, were also considered in the
evaluation.
Table 1-2 summarizes the committee's conclusions about the 20 adverse
events evaluated in this repon. As shown in the table, the committee found
it convenient to organize its conclusions about the adverse events into five
categories. These categories reflect the strength and direction of the conclusions about the causal relations between DPT or rubella vaccine and the
20 adverse events evaluated in the repon. The bases of these conclusions
are discussed in Chapters 4 through 7 of the repone Conclusions on rubella
vaccine apply to the RA 27!3 rubella strain currently in use. Evidence does
not differentiate between OPT vaccine and the pertussis component of OPT
vaccine. except in the case of protracted crying (see below). As shown in
Table 1-2. the committee found:
• no evidence bearing on a causal relation between OPT vaccine and
autism;
• insufficient evidence to indicate a causal relation between OPT vaccine and aseptic meningitis. chronic neurologic damage. erythema multiforme
or other rash. Guillain-Barre syndrome. hemolytic anemia. juvenile diabetes. learning disabilities and attention deficit disorder, peripheral mononeurop-
TABLE I-I Categories of Evidence Reviewed for Each Adverse Event: Is the Evidence Supportive of Causation?Q
Vaccine and
Adverse Event
(Chapter of Report)
Human
Experiments
Yes" ?r
Cnse-Conlparlson,
Cohort, and Other
Controlled Studies
Animal
Experiments
Nod
Yes
?
No
Yes
?
No
CaRe Reports
and Case Series
Yes
?
No
Biologic
Plausibility
Yes
?
No
OPT
Infantile spasms (4)
Hypsarrhythmla (4)
Aseptic meningitis (4)
Acute encephalopathy' (4)
Chronic neurologic damage (4)
Sudden infant death sy'ndrome (5)
Anaphylui!l (6)
Autism (6)
Erythema multi forme or
other ra!lh (6)
Guillain-Barr~ Ryndrome
(polyneuropathy) (6)
Peripheral mononeuropathy (6)
Hemolytic anemia (6)
Juvenile diabete!l (6)
Learning di!labilities and
hyperactivity (6)
Protracted incon!iolable
crying and !lcreaming (6)
Reye "yndrome (6)
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
X
\.It
0-.
TABLE 1·1 Continued
Case-Comparison.
Cohorl. and Olher Case Reporls
Conrrolled Sludies and Case Series
Human
Animal
Vaccine and
EJlperimenls
EJlperimenls
Adverse Evena
Yesh?f
Nod Yes
(Chapler of Reporl)
'1
1
No Yes
------- ------- ----- - -.---------- ------------ ----- .. -Shock Dnd "unusual lihocklike slale" (6,
x
Thrombocylopenia (6)
RA 27/3 Rubella
Arthrilis (7)
ACUle
Chronic
Radiculoneurilis and
olher neuropalhies (7)
Thrombocylopenic purpura (7)
x
x
X
No
Yes
"
No
Biologic
Plausibility
Yes
'!
---- ----
x
X
x
x
X
X
X
G81anks for any aiven caleaory of evidence indicale Ihal evidence of Ihis kind is lackina.
bYes. Evidence of Ihis kind is supportive of causation.
"1, Evidence of Ihls kind cannol be claSlified eilher as supporlive or as nOI supportive of caulalion.
dNo, Evidence of Ihis kind Is nol supportive of causation.
'Defined In conlrolled Iludies reviewed as encephalopalhy, encephalitis. or encephalomyelilis.
X
X
X
X
No
7
EXECUTlVE SUMMARY
TABLE 1-2 Summary of Conclusions by Adverse Event for DPT
and RA 27/3 MMRb Vaccines
Adverse Events Reviewed
Conclusion
DPT Vaccine
1. No evideDce bearing on
a causal relatione
Autism
2. Evidence insufficient to
indicate a causal relationd
Aseptic meningitis
Chronic neurologic damage
Erythema multifonne
or other rash
Guillain-Barre syndrome
Hemolytic anemia
luvenile diabetes
Learning disabilities and
anention-deficit disorder
Peripheral mononeuropathy
RA 27/3 Rubella Vaccine
Radiculoneuritis and
other neuropathies
Thrombocytopenic purpura
Thrombocytopenia
3. EvideDce does not iIIdicale
a causal relation'
Infantile spasms
Hypsarrytbmia
Reye syndrome
Sudden infant death
syndrome
<t. Evideace is consistent
Aane encepbalopathyl
Shock and ""unusual shocklike swe"
Chronic anhritis
Anaphylaxis
Prouacted. iDconsolable
cryillg
Acute arthritis
wiab a causal relationf
S. EvideDc:e indicates a
causal relation"
-Evidenc:e does not differentiate between DPT vaccine and the pertussis component of OPT
vacciDe except in abe case of protracted. iIIconsolable crying where the evidence implicates the
pertuSSis component specifically.
~ Tlf3 MMR. TrivUm meas1es-mumps-rbella vaccine conaaining the RA 2713 rubella main.
"No c:atcgory of evidence was found bearing on a judgment about causation (all categories
of evideDc:e left blank in Table 1-1).
dJtelevant evideDc:e in one or more categories was idenlified but was judged to be insufficienl 10 indicate whether or not a causal relation exists (no category of evidence checked as
supponiDg causation in Table I-I; exceplions are this designation under biologic plausibility
for eryIhema multiforme and hemolytic anemia).
'Tbe available evidence. on balance. does not indicate a causal relation (one or more categories of evidence checked as DOt supporting causation in Table 1-1. with evidence supponing
causation being eilber absent or outweighed by the other evidence).
frbe available evidence. on balance. lends to suppan a causal relation (one or more categories of evidence checked as 5upponing causation in Table 1-1. with evidence checked as
iuufficient or not supponing causation being absent or outweighed by the other evidence).
IDefmed ill controlled studies reviewed as encephalopathy. encephalitis. or encephalomyelitis.
Jt.rbe available evidence. on baJance. suppons a causal relation. and the evidence is more
persuasive than that for conclusion 4 above (the categories of evidence are coded similarly to
tbose in conclusion 4. with evidence checked as insufficient or not supponing causation in
Table 1-1 being absent or less than for 4).
8
ADVERSE EFFECTS OF PERTUSSIS AND RUBElL4 VACCINES
athy. or thrombocytopenia. and between the currently used rubella vaccine
(RA 27/3) and radiculoneuritis and other neuropathies or thrombocytopenic
purpura;
• that the evidence does not indicate a causal relation between OPT
vaccine and infantile spasms. hypsarrythmia. Reye syndrome. or SIOS;
• that the evidence is consistent with a causal relation between OPT
vaccine and acute encephalopathy and shock and "unusual shock-like state."
and between RA 27/3 rubella vaccine and chronic arthritis; and
• that the evidence indicates a causal relation between OPT vaccine and
anaphylaxis. between the penussis component of OPT vaccine and protracted. inconsolable crying. and between RA 27!3 rubella vaccine and acute
arthritis. I
RESEARCH NEEDS
In the course of its review. the comminee encountered many gaps and
limitations in kno~ledge bearing directly and indirectly on the safety of
vaccines. These include inadequate understanding of the biologic mechanisms underlying adverse events following natural infection or immunization. insufficient or inconsistent information from case reports and case
series. inadequate size or length of follow-up of many population-based
epidemiologic studies. and limited capacity of existing surveillance systems
of vaccine injury to provide persuasive evidence of causation. The committee found few experimental studies published in relation to the number of
epidemiologic studies published. Clearly. if research capacity and accomplishment in these areas are not improved. future reviews of vaccine safety
will be similarly handicapped.
With respect to pertussis and rubella vaccines. careful review is needed
to identify what sorts of questions might be best answered by further investigations and which kinds of studies could be carried out economically. The
availability and introduction of new forms of penussis vaccine. for example. could offer valuable opportunities for comparison of vaccine safety
as well as efficacy. The comminee' s experience points to fresh possibilities
and to the need for such a review.
I The available evidence is consistent wim a causal relation. but. on ba1aoc:e. is more persuasive than thai in lhe previous bullet.
APPENDIX E
Adverse Events Associated with Childhood Vaccines: Evidence Bearing on Causality
Executive Summary
Adverse Events Associated with
CHilDHOOD VACCINES
(vidence Bearing on Causality
Kathleen R. Stratton. Cynthia J. Howe. and
Richard B. Johnston. Jr .• Editors
Vaccine Safety Committee
Division of Health Promotion and Disease Prevention
INSTITUTE OF MEDICINE
NATIONAL ACADEMY PRESS
Washington. D.C. 1994
1
E1'ecutive Summary
"Our aim. therefore. must be to study these [complications] as fully as
possible in me confident expectation that. as in other branches of science.
knowledge will bring enlightenment" (Wilson. )967).
Childhood immunization has been one of the foremost public health
measures of the twentieth century. It has allowed control and prevention of
many diseases from which morbidity and mortality can be staggering. Medical
personnel in the 'United States currently rarely see a case of the infectious
diseases against which the vaccines are directed. Yet. recent measles epidemics on college campuses and in inner cities suggest that vaccine-preventable disease is not to be ignored. The first health initiative of the new
presidential administration was to increase funding for childhood immunization programs to boost vaccination rates in the United States. panicularly
for children under age 2 years.
BACKGROUND AND HISTORY
The public policy debate regarding immunization stretches beyond the
question of how to meet the go~ls of univ~rsal immunization. Concern over
the safety of penussis vaccine was long-standing in Great Britain by the
time of the ) 982 airing in the United States of a documentary entitled
"DPT: Vaccine Roulette" (WRC-TV. 1982) and the 1985 publication of
DPT: A Shot in the Dark (Coulter and Fisher. 1985). Concern has stretched
to other vaccines and has spawned the formation of groups of imerested
citizens throughout the United States. for example. National Vaccine Information CenterIDissatisfied Parents Together. Determined Parems to Stop
Huning Our Tots. Concerned Health Professionals and Others. and Parems
J
2
.-\DVERSE EVENTS ASSOCIA.TED WITH CHILDHOOD VA.CCINES
Concerned About the Safety of Vaccines. More anicles and books have
been published (e.g .• Coulter. 1990; Miller. 1992) to alert the public to the
potential risks of vaccination.
In 1986. the U.S. Congress passed the National Childhood Vaccine
Injury Act (NCVIA; P.L. 99-660) in response to worries about the safety of
currently licensed childhood vaccines and in response to the economic pressures that were threatening the integrity of childhood immunization programs. The litigation costs associated with claims of damage from vaccines
had forced several companies to end their vaccine research and development programs as well as to stop producing already licensed vaccines. The
NCVIA was an attempt to encourage and ensure vaccine production by
creating a no-fault compensation program (the National Vaccine Injury Compensation Program) as a required first resort for those who believed that
they or their children had been injured by certain vaccines. The need for a
compensation program had long been recognized. and several groups had
proposed possible mechanisms for compensating people believed to be injured by vaccination (Institute of Medicine. 1985; Office of Technology
Assessment. 1980). This program was envisioned to alleviate. but not completely eliminate. manufacturer liability and encourage research and development of more and safer vaccines. The compensation program is administered by the federal government and is financed by an excise tax on the sale
of vaccines covered by the program (Iglehart. 1987; Mariner. 1992).
In addition to establishing the compensation program. the NCVIA set
forth other vaccine-related efforts to be carried out by the U.S. Department
of Health and Human Services. including mandatory reporting of specific
adverse events following childhood immunizations against diphtheria. tetanus. pertussis. measles. mumps. rubella. and polio (see box entitled The
Vaccine Injury Table in Chapter 10); voluntary reponing of any reaction to
any immunization to the Vaccine Adverse Event Reporting System (see
Chapter 10 for a discussion of this passive surveillance system and Figure
B-1 for a copy of the reporting form); the creation of a National Vaccine
Program Office to coordinate federal vaccine initiatives and to help meet
immunization coverage goals; the establishment of advisory groups to the
National Vaccine Program and the National Vaccine Injury Compensation
Program; and better communication of the potential risks of vaccines through
public inforrnatioll pamphlets that are distributed at the time of vaccination
(under the direction of the Centers for Disease Control and Prevention) and
changes in vaccine package inserts (under the direction of the U.S. Food
and Drug Administration).
The NCVIA also mandated that the Secretary of the U.S. Department of
Health and Human Services enlist the help of the Institute of Medicine
(10M) of the National Academy of Sciences to study the adverse effects of
childhood vaccines. The NCVIA called for two specific studies. The first.
3
EXECUTIVE SUMMARY
mandated under Section 312 of P.L. 99-660. was to address the serious
adverse effects of penussis and rubella vaccines. The Committee to Review
the Adverse Consequences of Penussis and Rubella Vaccines published its
fmclings in 1991 (Institute of Medicine. 1991). Appendix A contains the
Executive Summary of that report.
The second stud)'. mandated under Section 313 of P.L. 99-660. was to
review adverse events associated with other vaccines commonly administered during childhood. The Vaccine Safety Committee. which was charged
with perfonning the second study, was convened early in 1992. The results
of that inquiry are provided in this repon.
THE CHARGE TO THE COMMIITEE
The members of the interdisciplinary. 14-member Vaccine Safety Committee have expertise in such areas as immunology, pediatrics. internal medicine.
infectious diseases. neurology. virology. microbiology. epidemiology. and
public health. The committee was charged with (1) reviewing the relevant
scientific and medical literature on specific risks to children associated with
the vaccines or vaccine components directed against tetanus. diphtheria.
measles, mumps, polio, Haemophilus influenzae type b, and hepatitis B
currently licensed for use in the United States and (2) reviewing the available data on specific risk-modifying factors. that is, circumstances under
which administration of these vaccines increases the risk of an adverse
event. characteristics of groups known to be at increased risk of an adverse
event. and timing of vaccination that increases the risk of an adverse event.
Risk-benefit comparisons or recommendations about immunization schedules were not within the charge to the Vaccine Safety Committee. Despite
the name of the committee. many aspects of vaccine safety, such as purity
standards or production technique~. also were beyond the comminee's charge.
Both 10M studies mandated in P.L. 99-660 entailed the evaluation of
the weight of scientific and medical evidence bearing on the question of
whether a causal relation exists between certain vaccines and specific serious adverse events. Like the Committee to Review the Adverse Consequences of Pertussis and Rubella Vaccines. the Vaccine Safety Committee
approached its task from a position of neutrality. presuming neither the
presence nor the absence of a causal relation between the vaccines and the
adverse events under consideration.
THE STUDY PROCESS
Over the course of 18 months. the committee met six times. reviewed
more than 7.000 abstracts of scientific and medical studies. read more than
2.000 published books and anicles (including many sources in the non-
AD\'ERSE H'ENTS ASSOCIATED WITH CHILDHOOD VACCINES
English literature). analyzed information from U.S. Public Health Serviceadministered reporting systems for adverse reactions to vaccines. and considered material submitted by interested parties. The committee solicited
input from scientists who were invited to participate in two open scientific
meetings and from other interested parties at two open public meetings.
Details regarding how the committee gathered information are given in
Appendix B. All salient information from those reviews is contained in this
report.
P.L. 99-660 stated that the review was to include those vaccines covered by the National Vaccine Injury CompenS'ation Program. Haemophilus
influen:ae type b (Hib) and hepatitis B vaccines were added for consideration because of the increasing use of these vaccines and the supposition
that in the near future they could be mandatory vacCines covered by the
National Vaccine Injury Compensation Program. The list of adverse events
investigated for this report derived primarily from negotiations with repreientatives of the U.S. Public Health Service. However. preliminary investigations into additional adverse events were prompted by queries from interested parties or committee members. After considering the information
from these preliminary investigations. the committee added several vaccineadverse event relations to the original lisL Table 8-1 in Appendix 8 contains a complete listing of the specific vaccine-adverse event relations UDder study.
The report begins with background information. Chapter 2 contains an
in-depth discussion of the approach used by the committee to weight the
evidence and assess causality. Information on the neurologic disorders and
immunologic reactions discussed in much of the report is contained in Chapters
3 and 4. Chapters 5 through 9 include the vaccine-specific evidence and
conclusions. All information (evidence, causality argument, and conclusions) regarding death as an adverse event associated with vaccination is
contained in Chapter 10.
Ad"erse Effects of Pertussis and Rubella Vaccines (Institute of Medicine. 1991). the report of the predecessor 10M committee. provides an indepth review of the literature concerning the adverse events associated with
diphtheria and tetanus toxoids and pertUssis vaccine (OPT). as well as pertussis
vaccine. and should be referred to for conclusions regarding OPT. Appendix A contains the Executive Summary of that report. The charge to the
Vaccine Safety Committee was to examine adverse events associated with
tetanus toxoid as well as tetanus and diphtheria toxoid combination preparations. The committee reviewed data concerning OPT if the data also concerned diphtheria and tetanus toxoids for pediatric use (OT); however, it
was beyond the committee's scope to make conclusions about penussis
vaccine or OPT.
The 10M Committee to Review the Adverse Consequences of Pertussis
EXECUTIVE SUMMARY
5
and Rubella Vaccines made determinations of causality only for rubella
vaccine and the rubella vaccine component of multivalent vaccines. but not
for measles-mumps-rubella vaccine (MMR). Thus. the Vaccine Safety Committee
reviewed data regarding immunization with MMR as well as data on monovalent
measles and mumps preparations. The committee has made separate determinations of causalu'y' for the measles and mumps vaccine components for
the adverse events for which data were available. particularly if measles or
mumps vaccine-strain virus was isolated from the patient. In circumstances
in which a causality assessment specific to monovalent measles or mumps
vaccine was not possible. this is stated in the conclusion regarding that
specific adverse event.
In circumstances in which the committee determined that a component
of a multivalent preparation was causally related to a specific adverse event.
but there is no direct experience of such an adverse event being caused by
the multivalent preparation. the committee states this. but judges that the
combined preparation also is causally related to that adverse event.
Many case repons described an adverse event( s) in a patient who received more than one vaccine. A common comhination. as a result of the
immunization schedules recommended in the United States. is OPT. oral
polio vaccine. and Hib vaccine. Assessment of causality in those reports
was more difficult than if the patient had received only one vaccine or
vaccine component. but the committee considered that the reports could be
theoretically supponive of causality for the combination but not in themselves sufficient to allow a firm judgment regarding causality.
CAUSALITY AND WEIGHT OF EVIDENCE
As discussed in detail in Chapter 2. the committee considered four
types of evidence: biologic plausibility: case repons. case 5eries. and uncontrolled observational studies; controlled observational studies: and controlled clinical .trials. The committee used qualitative and quantitative approaches to weigh each type of evidence. Table 1-1 contains a summary of
the different types of evidence for every vaccine-adverse event relation
studied. The committee believes that although it is plausible that there is a
causal relation between any of the vaccine-adverse event associations under
review, plausibility has been 'demonstrated only for certain ones of these.
Therefore. information on the plausibility of a causal relation was classified
in Table 1-1 as either theoretical only or as demonstrated. The other types
of evidence were classified in Table 1-1 as nonexistent. indeterminate. or as
weighing, on the whole. for or against a determination of a causal relation.
The consideration of all four types of evidence as a whole led to a conclusion of the final weight of evidence regarding causality. Table 1-2 contains
these conclusions.
TAHtE I-I Summary of Ihe Evidence For or Againsl a Dt!lerminalion of a CiHtsal Relalion"
('a~e
niulo~il' Plausihilily"
Repmls, ('a~e Series, lind
lllll'lmtwllell Ohservalillnal SlUlIics
Coni rolled Ohservalillnal SllIdie~ alld
Cuntmlh:d Clinil'al Trials
Enl'ephalopathy
Ocmonslrllted
III1Ietermillate
Againsl (OT)
No dala (Td, T)
Inrantlle spasms"
(DT only)
Theoreliclll nnly
No data
Against
Residual seilure disorders
other than inrantile spasms
Theorelical unly
Indelerminate (DT, T)
No dilia (Td)
No dOli II
Demyelinating diseases or
lhe cenlrlll nervous syslem
Demnnslraled
for
Nu dOli II
Guillain-Barre! syndrome
DemonSlraled
for (T)
Indelerminale COT, Td)
No dalll
Mononeuropilihy
Theoretical only
Indeterminale (T, Td)
No dall (DT)
No dala
Brachial neuritis
Theorelical only
For (T)
Indelerminale (Td)
No dill (DT)
.No dala
Val'l:ine and AlJver~e Evenl
()j/,",".,/;(/ (/1111 T.""'"H to.I"M,'
0-
Arthrilis
Theorelical only
Indelerminale
No dala
Erylhema mulliforme
Theorelical only
Indeterminate (DT. Td)
No data (T)
No dala
Anaphylaxi~
Demonslraled
For(T)
Indelerminate (DT. Td)
No data
Indelerminate
Against
Death from SIDS (DT only)' Theoretical only
Mea.flf.' Vardn"
Em:epholopnlhy
Demon~lraled
Indeterminate
Indeterminate
Suhacule !'iclerosing
panem:ephalitis
Demon!ltroled
Indeterminole
Indeterminale
Residual seizure disurder
Demon!'itraled
Indelerminate
No dOla
Sensurineurnl deafness
Theoretical only
Indelerminate (MMR)
No data
Oplk neuritis
Demon!llrated
Indeterminale
NI) dala
Transverse myelitis
Demon!litratt:d
Indelerminate
No data
Guillain- Rarrt~ syntirnmc
Demonstraled
Indelerminale
No dU11I
Thflllllhlll: ytupcn ia
Demunslrated
Indelerminate (measles)
For (MMR,
Indeterminate (measles)
No datu (MMR,
IIISII Iin-llcpcllllclIl
tliahl'lcs mellilUs
Theuretkalunly
Indeterminate
Int!ctcrllli nalC
""''';nlll't/
'-I
00
TAIII .. ": 1·1
(('(II/Iil/l/('In
('a~e
nitlltl~il: I'lausihi iii y"
Rqmrls. ('use Series. und
lI.Ktlnlwllc:d Ohservaliunul SlUilies
Con.wlled Oh~crvalillnal Slutlil'~ alltl
C'unllullet.! Clinil'ul 1'. ia"
Anaphylaxis
Thenrelil:ul unly
I'm
Nu dala
DC:lllh hoOl val't.:inc-slrain
viral infel:liun"
Dc munsl raletl
fur
Nil dUlu
lJemonslraled
Indelermillille
Nil dulu
Demunslraled
Indclerminale
No dUlu
Residual seilure disordc:r
Thenrelical only
No dula
Nil dulu
Neuropalhy
Thcorelical only
No dala
No dUlu
Sensorineural deafness
Oemonslnlled
Indclcrminule (MMR)
No dUla
Insulin-dependenl
diabeles mellilu~
Demonslnlled
Indelerminale
Indelerminale
Sierilily
Demonslraled
No dala
No dala
Thrombocylopenia
Demonslnlled
Indelermlnale
No dala
Anaphylaxis
Theorelical only
IndC:lerminllle (MMR)
No dala
Van'inc: am.l Atlvcrsc Evclll
MII"'I'.f Vun'j,,,!
Encephultlpalhy
Aseplic
menin~ilis
p"/i,,
Va('(';n~
(OPV and IPVI.
Oui"ain-Barr~
5yndrome
Demonstrated (OPV)
Theoretical only (IPV)
For (OPV)
Indeterminate (lPV)
For (OPV,
No data (IPV,
Trllnsver!le myelitis
Demon!ltrated (OPV)
Theoretical only (IPV,
Indeterminate (OPV,
No data (IPV)
No dala
Poliomyeliti!j (OPV only)
Demon!itraled
For
No dala
Thrumhocytopenia (lPV,
Theoretical only
No data
No duta
Anuphylux is (I PV,
Theoretical only
No data
No dutll
Death from SIDSr
Theoretical only
Indeterminate
Indeterminate
Death frum vaccine-slrllin
viral inrectinn. indudinl!
fwm pnrulylic pnlinmyelilis tOPV 411lIy)"
Demon!ltrated
For
No duta
Demonslrl,,,:d
Indeterminllie
Nn dala
Ikmyclinalilll! diseases tlf
l'l'nlral nervuus syslem
I)emnnslraled
'mlclerminnle
Nil IIala
AIIIHil is
Demunslrated
Inclelcrminale
Nil 41alll
Allaphyla,1\
Themcticlll unlv
Fur
Nil data
Themclical nllly
'mlctcrl1l iI iii Ie
Nn data
""I',"ili,~ II \lUI";I/.'
Guilillin-RlIrr~
syndwl1le
Ihl'
Ill'alh
hOIll
SIDS"
I()
nll/lil/m't!
""-
o
TABLE I-I (('(lIIli",It·")
Val:l.:ine and Adverse Evenl
1ItJ('n/ll/'''i111,~
Hillillgil: Plausihililyh
Case Reporls. Case Series. IImJ
Unl:llnlrulled Observalillnal SlUdies
Cunlwlkd Ohservalillnal Siuliies ami
CllnlwllelJ Clinil:al Triah
;//jl11('//:u(' type h Val:dne
Ouillain-Darre syncJrume
Theuretil:al only
Inlielerlll inale
Nil dala
Transverse myelitis
Theoretical only
IncJeterminate
Nil cJata
Thrombocytopenill
Theoretil:Hl IInly
IncJeterminate
IncJeterminale
Susl:cptibiljty to ellrly
tlib diseuse"
OemonstratecJ
IncJl!terminate
For IPI(P)
A~ainst (wnjugatl!cJ)
Anaphylalli~
Theoreticul only
IncJelerminale
No cJala
Theorelical only
Indelerminale
No dala
Oealh from SIDS"
-- -
_.
---
---_.
.- . --- _.
Ulnd~lnmlnut~ IndicKles Ihal Ihere is evidence in Ihi!! calegory. bUI Ihe commillee did not consider Ihlll. on the whole. il weighed eilher fur ur
againsl a causal relalion. No dutu indicales Ihat Ihe commillee did not find duta of this type directly bearing on a causal relalion between Ihe vUl:l:inl!
and the adverse evenl.
"The committee considered all adverse events 10 be Iheoretically plausible and. Iherefore. chlssified plausibility in support of causalilY Kli either
Iheorelical only or demonstraled. Demonslraled biologic plausibililY refers 10 informillion on Ihe known eUecl! or Ihe niliural disease againsl whil:h
Ihe vaccine is liven and Ihe resulls or Imimal experimenls and in vilro siudies.
('Unless nOled olherwise. Ihe classificalion for lelanus 101l0id (T). diphiheria-Ieillnus 101l0id ror pedialric use (OT). lind lelanus-diphlheria 101l0id ror
adult use (Td) is Ihe same. The commillee was not charled wilh assessing monovalenl diphtheria 101l0id or Ihe combined diphlheria and lelanus
10lloids and perlussis vaccine (OPT). In Appendix A. see Ihe Elleculive Summary or Ad"trs~ EHuts 0/ Putuss;s ulld Ruh~lIa Vu('(';n~s ror conclusions
abouiOPT.
J'nfuntlle ~pums occur only In the Ige group thlt receives oT but not Td or T. A ponible Clusil relation between Infantile !!p85mS and Td and T
was not eumined.
"In this table, the committee summarizes the data regarding the causal relation between the vaccine and only those deaths that are cla!l!llried as
sudden infant death syndrome (SloS) or thai are a consequence of vacclne-slraln viral Infection. SloS occurs primarily In Infants too young to receive
lelanus and diphtheria 10llOIds for adull use, measles vaccine. mumps vaccine, or usually, tetanus IOllOid. Therefore, I relalion between these vaccinu
and SIDS was nol asse!lsed. If Ihe evidence favors Ihe acceplance of (or eSlablishes) a causal relation between a vaccine and an adverse event, and if
that adver!le evenl can be falal, then In Ihe committee's judgment the evidence favors the acceptance of (or eSlablishes) a CRu!!al relation between Ihe
vaccine and death from the advene event. Direcl evidence regarding death In auoclntlon with I potenllally fatal adverse evenl that ilself Is causally
related to the vaccine is limited to tetanus-diphtheria 10llOId for adult use and Ouillaln-Barr~ syndrome, tetanus tOlloid and anaphyl.xl!l, and oral polio
vaccine (OPV) and poliomyelitis. oileet evidence regardin8 denth In association with a potentially fatal adverse event that Itself;f!l causally related to
the vaccine Is lackin8 for measles vaccine and anaphyl811is, MMR and anaphyl811i!l, OPV and Ouillain-Barr~ syndrome, hepatiti!l B vaccine and
unaphylui!l, and Ha,nwphilus influ,n:a, Iype b unconju8nted PRP vaccine and early-on!let Ho,nwphilusinflu,n:o, type b di!lea!le In children age I It
months or older who receive their firsl Hlb immunization wish unconju8ated PRP vaccine. See Chapter 10 for detail!l. The data are indeterminate
regarding the ca·usal relation between the vaccine and causes of death other thnn tho!le di!lcussed above. Dato regarding death U ISn ndverse
consequence of the vDccine!l under review are dlscu!l!led in Chnpter 10 rather than In the vaccine-!lpeciric chapters.
{The committee WDS charged wish assessing Ihe causal rdotlon between several adveue events and measle!l vnccine or mumps vaccine. The
cClmmillee was not charged with uses!lin8 monovalent rubella vaccine. In Appendill A. see the Ellecutive Summary of Atll-,,"u EUuu II/ P('fl/lui.t
u"d Rllhd/u' Vun-illn for concluslon~ regarding rubella vaccine. (MMR) Indicates Ihat the data derive ellclusively from the multivaleat preparlltion .
.a:OPV is oral plllill vaccine: IPV Is innctivated polio vaccine.
"The cllmmillee assessed data regarding the increased susceptillility to Ha('nwphilll.t ;"/111(,":111' type b disellse within 7 days of immunization with
/lul,,,,,,,,IIiIIlJ ill(1I1(,II:clt' type 11 vaccine. For thili adverse event only. the committee was lillie to separate the data regarding the uncunjugllted (PRP)
vacdne frum Ihe dllia regarding the conjugated vaccines.
.......
.......
""-
t""
TAn ....: 1·2 Conclusiuns Hased on Ihe Evidcnn: Hcaring
DTfl'llf)'
\ka,Il',"
(',II,'go,r I: N" fr/dl'lI, C' /I"C''''''II fill II (','I/wl
011
Causalily
OI'V tII'v"
MIIIlII""
lIepalilb It
II_ II,f/"('/,:,,,'
Guillain- Barre
s YOllrllme
( iuillain-II'lIre
,YlllhlllllC
Demyelinating
diseases or Ihe
cenlral nervous
syslem
Tramverllc lIIyelilis
I) Pl'
h
N"'"',,,I/
Neuropathy
Tram;v~r,~
myelilis
(/I'V)
I(c,i,lual
tlisllnll'r
,ci/ur~
Thflllnhlll.: ylll(1\'n iu
tll'V)
Anuphylluis (IPV I
('II'e',&:/II-."
1: rile' 1:";""/1, e' Is
I(esitluul st!i/ure
tlisllrcle:r olher Ihall
infunlile spasms
Demyelinuling
discuscs tlf Ihc
cenlrnl nervous syslem
Mononcurupalhy
1IIII,/c·.flUllc· 10 Ikc c'f" ,II- NC>;."., II (',/II_wi Hc'''";OI/
F.ncc(1hulupulhy
Enccphaillpalhy
Trunsve:rse: myelilis
COPY)
Subuculc sclerosinl/.
punenccphalilis
Residuul seizure
diMJrdcr
Scnsorincural
deafness (MMR)
Arlhrilis
0plic neuritis
Ase:l'lic me:ningilis
Sensorineural
deafness (MMR)
Guilluin-Outrl!
syndrome (IPV,
Dealh from SIOS'
Insul in -depe: ndenl
diabetes mellilus
Arlhritis
Sterility
Death from SIDS'
Thrombocyl\lpellia
AnuphylaJlj,
Dealh from SIDS'
Erylhemn Olullirorme
Tronsver!le myellll!l
Thrombocylopenla
Ouillaln-8arrc!
syndrome·
Anaphylaxi!lJ
Thrombocylopenia
In!iulin-dependent
diabeles mellilu!i
{'II/,'gon'
.I.' 1'1,,' fI,;,It'I/I'"
F'II'III',{
Rrjt'l'/;on of 1/ CUII,wl Rdu/;"I/
Early oll!lel II,
EIll:rphnh'palh y"
injl11"1/:/II' b disease
(cunjugnle vaccines)
IlIlallli": spnsllls
IlJT IIlIlyl'
Dcnlh Imlll
SIDS IIH IIl1lyl"g
('II/(',~Il/\' .J.' 'fill' 1:'1';""1/,,(,
(jllillaill- Hantl
~ YII(lrlll"':"
nral'hial Ill'uril isl'
"",..01'.\ 1\''1'1",/,111,,(,
Anaphylallis"
"f "
C,lII,wl RI'III/;/II,
Guillaill-Rarrtl
sYllllrllllle HWV I
EarIY-lIns!!1 /I.
b disease
ill chihlren nge I K
1II11111h .. IIr IIleter who
receive Iheir tirsl
IIih illllllunizalilln
wilh um:(llIjugiHed
I'KI' van:inc
;1//1111''':11('
I'
0"'; 1/ 1/1'11
.....
I~
.....
~
TARLE 1-2
OTrrdrr
(nll/linll('d)
Mca\h:s u
MUl1lp~"
OPV/IPV h
Uepalilis B
Polinmyelilis in
recipienl ur cunlacl
(OPV)
Anllphylu is
II. ;/ljlul'/I:ul' Iype h
CUI ....:",".\' 5: HII' ",·,';,II'IIn E,\IUhl;,llrn " CUII.wl Hd"';IIII
Anaphylaxis"
ThrumhOl:ylopenia
(MMR)
Anaphylaxis (MMR)"
Dealh from measles
vaccine-slrain viral
infection'· ,i
Death frum polio
vaccine-slrain viral
in feet ion'· ,i
"If the dala derive from a monuvalenl prepllralion, Ihen in Ihe eommillee's judgmenl Ihe causal relalion exlends 10 mullivalenl preparaliuns. If
the dalll derive exclusively from MMR, Ihal is su indicilled by (MMR). In the IIbsence of any dala on Ihe monovalent preparlltiun, in Ihe
cummillee's judgment Ihe causal reilition determined for the multivalent preparations does not extend 10 the munovalent componenls.
hFor some adverse evenls, the commillee was charged wilh IIssessing the clluSilI relation between the adverse event 'lind only urlll polio vaccine
(OPV) (paralytic lind nonparalytic poliomyelilis) or only inactivated polio vaccine (IPV) (linaphyluis and thrombocytopenia). If the conclusiuns
lire different fur OPV thlln for IPV for the other Idver!ie events. that is 10 nOled.
IThis lable lislS weight-of-evidence determinalions only for dealhs thlt are cllI5sified IS SIDS and dealhs thaI lire a consequence of vaccine-slrain
viral infection. However. if the evidence fllvors the acceptllnce of (or establishes) I causal reilition between a vaccine and an adverse event, and Ihat
IIdverse evenl can be falal, Ihen in the commillee's judgment Ihe evidence favors the Icceplance of (or eSlablishes) I causal relalion belween Ihe
vaccine and death from the adverse even!. Direct ev'idence regarding death in associalion with a vaccine-associaled adverse evenl is limiled 10
telunuli-diphtheria toxuid for adull use (Td) and Ouilillin-Barr~ syndrome. tetanus toxoid and anaphyluis. and OPV and poliomyelilil. Direci
evidence regarding dealh in association with a potentially falal lid verse c;vent Ihat itself is causally related to the vaccine is lacking for measles
vaccine and anaphyluis. MMR and anaphylaxis. OPV and Ouillain-Barr~ syndrome. hepalitis B vaccine and anaphyluis. and H, injlutnzat type b
unconjugated PRP vaccine and early-onset H, in/lutnzat type b disease in children age 18 monlhl or older who receive their first Hib immunizalion
with unconjugated PRP vaccine. See Chapter 10 for delails.
./The evitlenc~ thai e~labll~hes a c:auul relallon for anaphylllll!ll deriveR from MMR. The evidence relardlnl monovalent meule!ll vaccine favor"
accerlunce of II causal relallon, but are le"s convlnein" moslly because of Incomplele documenlatlon of Rymptoml'l or the poulble attenualion of
sympltlm~ by medical Intervenlion.
'The evidence derive" from siudle" of diphlherla·telonus 1011 old for pediatric u'"e (OT). If the evidence favors rejection of a cauul relalion
bel ween OT and encephalopalhy, then In the committee 'II judsment the evidence favors rejection of a causal relallon between Td and lelanUI 101l0id
and encephalopilihy.
Iinfunlile spasm," and SIOS occur only In an age group thaI receives OT bUI not Td or lelanus loxoid.
·~The evidence derive" mOl'llly (rom OPT. Because Ihere are !!upporllve dala (avoring rejecllon of a causal relallon belween OT and SIOS all well,
if Ihe evidence (avors rejecllon of a causal relallon bel ween OPT and SIOS, then In the committee's Judgment Ihe evidence (avorl rejeclion of a
causal relallon bel ween OT and SIOS.
"The evidence derives from telanus 101l01d. I( Ihe evidence favors acceptance of (or elilabli"hes) a cau!lal relalion bel ween letantls tOlloid and an
adverse evenl, Ihen In Ihe commlllee'!I Judgmenl Ihe ,evidence favors acceplan~e of (or e"labli!lhes) a caullal relallon bel ween 01 and Td and Ihe
adverse evenl IU. well.
iThe dala come primarily from individual!! proven 10 be immunocompromi!led.
'-
t..
16
ADlERSE BENTS ASSOCIATED WITH CHILDHOOD VACCINES
The committee organized these conclusions into five categories. Because some confusion has arisen over the meaning of the category descriplions used by the Committee to Review the Adverse Consequences of Penussis
and Rubella Vaccines. despite extensive explanations in both the footnotes
and the text. the Vaccine Safety Committee adopted some minor modifications in wording intended to help in the interpretation of the present repon.
To facilitate reading by those familiar with the repon of the previous committee. the present committee maintained both the number of categories
(fi ve) and the order of those categories but modified the wording in an
attempt to clarify its meaning. However. the Vaccine Safety Comminee
(which has some overlap in committee membership and staff with the earlier committee) believes that the categories represent the same concepts
intended by the predecessor comminee. The categories arc:
1.
.,
3.
4.
No evidence bearing on a causal relation .
The evidence is inadequate to accept or reject a causal relation.
The evidence favors rejection of a causal relation.
The evidence favors acceptance of a causal relation.
S. The evidence establishes a causal relation.
Chapter 2 contains a discussion of the criteria used by the committee for
each determination of the final weight of evidence.
The evidence favors rejection of. favors acceptance of. or establishes a
causal relation between a vaccine and an adverse event in approximately
one-third of the relations studied. For the other relations the evidence was
inadequate to accept or reject a causal relation or there was no evidence
bearing on the relation. It is imponant to note that the use of the tenn
i1ladequate does not necessarily imply that the data were scarce. In some
cases the committee identified an abundance of data. However. as a whole.
it did not favor either acceptance or rejection of a causal relation. In the
lists below. the superscript letters refer to the appropriate notes in Table 12. The notes in Tables 1-1 and 1-2 are integral to interpretation of the
findings. The committee reached the following conclusions regarding causality.
The evidence favors rejection of a causal relation between:
• diphtheria and tetanus toxoids and encephalopathy.~ infantile spasms!
and death from sudden infant death syndrome (SIDS)!..t and
• conjugate Hib vaccines and early-onset Hib disease.
The evidence favors acceptance of a causal relation between:
• diphtheria and tetanus toxoids and Guillain-Ba...re syndrome" and
brachial neuritis. h
• measles vaccine and anaphylaxis.d
17
EH.(TT/\·£ Sl./MMARY
• oral polio vaccine and Guillain-Barre syndrome. and
• unconjugated (PRP) Hib vaccine and early-onset Hib disease in
children age 18 months or older who receive their first Hib immunization
with unconjugated (PRP) vaccine.
The evidence establishes a causal relation between:
• diphtheria and tetanus toxoids and anaphylaxis. h
• measles vaccine and death from measles vaccine-strain viral infection. r J
• measles-mumps-rubella vaccine and thrombocytopenia and anaphylaxis.
• oral polio vaccine and poliomyelitis and death from polio-vaccinestrain viral infection,c.i and
• hepatitis B vaccine and anaphylaxis.
For the vast majority of vaccine-adverse event relations studied. the
data came predominantly from uncontrolled studies and case repons. Most
of the pathologic conditions studied are rare in the general population. The
risk of developing these conditions because of vaccination would seem to
be low. Without age-specific incidence rates and relative risk estimates.
however. it is not possible to calculate the proponion of individuals whose
condition is causally related to a vaccine. When the data permitted. such
calculations (i.e .• the risk difference or excess risk) were made and can be
found in the conclusions in Chapters 5 through 9. Because age-specific
incidence rates were not available for many of the pathologic conditions
studied and because controlled epidemiologic studies of these relations are
lacking. few such estimates could be made.
NEED FOR RESEARCH AND SURVEILLANCE
During its attempt to find evidence regarding causality. the committee
identified needs for research and surveillance of adverse events. Work in
these areas will help to ensure that all vaccines used are as free from the
risk of causing adverse events as possible. Some of the needs identified are
for increased surveillance of repons of demyelinating disease and anhritis
following hepatitis B vaccination. better follow-up of repons of death and
other serious adverse events following vaccination. increased use of large
databases (currently used only on a small scale) to supplement passive surveillance reponing systems. and disease registries for the rare pathologic
conditions studied by the committee.
REFERENCES
Coutler HL Vaccination. Social Violence. and Criminality: The Medical
Br.lin. Berkeley. CA: Nonh Atlantic BooL;s: 1990.
As~ault
on the American
18
ADVERSE EVENTS ASSOCIATED WITH CHILDHOOD VACCINES
Coulter HL. Fisher BL. OPT: A Shot in the Om. San Diego: Harroun Brace Jovanovich;
1985.
Iglehan JK. Compensating children with vaccine-related injuries. New En,land JoumaJ of
Medicine 1987:316:1282-1288.
Institute of Medicine. Adverse Effects of Pertussis and Rubella Vaccines. WashinJtOll. DC:
National Academy Press: 1991.
Institute of Medicine. Vaccine Supply and Innovation. WashinJt0n, DC: National Academy
Press: 1985.
Mariner WK. The Sational Vaccine Injury Compensation Program: updale. Health Affairs
1992(Spring):25S-265.
Miller NZ. Vaccines: Are They Really Safe and Effective? A PareIlt's Guide to Childbood
Shots. Santa Fe. NM: New Atlantean Press, 1992.
Office of Technology As$essmenL Compensation for Vacc:ine-Re1ued Injuries: A TecbnicaJ
Memorandum. Washington. DC: U.s. Govenunem Printing Office: 1980.
Wilson GS. ~ Hazards of Immunization. London: The Adlloae Press; 1967.
WRC-TV. OPT: Vaccine Roulene. WasbinJtOD. DC: WRC-TV: 1982.
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Treasury to the public of marketable Treasury b~lls, notes, and
bonds.
Details about the new security are given in the attached
offering highlights.
000
Attachment
LB-I018
HIGHLIGHTS OF TREASURY OFFERING OF 52-WEEK BILLS
TO BE ISSUED AUGUST 25, 1994
August 12, 1994
Offering Amount .
$16,750 million
Description of Offering:
Term and type of security
CUSIP number
Auction date
Issue date
Maturity date
Original issue date
Maturing amount.
Minimum bid amount
Multiples .
364-day bill
912794 T2 0
August 18, 1994
August 25, 1994
August 24, 1995
August 25, 1994
$15,299 million
$10,000
$1,000
Submission of Bids:
Noncompetitive bids
Competitive bids
(1 )
(2 )
(3 )
Accepted in full up to $1,000,000
at the average discount rate of
accepted competitive bids.
Must be expressed as a discount rate
with two decimals, e.g., 7.10%.
Net long position for each bidder
must be reported when the sum of the
total bid amount, at all discount
rates, and the net long position are
$2 billion or greater.
Net long position must be reported
one half-hour prior to the closing
time for receipt of competitive bids.
Maximum Recognized Bid
at a Single Yield
35% of public offering
Maximum Award . . .
35% of public offering
Receipt of Tender~:
Noncompetitive tenders
Competitive tenders .
Payment Terms .
Prior to 12:00 noon Eastern Daylight
Saving time on auction day.
Prior to 1:00 p.m. Eastern Daylight
Saving time on auction day.
Full payment with tender or by charge
to a funds account at a Federal
Reserve bank on issue date.
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
August 15, 1994
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $12,420 million of 13-week bills to be issued
August 18, 1994 and to mature November 17, 1994 were
accepted today (CUSIP: 912794L93).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
4.57%
4.60%
4.59%
Investment
Rate
4.69%
4.72%
4.71%
Price
98.845
98.837
98.840
Tenders at the high discount rate were allotted 33%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$40,742,324
Accepted
$12,420,317
$35,204,424
1. 384,499
$36,588,923
$6,882,417
1. 384,499
$8,266,916
3,297,485
3,297,485
855,916
$40,742,324
855,916
$12,420,317
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
An additional $636,084 thousand of bills will be
issued to foreign official institutions for new cash.
LB-IOI9
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
August 15, 1994
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $12,414 million of 26-week bills to be issued
August 18, 1994 and to mature February 16, 1995 were
accepted today (CUSIP: 912794Q56).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
4.97%
4.99%
4.99%
Investment
Rate
5.17%
5.19%
5.19%
Price
97.487
97.477
97.477
Tenders at the high discount rate were allotted 70%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$41,833,182
Accepted
$12,413,675
$36,358,315
1,220,683
$37,578,998
$6,938,808
1, 220,683
$8,159,491
3,200,000
3,200,000
1,054,184
$41,833,182
1,054,184
$12,413,675
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
An additional $783,116 thousand of bills will be
issued to foreign official institutions for new cash.
!.B-I020
DEPARTMENT
TREASURY
OF
THE
TREASURY
NEWS
~178~9~. . . . . . . . . . . . . . . . . . . .. .
........................
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
Contact: Chris Peacock
(202) 622-2930
FOR IMMEDIATE RELEASE
August 16, 1994
STATEMENT BY TREASURY SECRETARY LLOYD BENTSEN
AND COUNCIL OF ECONOMIC ADVISERS CHAIR LAURA D' ANDREA TYSON
The Administration recognizes and respects the independence of the Federal Reserve
to make decisions about the nation's monetary policies. We share a common goal with the
Federal Reserve of sustained growth with low inflation.
Given the strong gains in output and employment so far this year, we need to be
watchful for signs of developing price pressures. So far, the news on inflation has been very
good. Based on the most recent available evidence about the economy's growth momentum
and price trends, the Administration sees no reason to adjust its forecast at this time. We
believe the economy will remain healthy, led by continued strong investment spending, which
is laying the foundation for future growth and higher living standards.
-30LB-I021
DEPARTMENT
OF
THE
TREASURY
TREASURY (.~~
NEW
S
17819:::..• • • • • • • • • • • • • • • •
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.. 20220. (202) 622-2960
August 16, 1994
Monthly Release of U.S. Reserve Assets
The Treasury Department today released U.S. reserve assets data for the month of
July 1994.
As indicated in this table, U.S. reserve assets amounted to $75,443 million at the end
of July 1994, down from $75,732 million in June 1994.
End
of
Month
Total
Reserve
Assets
June
July
Gold
Stock 1/
Special
Drawing
Rightsl/J/
Foreign
Currencies
~
Reserve
Position in
IMF1/
75,732
11,052
9,731
42,765
12,184
75,443
11,052
9,696
42,512
12,183
1994
1/
Valued at $42.2222 per fine troy ounce.
1/
Beginning July 1974, the IMF adopted a technique for valuing the SDR based on a
weighted average of exchange rates for the currencies of selected member countries. The
U.S. SDR holdings and reserve position in the IMF also are valued on this basis
beginning July 1974.
J/
Includes allocations of SDRs by the IMF plus transactions in SDRs.
~/
Valued at current market exchange rates.
LB-1022
DEPARTMENT
OF
THE
rIR1~ASURY ~{_'i~.\)
~~~/
<~~
TREASURY
NEW S
~/78~q~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .
......................................
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.. 20220. (202) 622-2960
FOR RELEASE AT 2:30 P.M.
August 16, 1994
CONTACT:
Office of Financing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $24,400 million, to be issued August 25,
1994. This offering will result in a paydown for the Treasury of
about $825 million, as the maturing 13-week and 26-week bills are
outstanding in the amount of $25,226 million. In addition to the
maturing 13-week and 26-week bills, there are $15,299 million of
maturing 52-week bills. The disposition of this latter amount
was announced last week.
Federal Reserve Banks hold $10,271 million of bills for
their own accounts in the three maturing issues. These may be
refunded at the weighted average discount rate of accepted
competitive tenders.
Federal Reserve Banks hold $3,649 million of the three
maturing issues as agents for foreign and international monetary
authorities. These may be refunded within the offering amount
at the weighted average discount rate of accepted competitive
tenders. Additional amounts may be issued for such accounts if
the aggregate amount of new bids exceeds the aggregate amount
of maturing bills. For purposes of determining such additional
amounts, foreign and international monetary authorities are
considered to hold $3,089 million of the original 13-week and
26-week issues.
Tenders for the bills will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public
Debt, Washington, D. C. This offering of Treasury securities
is governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes, and
bonds.
Details about each of the new securities are given in the
attached offering highlights.
000
Attachment
LB-I023
HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED AUGUST 25, 1994
August 16, 1994
$12,200 million
$12,200 million
Description of Offeringl
Term and type of security
CUSIP number
Auction date
Issue date
Maturity date
Original issue date
92-day bill
912794 P2 4
August 22, 1994
August 25, 1994
November 25, 1994
May 26, 1994
182-day bill
912794 Q6 4
August 22, 1994
August 25, 1994
February 23, 1995
August 25, 1994
Currently outstanding
Minimum bid amount
Multiples . . . . . .
$12,693 million
$10,000
$ 1,000
$10,OPO
$ 1,000
Offering Amount .
.
.
. .
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids
Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids.
(1) Must be expressed as a discount rate with
two decimals, e.g., 7.10%.
(2) Net long position for each bidder must be
reported when the sum of the 'total bid
amount, at all discount rates, and the net
long position is $2 billion or greater.
(3) Net long position must be determined as of
one half-hour prior to the closing time for
receipt of competitive tenders.
Competitive bids
Maximum Recognized BiQ
at a Single Yield
35% of public offering
Maximum Award .
35% of public offering
Receipt of Tenders:
Noncompetitive tenders
Competitive tenders
Payment Terms
'.
Prior to 12:00 noon Eastern Daylight Saving time
on auction day
Prior to 1:00 p.m. Eastern Daylight Saving time
on auction day
Full payment with tender or by charge to a funds
account at a.Federal Reserve Bank on issue date
DEPARTMENT
OF
THE
TREASURY
~'_f;.E)
~~~~~
\y~~ ~/
• ....
........................
TREASURY
NEW S
17Kq~~~~~~""""""""""""""11
OFF1CE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C.. 20220. (202) 622-2960
FOR RELEASE AT 2:30 P.M.
August 17, 1994
CONTACT:
Office of Financing
202/219-3350
TREASURY TO AUCTION 2-YEAR AND 5-YEAR NOTES
TOTALING $28,250 MILLION
The Treasury will auction $17,250 million of 2-year notes
and $11,000 million of 5-year notes to refund $15,729 million of
publicly-held securities maturing August 31, 1994, and to raise
about $12,525 million new cash.
In addition to the public holdings, Federal Reserve Banks
hold $876 million of the maturing securities for their own
accounts, which may be refunded by issuing additional amounts
of the new securities.
The maturing securities held by the public include $1,387
million held by Federal Reserve Banks as agents for foreign
and international monetary authorities. Amounts bid for these
accounts by Federal Reserve Banks will be added to the offering.
Both the 2-year and 5-year note auctions will be conducted
in the single-price auction format. All competitive and noncompetitive awards will be at the highest yield of accepted
competitive tenders.
Tenders will be received at Federal Reserve Banks and
Branches and at the Bureau of the Public Debt, Washington, D. C.
This offering of Treasury securities is governed by the terms
and conditfons set forth in the Uniform Offering Circular (31 CFR
Part 356) for the sale and issue by the Treasury to the public of
marketable Treasury bills, notes, and bonds.
Details about each of the new securities are given in the
attached offering highlights.
000
Attachment
LB-IO~
HIGHLIGHTS OF TREASURY OFFERINGS TO THE PUBLIC OF
2-YEAR AND 5-YEAR NOTES TO BE ISSUED AUGUST 31, 1994
August 17, 1994
Offering Amount .
Description of Offering:
Term and type of security
Series
CUSIP number
Auction date
Issue date
Dated date
Maturity date
Interest rate
Yield .
Interest payment dates.
Minimum bid amount
Multiples .
Accrued interest
payable by investor
Premium or discount
The followinq rules
ap~
Submission of Bids:
Noncompetitive bids
Competitive bids
Maximum Recognized Bid
at a Single Yield
Maximum Award .
Receipt of Tenders:
Noncompetitive tenders
Competitive tenders
Payment Terms .
$17,250 million
$11,000 million
2-year notes
AK-1996
912827 Q9 6
August 23, 1994
August 31, 1994
August 31, 1994
August 31, 1996
Determined based on the
highest accepted bid
Determined at auction
The last calendar day of
February and August through
August 31, 1996
$5,000
.
$1,000
5-year notes
R-1999
912827 R2 0
August 24, 1994
August 31, 1994
August 31, 1994
August 31, 1999
Determined based on the
highest accepted bid
Determined at auction
The last calendar day of
February and August through
August 31, 1999
$1,000
$1,000
None
Determined at auction
None
Determined at auction
to all securities mentioned above:
Accepted in full up to $5,000,000 at the highest accepted yield
(1) Must be expressed as a yield with two decimals, e.g., 7.10%
(2) Net long position for each bidder must be reported when the
sum of the total bid amount, at all yields, and the net long
position is $2 billion or greater.
(3) Net long position must be determined as of one half-hour prior
to the closing time for receipt of competitive tenders.
35% of public offering
35% of public offering
Prior to 12:00 noon Eastern Daylight Saving time on auction day
Prior to 1:00 p.m. Eastern Daylight Saving time on auction day
Full payment with tender or by charge to a funds account at a
Federal Reserve Bank on issue date
THE DEPUTY SECRETARY OF THE TREASURY
WASHINGTON
August 17, 1994
The Honorable William Jefferson Clinton
President of the United States
Washington, D.C. 20500
Dear Mr. President:
I am resigning today as Deputy Secretary of the Treasury. Under the circumstances, this
is the proper step to take. With your pennission, the resignation would become effective
upon the confinnation of my successor.
As I explained to the Senate, I regret any mistakes or errors of judgment I may have made.
For them, I apologize. And, hopefully, my stepping down will help to diminish the
controversy.
I am proud to have served in your Administration. It has laid a foundation for improving
the security and standards of living of the American people. From the Economic Plan to
NAFT A to health care, you have consistently made courageous decisions. And, I believe
that history will regard them as such.
It has been a special privilege to serve you, Secretary Bentsen, and the American people over
the past year and a half. Thank you very much for the opportunity you gave me. I believe
fervently in the Administration's agenda and hope to advance it in other capacities.
Sincerely,
~
Roger Altman
(LB-1025)
THE WHITE HOUSE
WASliINOTON
August 17, 1994
The Honorable Roqar C. Altman
Deputy Secretary of the Treasury
Traa_ury Department
1500 Pennsylvania Avenue, N.W.
Waahinqton, DC 20220
Dear Roqarz
I have reoeived your latter of today's data resiqning
as Deputy secretary ot the Treasury. I oelieve you
have taken the right step under the circumstances, and
I reqrettully accept your resiqnation, affective upon
the conf1rmation ot your successor.
I aqre. with secretary Bentaen that you have made many
valuable contributions to this administration as Deputy
Secretary. You played a vital role in the passage of
NAFTA and the deficit reduction plan, both critical
steps for the American economy. ! hope that in due
course you will be able to return to public service.
Mean~hile, I look forward to tha benefit ot your
continuing advice and assistance.
Sincerely,
•
•
THE DEPUTY SECREl ARY OF THE TREASURY
WASHINGTON
August 17, 1994
The Honorable Lloyd Bentsen
Secretary of the Treasury
U.S. Department of Treasury
Washington, D.C. 20220
Dear Lloyd,
I am resigning today as Deputy Secretary. Under the circumstances, it is the proper step.
With your pennission, the resignation would be effective upon the confinnation of my
successor.
I regret and apologize for any embarrassment which my misjudgments may have caused the
Treasury. But, I want to stress one point. While my Congressional testimony last February
wasn't what it should have been, there was never any intent to withhold infonnation.
I am proud of the accomplishments of the President and the Treasury and the opportunity I
have had to playa role in them. In my view, history will be very kind to this Administration.
And, I will always be grateful to President Clinton and to you for involving me and for the
public and private support both of you have provided in the difficult days and months just past.
It has been a special privilege to work for you. Over the years, I've had the good fortune to
work with and for some superb individuals, but you're in a league of your own.
Finally, I want to convey to you, the President and my colleagues here in the Department my
continuing respect and support. My belief in the importance of public service and the
conviction that the rewards of serving this country outweigh its costs remains unchanged.
sin7;
Roger Altman
DEPARTMENT OF THE TREASURY
WASHINGTON, D.C.
RETARY OF THE TREASURY
August 17, 1994
The Honorable Roger Altman
Deputy Secretary
Department of the Treasury
1500 Pennsylvania Avenue, N.W.
Washington, D.C.
20220
Dear Roger:
It is with regret that I accept your resignation as Deputy
Secretary of the Treasury.
You brought enormous energy to the job, and your commitment
to the broad agenda of the Treasury Department was
extraordinary.
Your contributions have touched many lives.
You were willing to take on any task, no matter the cost.
You have performed ably.
Over these past few months I have said repeatedly that I
have faith in your integrity.
I still do.
That faith was
borne out with the reports of Mr. Fiske and the Office of
Government Ethics.
I admire the fortitude you displayed in recent weeks.
It
took considerable courage and strength of character.
You
have made a difficult, selfless decision on behalf of the
Department.
D EPA R T MEN T
0 F
THE
rIR:I~ASURY ~~'et:.~.~l
~~~J
T REA S.U R Y
NEW S
7
_-OF
--- -....:::21
8-£9:N.W
. .•
.WASHINGTON,
. _ - -D.C
-.•--622-2960
---OFFICE
PUBUC
AFFAIRS
-1500
PENNSYLVANIA
AVENUE,
20220.
(202)
FOR IMMEDIATE RELEASE
August 17, 1994
Contact: Joan Logue-Kinder
202-627.-2920
STATEMENT OF TREASURY SECRETARY LLOYD BENTSEN
This evening I recommended to President Clinton that he nominate Treasury
Under Secretary Frank Newman to become Deputy Secretary of the Treasury.
Frank Newman is a talented, hlOwlecgeab!e individual, well-respected thiOughout
the business amI financial community, in goverr_rner:t and i:l Congress. He has served
with distinction as Under Secretary for Domestic Finance at the Treasury Departme!"!t
and is the right man to take over from Roger Altman. His ~jdance and counsel in this
po~ition w~ll be an asset to the management of Tre~1sury programs.
One of our most important initi8.ti·v'c;' in this arlministration has been encouraging
economic growth and creating jobs. An integral part of that has been making it possible
for small- and medium-sized busine;'ses tu l"o.ve aC(;f;SS 10 credit. Fnmk led that effort,
and we are now seeing the effect throughoul the economy.
He helped develop ar:d fight for our extensive legislative agenda, including the
Community Development Financial Institutions measure, the interstate banking bilL
rea~lthorization of the Government Securities l\ct, and the hill ;naking the final payment
on the savings and loan cleanup.
In addition, he is a member of the President's Management Councii, a key
element in the effort to reinvent government. He chairs a council subgroup aimed at
improving the service government provides its customers -- the taxpayers. Frank also led
our program to redesign our currency to protect it against counterfeiters.
Frank has had a distinguished career in the private sector, most recently as Vice
Chairman and Chief Financial Officer of BankAmerica Corp., a major international
banking institution. Prior to that he was Executive Vice President of Wells Fargo & Co.
I encourage the Senate to act quickly on his nomination.
-30LB-I026
DEPARTMENT OF THE TREASURY
WASHINGTON
GENER AL COU NSEL
August 18, 1994
The Honorable Lloyd Bentsen
Secretary
U.S. Treasury Department
Washington, D.C.
20220
Dear Mr. Secretary:
I tender my resignation as Treasury General Counsel.
My
former partners at Fried, Frank, Harris, Shriver & Jacobson have
asked me to rejoin them in the private practice of law in New
York and, after careful consideration, I have decided to accept
their offer upon the effectiveness of my resignation.
I
understand that my resignation is to take effect upon the
confirmation of my successor, and you will have my continued
attention to Treasury legal matters until then.
My decision to leave government is not an easy one.
As you
know, prior to my appointment as Treasury General Counsel, I had
no experience in the political arena.
I accepted your invitation
to become Treasury General Counsel happily, proud to serve in an
Administration willing to grapple with the difficult issues of
our time.
The time I have spent working for you and Roger Altman
at Treasury has been a privilege, and I am particularly grateful
to have worked with an extraordinarily able group of Treasury
colleagues, whose friendship and genuine collegiality continue.
But, this is the right time for me to return to New York to
resume the personal and professional relationships I value so
highly, and to ease the burdens that have been imposed on my
family as a result of my government service.
I wish you well.
Sincerely,
J an E. Hanson
(LB-1027)
DEPARTMENT OF THE TREASURY
WASHINGTON, D.C.
SECRETARY OF THE TREASURY
August 18, 1994
The Honorable Jean Hanson
General Counsel
Department of the Treasury
1500 Pennsylvania Ave., N.W.
Washington, D. C.
20220
Dear Jean:
It is with regret that I accept your resignation as General
Counsel of the Department of the Treasury.
I appreciate the commitment to Treasury's agenda you brought
to the job, and the valued leadership you gave to an
important area of the Department.
I am impressed by the strength of character you displayed in
recent weeks.
Thank you for the contribution you have made.
Sincerely,
DEPARTMENT
OF
THE
TREASURY ,~.)
TREASURY
NEW S
178<\
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622·2960
FOR IMMEDIATE RELEASE
August 18, 1994
Contact: Joan Logue-Kinder or
Howard Schloss 202-622-2920
STATEMENT OF TREASURY SECRETARY LLOYD BENTSEN
I have recommended to President Clinton that he nominate my Executive
Secretary and Senior Advisor, Edward S. Knight, as General Counsel of the Treasury
Department.
Ed has been a trusted advisor over the years. His understanding of Treasury's
broad responsibilities, especially in the legal field, give him the insight necessary to lead
this critical area of the Department. He is well respected in legal and business circles, in
the executive branch, and on Capitol Hill.
Ed Knight has made a serious commitment to public service. He served on my
Senate staff from 1976 to 1978, and he left a senior partnership at Akin, Gump, Strauss,
Hauer & Feld to join my Treasury team in January 1993.
In his present position, he heads the Department's Executive Secretariat,
responsible for the review and analysis of issues and preparation of briefing materials for
the Secretary's office. In his capacity as Executive Secretary, Ed has worked regularly
with the Office of General Counsel in the process of developing regulations and in the
development of department-wide administrative guidelines. In addition, he oversees the
Office of National Security and the Office of Public Liaison.
During his service at Treasury, among other things, he was strategically involved
in our successful effort to win approval of the North American Free Trade Agreement,
was instrumental in the creation of the North American Development Bank under the
NAFfA agreement, and he has worked tirelessly on our effort to adopt the Uruguay
Round.
Born in Amarillo and raised in Houston, Texas, he earned his B.A. and J.D.
degrees from the University of Texas at Austin. He is a member of the Texas and
District of Columbia Bar Associations, and a member of the National Association of
Latino Elected and Appointed Officials.
-30LB-I028
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
August 18, 1994
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 52-WEEK BILLS
Tenders for $16,789 million of 52-week bills to be issued
August 25, 1994 and to mature August 24, 1995 were
accepted today (CUSIP: 912794T20).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.35%
5.37%
5.36%
Investment
Rate
5.65%
5.68%
5.67%
Price
94.591
94.570
94.580
Tenders at the high discount rate were allotted 57%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
LB-I029
Received
$43,613,351
Acce:gted
$16,788,613
$38,173,063
885,288
$39,058,351
$11,348,325
885,288
$12,233,613
4,200,000
4,200,000
355,000
$43,613,351
355 1 000
$16,788,613
DEPARTMENT
OF
THE
TREASURY
NEWS
~J78~9~. . . . . . . . . . . . . . . . . ..
....................
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
August 18, 1994
TREASURY SECRETARY TO SPEAK ON CRIME BILL
Treasury Secretary Lloyd Bentsen will discuss the importance of the crime legislation
pending before Congress in EI Paso, Texas on Friday, August 19.
Secretary Bentsen will be joined by Congressman Ron Coleman of EI Paso.
"There is a partnership in this crime bill, between state and local officials, and federal
officials," said Secretary Bentsen. "We can't fight crime alone. We have to do it together."
The press conference will be at the Federal Building, 700 East San Antonio Street,
Room C-301 at 4 p.m.
Journalists must call A TF at (915) 534-6449 for clearance.
Contact:
Treasury
ATF, EI Paso, Texas
(202) 622-2960
(915) 534-6449
Hamilton Dix
Hugo Barrera
-30-
LB-I030
DEPARTMENT
OF
THE
TREASURY
lRE~SURY
ff.lif~
NEW
S
.....................................~i~.'~~c~·~if.~...........-.........................
OmCE OF PUBUC AFFAIRS. 1500 PENNSYLVANlAAVENUE, N.W .• WASHINGTON, D.C.. 20220. (202) 622-2960
Contact: Hamilton Dix
(202) 622-2960
FOR IMMEDIATE RELEASE
August 19, 1994
BENTSEN URGES CRIME BILL PASSAGE
EL PASO, Texas -- Treasury Secretary Lloyd Bentsen Friday urged Congress to pass
the crime bill, arguing that the sweeping legislation will "make a difference throughout
America."
Bentsen, in remarks prepared for delivery at a press conference, noted that the measure
contains far more than provisions to add 100,000 new police officers to the beat and a ban on
assault weapons.
He pointed to items including additional funds for prison construction, money for more
judges and prosecutors, and grant programs to combat violence against women and teach
youngsters "why gangs are such a bad way to go" for which states can apply.
"This is important legislation," said Bentsen. "It's going to make a difference
throughout America. It's going to save lives, lock up criminals, tum kids away from crime."
Bentsen, who said Texas could stand to gain an additional 6,000 police officers under
the legislation, cited a variety of programs in Treasury Department bureaus which the
Department hopes to put in place in border regions, such as EI Paso, under the crime bill.
Those programs include one to reduce car theft, which Bentsen described as a "major
problem in Texas," which ranks third in the nation in the number of vehicles stolen each year.
"Many of these vehicles are taken over into Mexico and sold," he said. The Treasury
Secretary said the U.S. Customs Service has a crime bill initiative that could address that
problem.
-30-
LB-1031
(revised to correct weapons ban langage)
DEPARTMENT
OF
THE
rIR:E~ASURY ~~~'~.~\
~~~~
~ .f'!
TREASURY
N· E W S
_------~J7K'l-:....------OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.. 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
August 19, 1994
STATEMENT BY TREASURY SECRETARY LLOYD BENTSEN
I want to commend the Ways and Means Committee for approving the Superfund
reauthorization today. This action ensures the momentum necessary to win passage of
this legislation this year. This isn't just an environmental issue, it's also an economic
one. The sites aren't being cleaned up fast enough under today's Superfund. Studies tell
us we're spending far too much on litigation and investigations, and far too little on
cleaning up pollution.
This legislation sets the priorities straight and should speed the
day when these polluted Superfund sites are returned to productive use in our economy.
-30-
LB-1032
DEPARTMENT
OF
THE
TREASURY
NEWS
TREASURY
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. -
WASmNGTON~D.C.
- 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
August 21, 1994
STATEMENT OF TREASURY SECRETARY LLOYD BENTSEN
Crime is not a partisan problem, and this evening the House showed the solution is not
partisan, either. It's the criminals we're fighting, not each other.
What I liked about the vote is that the House members asked: "What's best for
America?" They locked up the votes that will lock up the criminals.
-30LB-I033
UBLIC DEBT NEWS
Department of the Treasury •
Bureau of the Public Debt • Washington, DC 20239
CONTACT: Office of Financing
202-219-3350
FOR IMMEDIATE RELEASE
August 22, 1994
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $12,224 million of 13-week bills to be issued
August 25, 1994 and to mature November 25, 1994 were
accepted today (CUSIP: 912794P24).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
4.61%
4.63%
4.62%
Investment
Rate
4.73%
4.75%
4.74%
Price
98.822
98.817
98.819
$1,970,000 was accepted at lower yields.
Tenders at the high discount rate were allotted 7%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED ( in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
LB-1034
Received
$57,445,695
Acce:gted
$12,223,760
$51,661,049
1,493,582
$53,154,631
$6,439,114
1,493,582
$7,932,696
3,020,964
3,020,964
1,270,100
$57,445,695
1,270,100
$12,223,760
UBLIC DEBT NEWS
Department of the Treasury •
Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
August 22, 1994
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $12,333 million of 26-week bills to be issued
August 25, 1994 and to mature February 23, 1995 were
accepted today (CUSIP: 912794Q64).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
4.96%
4.98%
4.98%
Investment
Rate
5.16%
5.18%
5.18%
Price
97.492
97.482
97.482
$100,000 was accepted at lower yields.
Tenders at the high discount rate were allotted 21%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
LB-I035
Received
$47,687,865
Accer2ted
$12,333,317
$41,653,850
1,292,815
$42,946,665
$6,299,302
1,292,815
$7,592,117
3,050,000
3,050,000
1,691,200
$47,687,865
1,691,200
$12,333,317
UBLIC DEBT NEWS
Department of the Treasury •
Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
August 23, 1994
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 2-YEAR NOTES
Tenders for $17,257 million of 2-year notes, Series AK-1996,
to be issued August 31, 1994 and to mature August 31, 1996
were accepted today (CUSIP: 912827Q96).
The interest rate on the notes will be 6 1/4%. All
competitive tenders at yields lower than 6.27% were accepted in
full.
Tenders at 6.27% were allotted 22%. All noncompetitive and
sucessful competitive bidders were allotted securities at the yield
of 6.27%, with an equivalent price of 99.963. The median yield
was 6.26%; that is, 50% of the amount of accepted competitive bids
were tendered at or below that yield. The low yield was 6.23%;
that is, 5% of the amount of accepted competitive bids were
tendered at or below that yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$56,426,736
Accepted
$17,256,732
The $17,257 million of accepted tenders includes $1,504
million of noncompetitive tenders and $15,753 million of
competitive tenders from the public.
In addition, $1,396 million of
high yield to Federal Reserve Banks
international monetary authorities.
of tenders was also accepted at the
Reserve Banks for their own account
securities.
LB-1036
tenders was awarded at the
as agents for foreign and
An additional $450 million
high yield from Federal
in exchange for maturing
DEPARTMENT
OF
THE
TREASURY
1REASURY~.) NEW S
FOR RELEASE AT 2:30 P.M.
August 23, 1994
CONTACT:
Office of Financing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $24,400 million, to be issued September I,
1994. This offering will result in a paydown for the Treasury of
about $1,975 million, as the maturing weekly bills are
outstanding in the amount of $26,387 million.
Federal Reserve Banks hold $6,664 million of the maturing
bills for their own accounts, which may be refunded within the
offering amount at the weighted average discount rate of accepted
competitive tenders.
Federal Reserve Banks hold $2,946 million as agents for
foreign and international monetary authorities, which may be
refunded within the offering amount at the weighted average
discount rate of accepted competitive tenders. Additional
amounts may be issued for such accounts if the aggregate amount
of new bids exceeds the aggregate amount of maturing bills.
Tenders for the bills will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public
Debt, Washington, D. C. This offering of Treasury securities
is governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes, and
bonds.
Details about each of the new securities are given in the
attached offering highlights.
000
Attachment
LB-1037
HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED SEPTEMBER 1, 1994
August 23, 1994
Offering Amount .
$12,200 million
$12,200 million
91-day bill
912794 P3 2
August 29, 1994
September 1, 1994
December I, 1994
June 2, 1994
$13,458 million
$10,000
$ 1,000
182-day bill
912794 Q7 2
August 29, 1994
September 1, 1994
March 2, 1995
September 1, 1994
Description of Offering:
Term and type of security
CUSIP number
Auction date
Issue date
Maturity date
Original issue date
Currently outstanding
Minimum bid amount
Multiples .
$10,000
$ 1,000
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids
Competitive bids
Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids
(1) Must be expressed as a discount rate with
two decimals, e.g., 7.10%.
(2) Net long position for each bidder must be
reported when the sum of the total bid
amount, at all discount rates, and the net
long position is $2 billion or greater.
(3) Net long position must be determined as of
one half-hour prior to the closing time for
receipt of competitive tenders.
Maximum Recognized Bid
at a Single Yield
35% of public offering
Maximum Award .
35% of public offering
Receipt of Tenders:
Noncompetitive tenders
Competitive tenders
Payment Terms
Prior to 12:00 noon Eastern Daylight Saving time
on auction' day
Prior to 1:00 p.m. Eastern Daylight Saving time
on auction day
Full payment with tender or by charge to a funds
account at a Federal Reserve Bank on issue date
UBLIC DEBT NEWS
Department of the Treasury - Bureau of the Public Debt - Washington, DC 20239
FOR IMMEDIATE RELEASE
August 24, 1994
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 5-YEAR NOTES
Tenders for $11,012 million of 5-year notes, Series R-1999,
to be issued August 31, 1994 and to mature August 31, 1999
were accepted today (CUSIP: 912827R20).
The interest rate on the notes will be 6 7/8%. All
competitive tenders at yields lower than 6.91% were accepted in
full.
Tenders at 6.91% were allotted 5%. All noncompetitive and
sucessful competitive bidders were allotted securities at the yield
of 6.91%, with an equivalent price of 99.854. The median yield
was 6.89%; that is, 50% of the amount of accepted competitive bids
were tendered at or below that yield. The low yield was 6.85%;
that is, 5% of the amount of accepted competitive bids were
tendered at or below that yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$35,498,007
Accepted
$11,012,319
The $11,012 million of accepted tenders includes $809
million of noncompetitive tenders and $10,203 million of
competitive tenders from the public.
In addition, $880 million of tenders was awarded at the
high yield to Federal Reserve Banks as agents for foreign and
international monetary authorities. An additional $426 million
of tenders was also accepted at the high yield" from Federal
Reserve Banks for their own account in exchange for maturing
securities.
LB-1038
DEPARTMENT
OF
THE
TREASURY
TREASURY (~+'J!
NEW
S
..................................
...................................f~~~g~.~
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.. 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
August 25, 1994
STATEMENT OF TREASURY SECRETARY LLOYD BENTSEN
I knew that if we had to be here all summer Congress would pass a crime bill.
Congress has put America first, and partisanship second.
There's not a Senator who 100 days from now, or one year from now, or five
years from now will regret voting yes. I know that by the preliminary success of the
Brady Law. Before the vote on Brady, some people said that it wouldn't work. But it
has turned out that one of every 20 people who want to buy a gun is an armed robber,
or convicted felon, or drug dealer. The Brady Law has stopped them from purchasing
guns and probably from committing some terrible crimes.
Fighting crime has changed in this country. Today, we locked up the final vote
that will lock up more criminals.
-30-
LB-1039
DEPARTMENT
OF
THE
1R:I=~ASURY ~(~."""'~'
~~~178f9~~
~iF'\'. Jl
-'l:t1
...................................
TREASURY
NEW S
. . . . . . ·.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .
OmCE OF PUBLIC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C.. 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
August 26, 1994
STATEMENT BY R. RICHARD NEWCOMB
DIRECTOR, OFFICE OF FOREIGN ASSETS CONTROL
On August 20, President Clinton announced further steps which the U.S.
Government would take to respond to the Cuban Government's attempt to export a
problem of its own making to the U.S., and risking the lives of Cuba's own countrymen
in the process.
The additional steps announced by the President and effective at 11 a.m. today
will deny the Cuban Government badly needed foreign exchange. The implementing
measures which I am prepared to discuss in more detail today will further restrict travel
to Cuba of Americans and people residing in the U.S.
Travel aboard charter flights between Cuba and the U.S. will be limited to legal
immigrants from Cuba, those covered by general license -- government officials and
journalists -- and those covered by specific license -- that is, travelling for clearly defined
research, religious and humanitarian purposes. Specific licenses in cases of exceptional
humanitarian concern may be issued to visit family members. Additionally, licenses to
recognized human rights groups to investigate human rights violations may also be
issued.
Remittances from U.S. relatives of Cuban nationals will no longer be permitted,
although, again, there will be exceptions for humanitarian reasons and to facilitate the
travel of lawful immigrants to the U.S.
Gift parcels and humanitarian donations will still be permitted, but their
permissible content will be more clearly and narrowly defined.
These measures will severely curtail the flow of U.S. dollars into Cuba. The
Cuban economy will no longer benefit from travel-related transactions originating in the
U.S. and from cash remittances sent from the U.S. The Cuban government will no
longer have access to these U.S. dollars which have for so long helped to sustain the
Castro regime.
rn-l~O
~~
. DEPARTMENT
OF
THE
TREASURY
TREASURY
('ftl
NEW
S
~~.'.,~.I..•
• .............
178~
f/ . . . . . . . . . . . ..
OffiCE OF PUBUC AFFAIRS • 1500 PENNSYLVA..'l'1A AVENUE, N.W .• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
August 26, 1994
Cuba Regulations Fact Sheet
Pursuant to the President's announcement on August 20, 1994, the Treasury Department
IS
•
Revoking the general authorizations permitting cash remittances to Cuba, except
to facilitate lawful immigration.
•
Revoking the general authorizations for persons engaging in travel-related
transactions in Cuba for purposes of family visits and professional research.
•
Significantly restricting the general authorization incorporating the authorization
contained in the General License GIFf, administered by the Department of
Commerce, to limit the permissible contents of gift parcels eligible for exportation
to Cuba to medicine, food and strictly humanitarian items.
•
Except for purposes of facilitating lawful immigration, cash remittances to Cuba
will only be permitted for limited humanitarian purposes through case-by-case
specific licensing.
•
Charter flights between Miami and Havana will only be authorized to carry legal
immigrants, U.S. and foreign government and international organization
employees traveling on official business, journalists, and persons traveling under
specific license.
•
Travel-related transactions by persons demonstrating a compelling need to travel
to Cuba for humanitarian reasons involving extreme hardship, for clearly and
narrowly defined educational and religious activities, for activities of recognized
human rights organizations investigating cases of human rights violations, or for
activities related to professional research, telecommunications, or the exportation,
importation, or transmission of information of informational materials will be
considered for a specific license on a case-by-case basis.
LB-I041
-30-
IN ADVANCE OF PRINTED COPY.
FILED WITH THE FEDERAL REGISTER ON AUGUST 26, 1994 11:00 A.M.
E.D.T.
DEPARTMENT OF THE TREASURY
TO BE PUBLISHED TUESDAY AUGUST 30, 1994.
Office of Foreign Assets Control
31 CFR Part 515
Cuban Assets Control Regulations; Restrictions on Remittances and Travel
Transactio n s
AGENCY: Office of Foreign Assets Control, Treasury.
ACTION: Final rule; amendments.
SUMMARY: Pursuant to the President's announcement on August 20, 1994, the Treasury Department
is revoking the general authorizations permitting cash remittances to Cuba, except to facilitate
lawful immigration; revoking the general authorizations for persons engaging in travel-related
transactions in Cuba for purposes of family visits and professional research; and significantly
restricting the general authorization incorporating the authorization contained in the General License
GIFT, administered by the Department of Commerce, to limit the permissible contents of gift
parcels eligible for exportation to Cuba to medicine, food and strictly humanitarian items. Except
for purposes of facilitating lawful immigration, cash remittances to Cuba will only be permitted
for limited humanitarian purposes through case-by-case specific licensing. Charter flights between
Miami and Havana will only be authorized to carry legal immigrants, U.S and foreign government
and international organization employees traveling on official business, journalists, and persons
traveling under specific license. Travel-related transactions by persons demonstrating a compel1ing
need to travel to Cuba for humanitarian reasons involving extreme hardship, for clearly and
narrowly defined educational and religious activities, for activities of recognized human rights
organizations investigating cases of human rights violations, or for activities related to professional
research, telecommunications, or the exportation, importation, or transmission of information or
informational materials will be considered for a specific license on a case-by-case basis.
EFFECTIVE DATE: [insert date of filing for public inspection]
FOR FURTHER INFORMATION: Steven 1. Pinter, Chief of Licensing (tel.: 202/622-2480), William
F. Wasley, Chief of Enforcement (tel.: 202/622-2430), Dennis P. Wood, Chief, Compliance
Programs Division (202/622-2490), or William B. Hoffman, Chief Counsel (tel.: 2021622-2410),
Office of Foreign Assets Control, Department of the Treasury, Washington, D.C. 20220.
SUPPLEMENTARY INFORMATION:
Electronic Availability:
This document is available as an electronic file on The Federal Bulletin Board the day of
publication in the Federal Register. By modem dial 202/512-1387 or call 202/515-1530 for disks
or paper copies. This file is available in Postscript, WordPerfect 5.1 and ASCII.
Background
On August 20, 1994, President Clinton announced steps to limit the ability of the Cuban
government to accumulate foreign exchange. Accordingly, the Office of Foreign Assets Control
("FAC") is amending the Cuban Assets Control Regulations, 31 CFR Part 515 (the
"Regulations"), to implement these measures by revisi ng existing provisions that heretofore have
2
generally authorized travel-related transactions. casb remittan~es, and the shipment of gift parcels
to Cuba. Specifically, § 515.533 no longer autborizes exportatIOn to Cuba of gift parcels pursuant
to General License GIIT, § 771.18 of the Export Administration Regulations, 15 CFR Parts 768799 (the "EAR"), except those containing only food, vitamins, seeds, medicines, medical supplies
and devices, hospital supplies and equipment, equipment for the handicapped, clothing, personal
hygiene items, veterinary medicines and supplies, fishing equipment and supplies, soap-making
equipment, or certain radio equipment and batteries for such equipment. The complete list of
eligible items is set forth in § 771.1 S of tbe EAR.
Section 515.560 of tbe Regulations is revised to limit the categories of travelers to Cuba
who are generally authorized to engage in travel-related transactions to journalists and officials
of the United States or foreign governments or international organizations traveling on official
business. "Fully-hosted" travelers are no longer authorized to travel aboard charter flights between
the United States and Cuba. Section 515.416 is revised to set forth the criteria by which specific
licenses may be issued for travel-related transactions for' 'professional research." Travel
transactions by close relatives of Cuban nationals may only be authorized on a case-bY4::ase basis
by specific license, and only under circumstances of extreme hardship. Specific licenses for travelrelated transactions may still be issued for other strictly humanitarian purposes, for clearly defined
educational or religious activities, for activities of recognized human rights organizations
investigating human rights violations, or for activities related to professional research,
telecommunications, or the exportation, importation or transmission of information or infonnational
materials.
Section 515.563, which previousl y provided general authorization for family remittances for
tbe support of close relatives in Cuba, is revised to permit transfers of funds to Cuba only if
authorized on a case-by-case basis for humanitarian purposes upon a demonstration of extreme
hardship. However, payments not exceeding $500 to facilitate a close relative's lawful immigration
to the United States remain generally licensed. All otber general authorizations contained in the
Regulations for remittances are revoked. In particular, § 515.564 is revised to specify that
remittances to Cuba for purposes of facilitating a Cuban national's travel to the United States
for purposes other tban immigration may only be made pursuant to a specific license. Similarly
prohibited are remittances to Cuba in connectIOn with intellectual property protection (§ 515.528)
and public perfonnances (§ 515.565).
Because the Regulations involve a foreign affairs function, Executive Order 12866 and
provisions of the Administrative Procedure Act, 5 U.S.c. 553, requiring notice of proposed
rulemaking, opportunity for public participation, and delay in effective date are inapplicable.
Because no notice of proposed rulemaking is required for this rule, the Regulatory Flexibility Act,
5 V.S.c. 601-612, does not apply.
List Of Subjects in 31 eFR Part 515
AdministratIve practice and procedure. Cuba. Exports, Foreign trade, Intellectual property
Remittances. Tra\'el restrictions.
'
For the reasons set fonb in tbe preamble, 31 CFR part 515 is amended as set forth below:
PART 515--CUBAN ASSETS CONTROL REGULATIONS
1. The authority citation for part 515 continues to read as follows:
3
Authority: 50 U.S.c. App. 1-44; 22 U.S.c. 6001-6010; 22 U.S.c. 2370(a); Proc. 3447, 3 CFR, 19591963 Comp., p. 157; E.O. 9193,3 CFR, 1938-1943 Comp., p. 1174; E.O. 9989, 3 CFR, 1943-1948 Comp.,
p. 748; E.O. 12854,58 FR 36587, July 7, 1993.
subpart D-Interpretations
2. Section 515.416 is revised to read as follows:
§ 515.416 Professional research and similar activities.
(a) Section 515.560(b) sets forth the criteria by which specific licenses for transactions related
to travel to, from, and within Cuba may be issued for persons who are engaging in professional
research and similar activities of a noncommercial, academic nature.
(1) Persons are considered to be engaged in professional research for purposes of this section
only if they are fu]]-time professionals who travel to Cuba to do research in their professional
areas, their research is specifically related to Cuba and will constitute a full work schedule in
Cuba, and there is a substantial likelihood of public dissemination of the product of their research.
No transactions related to tourist or recreational travel within Cuba are authorized in connection
with professional research, except those that are consistent with a full schedule of research
activities.
(2) Similar activities include attendance by professionals with an established interest in Cuba
at professional meetings where research on Cuba is shared, and travel for noncommercial research
purposes specifically related to Cuba by persons who are working to qualify themselves
academically as professionals (e.g., certain graduate degree candidates). Study visits to Cuba in
connection with pre-college or undergraduate college course work are not within the scope of
the term professional research and similar activities.
(b) Categories of travel which do not qualify as professional research or similar activities
and for which specific license requests will be denied include recreational travel; tourist travel;
travel in pursuit of a hobby; general study tours; general orientation visits; student class field trips;
youth camps; research for personal satisfaction only; travel by fishing or bird-watching groups
and similar affinity groups; and any travel for an authorized research purpose, if the schedule
of activities includes free time, travel, or recreation in excess of that consistent with a full work
schedule of professional research and similar activities.
(c) A group does not fall within the scope of the term professional research and similar
activities merely because some members of the group could qualify individually for specific
licensing under this category. For example, a specific license authorizing travel-related transactions
by a fish biologist who travels to Cuba to engage in professional research does not authorize other
persons who might travel with the fish biologist but whose principal purpose in travel is to engage
in recreational or trophy fishing. The fact that such persons may engage in certain activities with,
or under the direction of, the professional fish biologist, such as measuring or recording facts
about their catch, does not bring these individuals' activities within the scope of professional
research and similar activities.
(d) A person will not qualify as engaging in professional research or similar activities merely
because that person is a professional who plans to travel to Cuba. For example, a professor of
history interested in traveling to Cuba for the principal purpose of learning or practicing Spanish
or attending general purpose lectures devoted to Cuban culture and contemporary life would not
qualify for a specific license. A doctoral candidate in economics traveling to Cuba to undertake
4
research for a dissertation on the Cuban economy may qualify for a specific license for activities
directly related to the research, but would not be authorized to stay an extra week in Cuba in
order to attend a seminar on Cuban arts and crafts.
Subpart E-Llcenses, Authorizations, and Statements of Licensing Policy
§ 515.522 [Removed and reserved]
3. Section 515.522 is removed and reserved.
4. Introductory paragraph (a) of § 515.52~ is amended by adding the following before the
colon: ", provided any payment to Cuba or a Cuban national is deposited into a blocked, interestbearing account at a domestic bank"
5. Section 515.533 is amended by adding a new paragrapb (d) to read as follows:
§ 515.533 Transactions incident to exportations to designated countries.
*
(d) This section does not authorize any exportation under General License GIFT, 15 CFR
771.18, except gift parcels that contain only food, vitamins, seeds, medicines, medical supplies
and devices, hospital supplies and equipment, equipment for tbe handicapped, clothing, personal
hygiene items, veterinary medicines and supplies, fishing equipment and supplies, soap-making
equipment, or certain radio equipment and batteries for such equipment, as specifically set forth
in § 771.18, and that otherwise comply with tbe requirements of that section.
*
*
6. Paragraph (g) of § 515.560 is amended by adding after tbe word "provided" in the last
sentence thereof the words' 'that the travel is not aboard a direct flight between the United States
and Cuba and" and by revising paragraphs (a) and (b) to read as follows:
§ 515.560 Certain transactions incident to travel to and within Cuba.
(a) Gelleral license. The transactions in paragraph (c) of this section are authorized in
connection with travel to Cuba by:
(1) Persons who are officials of tbe United States Government or of any foreign government,
or of any intergovernmental organization of which the United States is a member, and who are
traveling on official business; or
(2) Journalists regularly employed in that capacity by a news reporting organization.
(b) Specific Licenses. Specific licenses authorizing the transactions in paragraph (c) of this
section may be issued when extreme bardship is demonstrated in cases involving extreme
humanitarian need to persons and their close relatives, or other persons living in the same
household, who are traveling to visit close relatives in Cuba. Specific licenses may also be issued
to persons demonstrating a compelling need to travel to Cuba for humanitarian reasons for
professional research and similar activities as defined in § 515.416, for clearly defined ~ducationaI
o.r religi,ous ~cti\'ities, for acti\'ities of recognized human rights organizations investigating human
TIghts \'lOlat10n5, or for purposes related to the exportation, importation, or transmission of
infomlation or infomlational materials.
(1) For purposes of this section, tbe term close relative means spouse, child, grandchild, parent,
grandparent. great grandparent. uncle, aunt. brother, sister, nephew, niece, first cousin, or spouse,
5
widow, or widower of any of the foregoing. The term close relative also means mother-in-law
father-in-law, daughter-in-law, son-in-law, sister-in-law, or brother-in-law.
'
(2) Nothing in this section authorizes transactions in connection with tourist travel to Cuba.
Travel to Cuba that is characterized as falling within the criteria specified in paragrapb (b) is
prohibited unless specifically licensed.
*
*
*
*
*
7. The introductory text of paragraph (a) and paragraph (a)( 1) of § 515.563 is revised to read
as follows, and paragraph (c) is removed.
§ 515.563 Family remittances to nationals of Cuba.
(a) Specific licenses may be issued on a case-by-case basis authorizing remittances to a close
relative of the remitter or of the remitter's spouse who is a national of Cuba and who is resident
in Cuba or in the authorized trade territory, provided they are not made from blocked accounts.
Such remittances will be authorized only:
(1) In circumstances where extreme humanitarian need is demonstrated, including tenninal
illness or severe medical emergency.
*
*
*
*
*
8. Paragraph (d) of § 515.564 is removed and paragraph (c) is revised to read as follows:
§ 515.564 Certain transactions incident to travel to, from and within the United States by certain
Cuban nationals.
*
*
*
(c) Remittances by persons subject to U.S. jurisdiction to Cuba or a Cuban national, directly
or indirectly, for transactions on behalf of a Cuban national, are only authorized pursuant to
paragraph (a) of this section when made for the purpose of enabling the payee to emigrate from
Cuba to the United States, including the purchase of airline tickets and payment of visa fees or
other travel-related fees. Such remittances may not exceed $500, and, except for purposes of
processing a letter of invitation or similar document on behalf of a Cuban national, may be
transferred only after the Cuban national has received a valid visa issued by the State Department
or other approved U.S. immigration documentation. Any amount remitted to Cuba directly or
indirectly in conjunction with the processing of a letter of invitation or similar document must
be deducted from the $500 limit. Specific licenses may be issued to permit remittances by persons
subject to U.S. jurisdiction to Cuba or a Cuban national, directly or indirectly, for transactions
to facilitate non-immigrant travel by a Cuban national to the United States under circumstances
where extreme humanitarian need is demonstrated, including terminal illness or severe medical
emergency.
*
*
§515.565 [Amended]
9. Paragraph (b) of § 515.565 is removed, paragraph (c) is redesignated as paragraph (b),
and the words "or (b are removed.
r'
§ 515.566 [Amended]
10. Section 515.566 is amended by changing the reference in paragraph (a)(3) from "this
section" to "this part", and by amending paragraph (c)(4)(ii) by removing the words "exceeded
6
the annual ceiling on remittances to anyone household or payee established in this section" and
adding in their place "violated the terms of any authorization for remittances contained in or issued
pursuant to this part".
§ 515.56<1 [Amended]
11.In §515.509, the first sentence of paragraph (c) is amended by adding the words "or
pursuant to" before "§ 515.563.", and paragraph (d) is amended by removing the words
"'remittances authorized for the traveler's household by § 515.563(a)(I) and".
Dated: August
Lf....J,(J},.
<:S"u;7~
I
R. Richard Newcomb,
A cling Dcpurv Assisranl SCcrt'ilill (Lm
[FR D,)C. (,Lf-30::: Filed
fnj(J/"l'e!W'/It!,
12-~'?-\}-+; ,?,?:.",)
BILLING CODE 4810-25-F
;lm]
o
federal financing
WASHINGTON. 0 C. 20220
bankNEWS
August 26, 1994
FEDERAL FINANCING BANK
Charles D. Haworth, Secretary, Federal Financing Bank (FFB),
announced the following activity for the month of July 1994.
FFB holdings of obligations issued, sold or guaranteed by
other Federal agencies totaled $113.7 billion on July 31, 1994,
posting a decrease of $1,913.7 million from the level on
June 30, 1994. This net change was the result of a decrease in
holdings of agency debt of $1,047.7 million, in holdings of
agency assets of $906.1 million, and an increase in holdin~s of
agency-guaranteed loans of $40.1 million. FFB made 22
disbursements during the month of July. FFB also received 29
prepayments in July.
Attached to this release are tables presenting FFB July loan
activity and FFB holdings as of July 31, 1994.
LB-I042
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Page 2 of J
FEDERAL FINANCING BANK
JULY 1994 ACTIVITY
BORROWER
AMOUNT
OF ADVANCE
DATE
FINAL
MATURITY
INTEREST RATE
AGENCY DEBT
RESOLUTION TRUST CORPORATION
Note 23 /Advance #1
7/1
$28,602,316,188.30
10/3/94
4.407% S/A
$78,117.00
$181,402.00
$78,117.00
$6,320,410.08
$6,524,880.59
$1,283,193.43
$13,687.16
$7,100,892.00
$92,145.00
$6,521,526.00
$8,605,675.00
9/1/95
12/11/95
9/5/23
6/30/95
11/2/26
6/30/95
1/3/95
11/2/26
9/5/23
4/1/97
12/11/95
12/11/95
6/30/95
12/11/95
5.736%
5.951%
7.710%
5.564%
7.860%
5.626%
5.111%
7.613%
7.654%
6.528%
5.920%
$3,333,000.00
$148,000.00
$1,000,000.00
$6,380,000.00
$1,600,000.00
$1,142,000.00
$1,000,000.00
12/31/19
12/31/12
12/31/25
12/31/14
3/31/03
12/31/26
12/31/25
GOVERNMENT - GUARANTEED LOANS
GENERAL SERVICES ADMINISTRATION
Atlanta CDC Office Bldg.
Foley Square Office Bldg.
Oakland Office Building
HCFA Services
rCTe Building
HCFA Services
Memphis IRS Service Cent.
ICTC Building
Oakland Office Building
Chamblee Office Building
Foley Square Courthouse
Foley Services Contract
HCFA Headquarters
Foley Square Office Bldg.
7/6
7/6
7/6
7/8
7/11
7/14
7/14
7/20
7/21
7/22
7/22
7/22
7/26
7/28
$194,146.00
$9,312,764.00
$1,917.00
Sf A
S/A
S{A
Sf A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
5.920% S/A
5.609% S/A
5.982% SIA
RURAL ELECTRIFICATION ADMINISTRATION
Brazos Electric #332
Lewis River Tele. #378
Randolph Electric #359
Guam Telephone Auth. #371
Tex-La Electric #389
New-Mac Electric #384
Randolph Electric #359
Sf A is a Semi-annual rate:
7/1
7/7
7/7
7/13
7/15
7{18
7{25
Qtr. is a Quarterly rate.
7.665%
7.394%
7.574%
7.647%
6.946%
7.588%
7.526%
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Page 3 of 3
FEDERAL FINANCING BANK
(in millions)
Program
Agency Debt:
Department of Transportation
Export-Import Bank
Resolution Trust corporation
Tennessee Valley Authority
U.S. Postal Service
sUb-total*
Julv 31. 1994
$
664.7
4,383.4
27,854.6
4,375.0
9.473.1
46,750.8
June 30. 1994
$
664.7
4,383.4
28,902.3
4,375.0
9.473.1
47,798.5
Net Change
FY '94 Net Change
7/1/94-7/31/94
10/1/93-7/31/94
$
0.0
0.0
-1,047.7
0.0
0.0
-1,047.7
$
664.7
-1,411.2
-3,833.1
-1,950.0
-258.4
-6,788.0
Agency Assets:
FmHA-ACIF
FmHA-RDIF
FmHA-RHIF
DHHS-Health Maintenance Org.
DHHS-Medical Facilities
Rural Electrification Admin.-CBO
Small Business Administration
sub-total*
6,438.0
3,675.0
24,991.0
25.3
35.8
4,598.9
1.1
39,765.1
7,233.0
3,675.0
25,091.0
30.9
41.2
4,598.9
1.2
40,671.2
-795.0
0.0
-100.0
-5.6
-5.4
0.0
-0.1
-906.1
-2,470.0
0.0
-1,045.0
-5.6
-15.6
0.0
-1. 7
-3,537.9
Government-Guaranteed Loans:
DOD-Foreign Military Sales
DEd.-Student Loan Marketing Assn.
DEPCO-Rhode Island
DHUD-Community Dev. Block Grant
DHUD-Public Housing Notes
General Services Administration +
DOl-Virgin Islands
DON-Ship Lease Financing
Rural Electrification Administration
SBA-Small Business Investment Cos.
SBA-state/Local Development Cos.
DOT-Section 511
DOT-WMATA
sub-total*
3,874.5
0.0
0.0
114.3
1,746.5
1,960.8
21.9
1,479.6
17,371.9
58.2
529.9
15.2
0.0
27,172.9
3,887.9
0.0
0.0
115.1
1,746.5
1,914.6
22.2
1,479.6
17,357.3
58.8
535.7
15.2
0.0
27,132.8
-13 .4
0.0
0.0
-0.8
0.0
46.2
-0.2
0.0
14.6
-0.6
-5.8
0.0
0.0
40.1
-208.8
-4,790.0
-30.4
-17.1
-54.5
375.1
-0.9
-48.7
-281.3
-32.2
-46.5
-1.8
-177.0
-5,314.1
grand-total*
*figures may not total due to rounding
+does not include capitalized interest
=========
=::;:=======
========
========
$113,688.8
$115,602.5
$-1,913.7
$-15,640.0
DEPARTMENT
OF
THE
(~~~~~<'~\
TREASURY ."
10 ~~,
\~'*~
. . . '.,!:!:;'/
\1- ,----~. ~I
":"
TREASURY
NEWS
~~I7B£q~. . . . . . . . . . . . . . . . . . . .. .
......................
OFFICE OFPUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTO\f, D.C. - 20220. (202) 622-2960
FOR RELEASE AT 2:30 P.M.
August 26, 1994
CONTACT:
Office of Financing
202/219-3350
TREASURY TO AUCTION CASH MANAGEMENT BILL
The Treasury will auction approximately $7,000 million
of 16-day Treasury cash management bills to be issued .
September 6, 1994.
Competitive tenders will be received at all Federal
Reserve Banks and Branches. Noncompetitive tenders will
not be accepted. Tenders will not be accepted for bills to
be maintained on the book-entry records of the Department
of the Treasury (TREASURY DIRECT). Tenders will not be
received at the Bureau of the Public Debt, Washington,
D. C.
Additional amounts of the bills may be issued to
Federal Reserve Banks as agents for foreign and international monetary authorities at the average price of
accepted competitive tenders.
This offering of Treasury securities is governed by
the terms and conditions set forth in the Uniform Offering
Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes,
and bonds.
Details about the new security are given in the
attached offering highlights.
000
Attachment
HIGHLIGHTS OF TREASURY OFFERING
OF I6-DAY CASH MANAGEMENT BILL
August 26, 1994
Offering Amount . . . . . . $7,000 million
Description of Offering:
Term and type of security
CUSIP number
Auction date
Issue date
Maturity date
Original issue date
Currently outstanding
Minimum bid amount
Multiples . . . . . .
Minimum to hold amount
Multiples to hold
16-day Cash Management Bill
912794 L7 7
August 31, 1994
September 6, 1994
September 22, 1994
September 23, 1993
$53,850 million
$1,000,000
$1,000,000
$10,000
$1,000
Submission of Bids:
Noncompetitive bids
Competitive bids
Not accepted
(1) Must be expressed as a discount rate
with two decimals, e.g., 7.10%.
(2) Net long position for each bidder must
be reported when the sum of the total
bid amount, at all discount rates, and
the net long position is $2 billion or
greater.
(3) Net long position must be determined
as of one half-hour prior to the
closing time for receipt of competitive tenders.
Maximum Recognized Bid
at a Single Yield
35% of public offering
Maximum Award . . .
35% of public offering
Receipt of Tenders:
Noncompetitive tenders
Competitive tenders . .
Not accepted
Prior to 1:00 p.m. Eastern Daylight
Saving time on auction day
Payment Terms . . . . . . . Full payment with tender or by charge
to a funds account at a Federal
Reserve Bank on issue date
UBLle DEBT NEWS
Department of the Treasury •
Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
August 29, 1994
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $12,275 million of 13-weekbills to be issued
September 1, 1994 and to mature December 1, 1994 were
accepted today (CDSIP: 912794P32).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
4.58%
4.62%
4.61%
Investment
Rate
4.70%
4.74%
4.73%
Price
98.842
98.832
98.835
Tenders at the high discount rate were allotted 18%'.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
Received
$48,770,681
Acce12ted
$12,274,611
$42,634,700
1,364,550
$43,999,250
$6,138,630
1,364,550
$7,503,180
3,467,880
3,467,88CJ
1,303,551
$48,770,681
1,303,551
$12,274,611
An additional $70,349 thousand of bills will be
issued to foreign official institutions for new cash.
LB-I044
UBLIC DEBT NEWS
Department of the Treasury •
Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
August 29, 1994
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $12,245 million of 26-week bills to be issued
September I, 1994 and to mature March 2, 1995 were
accepted today (CDSIP: 912794Q72).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
4.92%
4.93%
4.93%
Investment
Rate
5.11%
5.13%
5.13%
Price
97.513
97.508
97.508
$10,000 was accepted at lower yields.
Tenders at the high discount rate were allotted 34%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
Received
$48,691,578
Acce:gted
$12,245,005
$42,450,514
1,243,115
$43,693,629
$6,003,941
1,243,115
$7,247,056
3,300,000
3,300,000
1,697,949
$48,691,578
1.697.949
$12,245,005
An additional $91,851 thousand of bills will be
issued to foreign official institutions for new cash.
LB-I045
DEPARTMENT
OF
THE
TREASURY fl)
TREASURY
NEW S
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220. (202) 622-2960
FOR RELEASE AT 2:30 P.M.
August 30, 1994
CONTACT:
Office of Financing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $23,200 million, to be issued September 8,
1994. This offering will result in a paydown for the Treasury of
about $2,450 million, as the maturing weekly bills are
outstanding in the amount of $25,648 million.
Federal Reserve Banks hold $6,562 million of the maturing
bills for their own accounts, which may be refunded within the
offering amount at the weighted average discount rate of accepted
competitive tenders.
Federal Reserve Banks hold .$2,448 million as agents for
foreign and international monetary authorities, which may be
refunded within the offering amount at the weighted average
discount rate of accepted competitive tenders. Additional
amounts may be issued for such accounts if the aggregate amount
of new bids exceeds the aggregate amount of maturing bills.
-
Tenders for the bills will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public
Debt, Washington, D. C. This offering of Treasury securities
is governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356) for the sale and issue by the
Treasury to the public of marketable Treasury bills, notes, And
bonds.
Details about each of the new securities are given in the
attached offering highlights.
000
Attachment
LB-I046
HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED SEPTEMBER 8, 1994
August 30, 1994
Offering Amount .
$11,600 million
$11,600 million
Description of Offering:
Term and type of security
CUSIP number
Auction date
Issue date
Maturity date
original issue date
Currently outstanding
Minimum bid amount
Multiples .
91-day bill
912794 P4 0
September 6, 1994
September 8, 1994
December 8, 1994
June 9, 1994
$13,192 million
$10,000
$ 1,000
182-day bill
912794 Q8 0
September 6, 1994
September 8, 1994
March 9, 1995
March 10, 1994
$16,531 million
$10,000
$ 1,000
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids
Competitive bids
Maximum Recognized Bid
at a Single Yield
Maximum Award .
Receipt of Tenders:
Noncompetitive tenders
competitive tenders
Payment Terms
Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids
(1) Must be expressed as a discount rate with
two decimals, e.g., 7.10%.
(2) Net long position for each bidder must be
reported when the sum of the total bid
amount, at all discount rates, and the net
long position is $2 billion or greater.
(3) Net long position must be determined as of
one half-hour prior to the closing time for
receipt of competitive tenders.
35% of public offering
35% of public offering
Prior to 12:00 noon Eastern Daylight Saving time
on auction day
Prior to 1:00 p.m. Eastern Daylight Saving time
on auction day
Full payment with tender or by charge to a funds
account at a Federal Reserve Bank on issue date
MEASURING PERMANENT RESPONSES TO
CAPITAL GAINS TAX CHANGES IN PANEL DATA
by
Leonard E. Burman and
William C. Randolph
Congressional Budget Office
U.S. Congress
OTA Paper 68
August 1994
.ng Amount.
Jescription of Offering:
Term and type of security
CUSIP number
Auction date
Issue date
Maturity date
Original issue date
Currently outstanding
Minimum bid amount
Multiples .
The following rules apply to al
Submission of Bids:
Noncompetitive bids .
Competitive bids
MEASURING PERMANENT RESPONSES TO
CAPITAL GAINS TAX CHANGES IN PANEL DATA"
by
Leonard E. Burman and
William C. Randolph
Congressional Budget Office
U.S. Congress
OTA Paper 68
August 1994
OTA Papers and Briefs are circulated so that the preliminary findings of tax research conducted
by staff members and others associated with the Office of Tax Analysis may reach a wider
audience. The views expressed are those of the authors, and do not reflect Treasury policy.
Comments are invited, but OTA Papers and Briefs should not be quoted without permission from
the authors. Additional copies of this publication may be purchased from the National Technical
Information Service, 5285 Port Royal Road, Springfield, VA 22161
Office of Tax Analysis
u. S. Treasury Department, Room 1064
Washington, DC 20220
• Forthcoming, American Economic Review. This paper was written while Randolph
was a staff member of the Office of Tax Analysis, U.S. Treasury Department.
Measuring Permanent Responses to
Capital Gains Tax Changes in Panel Data
By
LEONARD
E.
BURMAN AND WILLIAM
C.
RANDOLPH"
This paper uses panel data and infonnation about differences in state tax rates to
sepa.rat~ the effect? of transitory and pennanent tax rate changes on capital gains
reallzatwns behavzor. The effect of pennanent change is found to be substantially
smaller than the effect of transitory change. The estimated difference is even larger
than past differences between estimates from careful micro data studies, which have
primarily measured the transitory effect, and time series studies, which have primarily
measured (at best) the pennanent effect. Our results thus resolve a longstanding
conflict between micro data and time series studies of how marginal tax rates affect
capital gains realizations behavior.
"Observe due measure, for right timing is in all things
the most important factor" --Hesiod (700 BC)
For more than forty years, policy analysts and economists have debated about how capital
gains realizations respond to changes in capital gains tax rates. (See, e.g., Lawrence H. Seltzer,
1951) The issue has received attention in part because, if realizations of capital gains are
responsive enough, the tax rate on capital gains could be cut at no cost to the Treasury. But it
is also an important issue for tax reform because some argue that the welfare cost of the capital
gains tax could be large relative to the tax revenues collected if realizations are very sensitive
to tax rates. (patric H. Hendershott et al., 1991)
The debate has been fueled by an array of disparate statistical estimates of the elasticity of
capital gains realizations with respect to the marginal tax rate on capital gains. The evidence
from time series appears entirely inconsistent with the evidence from individual tax return data.
Time series studies have generally found that capital gains are relatively unresponsive to tax
rates. Estimates based on micro data, however, generally suggest that realizations are highly
elastic.
These empirical estimates are viewed with great skepticism by many who have studied the
issue. Some authors of time series studies (Alan J. Auerbach, 1989; Jonathan Jones, 1989;
Robert Gillingham and John S. Greenlees, 1992) have discounted their findings because they are
subject to intractable aggregation biases and are extremely sensitive to sample period and
seemingly minor changes in specification. Estimates from micro data studies have been even less
robust.
"Burman: Congressional Budget Office, U.S. Congress, Washington, DC 20515; Randolph: Office of Tax Analysis,
U.S. Treasury, Washington, DC 20220. We are grateful to B.K. Atrostic, Jerry Auten, Charley Ballard, Joe Cordes,
Glenn Hubbard, Jody Magliolo, Randy Mariger, Jim Nunns, Larry Ozanne, R.P. Trost, Jenny Wahl, and seminar
participants at George Washington, Georgia State, Maryland, Michigan, and Northeastern, and three anonymous referees
for helpful comments and suggestions. Jim Cilke and Gordon Wilson developed the tax calculators. Views expressed
do not necessarily represent the views or policies of the Congressional Budget Office or the Department of the Treasury.
More fundamental}
. -...I th t th .
y, some authors of micro data studies have recogmzt:-U a
elr
estimates rna
seminal em .Y. s~stematically overstate the long-term response to tax changes.. Ind~, ~e
caveat:
pmc study of the effect of tax rates on realizations of capital gams r3.1sed thls
An individual whose tax ~ate varies substantially from year to year w~ll
tend to sell more when hIS rate is low. To the extent that low rates m
1973 ~e only temporarily low, our estimates will overstate the sensitivity
?f sellmg ~o the tax ~ate. We have no way a/knowing how important this
IS. (Martm FeldsteIn et al., 1980, p. 785. Emphasis added.)
Such ti~ing behavior is very important. The Tax Reform Act of 1986 (TRA) created a
natural expenment to test the hypothesis that timing matters. TRA was passed by Congress at
t~e end of S~ptember, 1986. It turned a "permanent" 20 percent maximum tax rate, in effect
smce 19.81, mto a temporary rate, to be replaced by a higher maximum capital gains rate of 28
percent In 1987. In response, long-term capital gains on corporate stock in December 1986 were
nearly seven times their level in December 1985. (Burman et aI., 1993)
Timing behavior probably explains why micro data studies have produced such large
elasticity estimates.! As the transitory component of individuals' taxable income varies, it
provides them with opportunities to time capital gains realizations in years when tax rates are
relatively low. In a particular year, those with the lowest tax rates, other things constant, would
be those with the largest capital gains realizations. As a result, a regression based on micro data
is likely to measure a negative correlation between marginal tax rates and capital gains
realizations. But, without more information, it is impossible to determine how much of the
measured correlation represents purely transitory timing behavior. Much of the policy debate,
however, has centered on the permanent or long-term response to statutory tax changes. 2
To distinguish permanent from transitory tax effects, we define a "permanent tax rate" as
the tax rate on long-term capital gains, purged of individual and aggregate transitory effects. We
estimate the relationship between capital gains and permanent tax rates in a panel of tax returns
using an instrumental variables estimator that also accounts for the endogeneity of tax rates and
self-selection. Our instrument for permanent tax rates is the maximum combined federal and
state tax rate on long-term capital gains. This instrument, which only varies amo~g. state~,
removes individual transitory effects because it is uncorrelated with transitory v~.nations 10
individuals' income. We remove aggregate transitory effects by using time dummIes.
Our estimates imply that the elasticity of capital gains realizations with respect to permanent
tax changes is much smaller than the transitory response. Our point estimates of per~anent tax
effects are smaller in absolute value than most estimates from time series. Our estImates of
transitory tax effects are larger than estimates from previous studies based on micro data.
ISee Gerald E. Auten and Charles T. Clotfelter (1982), Ioseph E. Stiglitz (1983), Iane G. Gravelle (1987), Auerbach
(1988). Auten et aI. (1989), Joel Slemrod and William Shobe (1990), and Donald W. Kiefer (1990) for more discussion
on this point.
2Auerbach (1989) and Gravelle (1991) have questioned the large elasticities found in most micro data studies on
conceptual grounds. They argue that such large elasticities would imply that even modest changes in tax rates could cause
realizations to exceed accruals.
2
I. The Decision to Realize Capital Gains
There are two inhe~ent problems in measuring taxpayer responses to capital gains tax
changes: s~dar~ theoretIcal mod~ls do not explain why people realize significant amounts of
taxable caPItal gaIns, and some vanables that would enter almost any theoretical model are not
observed in avail,able data, ,N~n~theless, the typical empirical ~odel, may be interpreted as a
reduct:d form, gIven d~ta h~l!'ltIOnS, to test th,: ~ost ,gene!al lmphcations of theory. Our
analysIs extends the baSIC empincal model to permIt IdentificatIon of a key policy parameter the
effect of permanent changes in tax rates.
'
The capital gains tax is relatively easy to avoid. Tax on an asset's gain or loss is not due
until the asset is sold, and may be avoided entirely if an asset is held until death or donated to
charity. Stiglitz (1983) showed that, by borrowing, hedging, accelerating losses, and deferring
gains, capital gains taxes can be avoided altogether if capital markets are perfect and transactions
are costless. He concluded that the existence of substantial taxable capital gains realizations
implies that the underlying assumptions of his model must be violated in practice.
George M. Constantinides (1984) showed that realizing gains on stocks as soon as they
qualify for preferential long-term tax rates may be optimal for very volatile stocks with low
transaction costs. Yves Balcer and Kenneth L. Judd (1987) showed that, if borrowing and
liquidity constraints are binding and options markets do not exist, capital gains would be realized
following a LIFO strategy to maximize the benefits of deferral. However, none of these models
would explain the $100 to $200 billion in taxable gains reported in a typical year.
Kiefer (1990) and Burman and Randolph (1992) developed models in which capital gains
realizations occur because capital markets are limited--there are liquidity constraints and no
options markets--and individuals believe they can beat the market by trading. The latter study
also showed that transaction costs could be important. As well as characterizing a long-run
equilibrium in which significant amounts of capital gains could be realized, these analyses also
shed light on the transition path from one steady state to another after tax laws change.
Conventional wisdom holds that the short-run response to a permanent cut in capital gains tax
rates would be larger than the long-run response because of an immediate "unlocking" effect.
Taxpayers holding assets to avoid capital gains tax suddenly flood the market with these assets
when the tax rate is lowered because the tax cost of selling the assets is reduced. However, this
conventional view ignores the fact that the cost of selling assets is also an increasing function of
accrued gain as a fraction of asset value. On average, this fraction would be higher immediately
after a capital gains tax cut than it would be in the new steady state. The high level of accrued
gains will initially increase the cost of asset sales relative to the steady state, and will therefore
dampen adjustment in the short run. If the initial level of unrealized accruals is high enough,
the short-run increase in realizations of capital gains could actually be smaller than the long-run
increase.
The response to temporary reductions in ca1?ital gains tax ra.tes is cl~er. A t~mporarily
low capital gains tax rate provides taxpayers WIth an opportumty to gam from tImmg. A
temporary tax cut reduces the tax cost of selling now, but leaves the tax cost of selling in the
future unchanged. In contrast, a permanent tax cut reduces the ~ cost of selling at any time.
Thus, realizations of capital gains will be higher under a transltory rate cut than under a
permanent cut, as illustrated by the response to TRA. (Paul J. Bolster et al., 1989; Burman et
al., 1993)
In micro data variations in capital gains tax rates include both permanent and transitory
components. The ~rmanent component results from expected differences in earnings capacity,
3
~~~c~s of income and deductions, and because capital gains tax rates vary across states .. It may
g when tax l.a~s change. The transitory component results from tax planmng. and
temporary changes In Income and deductions. The tax law may also cause aggregate tranSItory
changes .l~ the statutory change is anticipated or if a new tax law is phased in over several years.
:'-n hempmcal model should allow for the possibility that people respond differently to changes
In t e permanent and transitory components.
ll. Empirical Model of Permanent and Transitory Tax Effects
~n indi.vidual. decides ~heth~r to sell specific portfolio assets and, ~ncidental~y, whether
~o realIze capItal gruns. CapItal gruns enter the decision because the tax pnce of sell10g an asset
IS the pr?<!uct o~ the capital gains tax rate and the share of asset value that is a capital gain.
Assets WIth relauvely larger accumulated gains are more costly to sell than assets with smaller
accumulated gains. Unfortunately, our panel of tax returns from 1979 to 1983 only includes total
capital gains and losses with no detail about sales of specific assets. Thus, like all previous
empirical studies of capital gains, we estimate a reduced form relationship between total longterm capital gains and factors that may affect the decision to sell assets with capital gains.
For taxpayers who choose to realize capital gains, we model the relationship between
capital gains and tax rates as follows:
(1)
where g is realized capital gains by an individual at time t, X is a vector of predetermined and
exogenous variables, 'tp is the permanent tax rate, 't, is the current tax rate in year t, Yo, Y}, Y2'
and Y3' are fixed parameters, and £2 is a random error term. This semi-log functional form has
been used in most empirical capital gains research. It implies that the elasticity of capital gains
realizations with respect to the marginal tax rate is an approximately linear function. 3
The decision of an individual to realize capital gains depends on the costs and benefits of
realizing gains, the size and composition of the portfolio, and preferences. Taxes affect the ~sts
and benefits of selling. The cost of selling depends on the effective marginal tax rate on caPItal
gains and on the size of the average accrued gain. Equation (1) separates the marginal tax rate
into permanent and transitory components. The permanent tax rate is the tax rate p~rged o~ its
individual and aggregate transitory components. It is the expected (normal) tax rate 10 a typical
year given federal and state tax laws and normal levels of income for each individual. The
remaining transitory component represents the tax cost of selling when the tax rate is unusually
high, or holding when the tax rate is unusually low. The lagged tax rate, is also included as a
proxy for the unobservable size of accrued gains. For example, if the previous year's tax rate
was unusually high, then accrued gains should be larger than usual because realizations would
have been postponed.
Other variables summarizing individual differences are included in X. The cost of selling
depends on transaction costs, so the composition of the portfolio is important. Lagged data from
individual tax forms provide indirect information about whether the portfolio is likely to include
real estate or business property, which is relatively costly to sel1. 4 Those data, as well as lagged
3m estimation, we also tested the assumption that the elasticity is approximately constant. This alternative does not
affect the empirical results substantially.
~e data are discussed in Section
ill.
4
data on sources of capital income, also allow us to create proxies for wealth which represents
the potential size of accrued unrealized gains, and for the share of wealth held ~s corporate stock.
Sales and purc~ases ~f assets are a P3!t of life-cycle consumption decisions.
Thus,
perm~ent and transItory Income, age, marItal status, and family size may be important
determmants. Panel data from tax re~rns allo~ us to estimate permanent and transitory income,
~d age data are matched ~rom ~Ial SecurI~y ~ecords. In addition, regional dummies are
mcluded to control for regIOnal dIfferences In mvestment preferences. Time dummies are
includ~ to control for the aggregate economic factors that affect investment opportunities. These
dummIes also control for the average effect of tax law changes, as occurred in 1981.
We account for the decision to realize a capital gain as well as the level of capital gains.
Our full empirical specification in Equations (2)-(4) represents (1) as a generalized tobit model,
and also accounts for the endogeneity of current marginal tax rates. S The tax terms are
rearranged algebraically to simplify estimation. 6
(2)
if r > 0 }
otherwise '
(3)
and
(4)
'tt
= f(Z,g)
,
where f is a latent indicator of the decision to realize capital gains, the a and ~ terms are
unknown parameters, and £1 and £2 are normally distributed error terms, uncorrelated with X,
t, or 'tt-l' such that E(£'£j~=crij for iJ=1,2. The combined federal and state marginal tax rate
function,/' is a known nonlinear function of capital gains and Z, a vector including income items
from various sources, deductions, exemptions, transfers, carried over tax losses and credits, and
taxpayer filing status.
A. Estimation Procedure
We extend the instrumental variables procedure developed by Lung-Fei Lee et al. (1980)
to allow ~or the presence of an unobserved v~iable, 'tp, and an endoge~ou.s ,,:ariable, tu in both
the critenon function, (2), and the level equatIOn, (3). The procedure IS SImIlar to the two-step
regression estimation method developed by James J. Heckman (1976), except that fitted values
are used in place of'tp and 'tt. The fitted value, 't , is created by regressing 'tt on X, 'tt_t, and 'tl ,
the maximum combined federal and state tax ra& in each individual's state. The fitted value,
tt' is created by regressing 'tt on X, 'tt-ll 'tl , and 'to, a "first-dollar" marginal tax rate on capital
5A separate appendix shows that correcting for endogeneity and sample selection is especially important in this type of
model. Failure to properly account for these problems may explain much of the volatility in previous research on capital
gains. The appendix is available upon request.
5
gains. The first-dollar marginal tax rate is computed by setting g and the other sources of
7
income and deductions that are jointly determined with g equal to zero.
The parameters of (2) are estimated by probit maximum likelihood with the fittedtp and tl
used in place of the actual values. The level equation, (3), is estimated by least squares using
the sample of realizers, including the estimated inverse Mills ratio as a r~gressor to control for
sample selectivity. 8 For estimation of (3), values for t and tl are ree.stImated for the ~mple
of realizers including the inverse Mills ratio as an add[tional variable 10 the fitted equatIons.
The standard errors are corrected using a formula derived by Lee et al. 9
B. Consistency of the IV Estimator
Previous micro-data studies, which lacked appropriate instruments for t p , could only have
produced consistent estimates of tax effects if transitory and permanent responses are the same.
Under this condition, our estimation procedure would produce consistent estimates using almost
any exogenous instruments for the permanent and transitory tax rates. However, if transitory
and permanent responses are different, then appropriate instruments for tp and tt are essential to
estimate permanent and transitory tax effects consistently.
The estimation problem is unusual and interesting because we need to estimate the effects
of two unobservable components of the tax rate. If tl is defined as
(5)
t
1
::: t
P
+ r
IL
t'
where J.l.t is transitory deviations in tax rates, then both 'tp and POt enter (1) as explanatory
variables. lo This problem is similar in form to an errors-in-variable model. However, in the
standard errors-in-variables model, only the systematic component, 'tp , would enter the model as
an explanatory variable. To consistently estimate the effect of t p , we need an exogenous
instrument that is correlated with 'tl , but uncorrelated with J.l.t, conditional on X and 'tt.I'
Although much of the variation in tp is related to the other exogenous variables, especially
permanent income, wealth, and the portfolio mix, differences in state tax law provide an
7The first-dollar marginal tax rate is computed by setting long·term capital gains and other income and deduction items
that are likely to be endogenous equal to zero and then computing the marginal tax rate on a defined long-term capital
gain. This instrument retains a substantial amount of variation independent of the other explanatory variables because
marginal tax rates are a known nonlinear function of numerous exogenous factors that do not directly affect capital gains,
including consumer and mortgage interest deductions, contributions to pensions and IRAs, property taxes, certain health
expenses, business and employment expenses, paid alimony, and many other deductions and adjustments to income.
~e inverse Mills ratio is computed based on the fitted values from the probit step.
9'Jbe standard error estimates may be understated because the formula does not account for the use of instrumental
variables in the probit equation. To check the standard errors, we randomly split the sample into 10 parts and estimated
the parameters for each sUbsample. The standard errors of the sample mean of the 10 estimates were very close to those
produced by the formula.
l~e ignore sample selection in this discussion to focus on the key estimation problem. The IV results for the linear
model, (I), are extended to the full model with truncation, (2)-(3), in a separate appendix.
6
exogenous source of variation that is easily measured. ll Moreover, the variation in state taxes
is closely related to an important policy question: how do realizations differ under different tax
laws? Because state income taxes tend to be less graduated than the federal tax schedule, most
gains are realized by taxpayers in the top state tax brackets. Thus, the top combined federal and
state tax rate (tJ captures most of the important differences in statutes, and does not vary amon
individuals within a state. It is thus unlikely to be correlated with the transitory component, J.'t.
R
To consistently estimate the transitory effect (J.'J, we need a second exogenous instrument
that is correlated with ttl but uncorrelated with t p , conditional on X, tt-lt and ta' Our instrument
has been used in various forms in most previous micro data studies of capital gains: the firstdollar tax rate (to). Because marginal tax rates are a highly nonlinear function of many variables
that do not directly affect capital gains (see footnote 7), this instrument captures much of the
variation in tu but is purged of its endogenous components. Further, to is unlikely to be
correlated with t p ' conditional on tt-l, tu and the variables included in X.
The standard errors-in-variables model assumes that the random component (p.J is
uncorrelated with the X variables--an unwarranted assumption in our model. Transitory tax
differences may well be correlated with such X variables as transitory income. As a result of
this correlation and the nonstandard form of our estimator, the coefficients on the X variables
may be inconsistent, reflecting a combination of the direct effect on gains (Yo) and indirect effects
through correlation with f.Lt. While this may make interpretation of the effects of other variables
more difficult, it does not affect the estimates of permanent and transitory tax effects.
Under our assumptions, it can be shown that the estimates of permanent and transitory tax
coefficients in (1) will approach the following limits: 13
(6)
and
(7)
1I0thers have used state variation to identify permanent effects of statutory changes in a panel or cross-section in
different contexts. See Daniel Feenberg (1987) for an application to charitable contributions and David Neumark and
William Wascher (1991) for estimating the effects of minimum wages_ William T. Bogart and William M. Gentry (1993)
also use state data to estimate capital gains tax effects, but their state-level aggregate data averages out individual
differences.
12The instrument could be endogenous if the choice of state depends on capital gains tax rates. While we consider it
unlikely that state tax rates on capital gains are very important to residential decisions, we test for this possible source
of bias in our estimation.
13Probability limits for all the parameters are derived in a separate appendix. The expression cov(x,y I z) is defined to
be the partial covariance between x and y given z, i.e., after the linear influence of z is removed from x and y.
7
Equations (6) and (7) show that the probability limits for the per~anent and transitory coefficient
estimates are weighted averages of the true values of the coefficI~nts. If, as. ~ssumed, the state
tax rate instrument, t s ' is correlated with 'tp , and uncorrelat~ Wlt~ IJ./I c0!ldluonal on the other
variables, (6) implies that the estimated permanent coeffiCient I~ consistent bec~use 6. =0.
Similarly, (7) implies that, if the first-dollar instrument, to, .IS correlat~ WIth IJ.". and
un correlated with 't , conditional on the other variables, then the estImated tranSItory coefficIent,
Yz. will also be cori'sistent because 92 =0.
Under the null hypothesis that the permanent and tr~sitory tax coefficients are the same,
(6) and (7) imply that the estimates are consistent even If 9. and 92 are non~ro: Under the
alternative hypothesis that Y'*Y2, the estimated difference between "11 and "12 IS bIased t~ward
zero if 91 or 92 is nonzero because both must lie between zero and one. Thus, even If the
assumptions for consistency are violated, our estimat~s provide a c~~servative ~est of. the
hypothesis that 11="12, which is the key assumption reqUired for the vabdlty of prevIOUS micro
data studies.
C. Alternative Estimators
Two studies (Auten and Clotfelter, 1982, and U.S. Department of the Treasury, 1985)
attempted to measure the permanent tax rate directly from panel data by using three-year
averages of marginal tax rates on capital gains. The fundamental problem with this approach is
that a three-year average of federal income tax rates would be correlated with the transitory
component of the tax rate. Thus, such a proxy cannot be used to estimate separately the effects
of permanent and transitory tax rates since it is, itself, a combination of the two.
Slemrod and Shobe (1990) used a fixed-effects model to control for differences in
permanent tax rates and other unobservable fixed effects that may affect parameter estimates.
This approach can produce consistent estimates of the coefficients of transitory tax rates and other
non-fixed factors, but does not allow identification of the response of capital gains to permanent
tax rates, as was recognized by the authors. 14
Bogart and Gentry (1993) use aggregate state data to estimate permanent capital gains tax
effects. This approach mitigates the problem of limited sample size common to aggregate time
series models, and the data set includes more years than our study. However, aggregate data
precludes dealing with most of the econometric problems that we have found to be empirically
important and suffers from some of the same problems that affect aggregate time series studies.
14Because the combined federal and state tax rates vary over time as well as among individuals, we could conceivably
estimate an individual fixed effect in our model. We did not do this for two reasons. First, modelling fixed effects would
make it difficult or impossible to control for sample selectivity, which Auten et al. (1989) found to cause substantial
biases. Second, because only a minority of mostly small states changed their tax rates on capital gains between 1980 and
1983 (Bogart and Gentry, 1993), only about 3 percent of the independent variation in the state tax instrument remains
after controlling for both time and individual fixed effects. The sources of this variation are individuals who moved
between 1980 and 1983, the 14 states that changed tax rates between 1980 and 1983, and the interaction effect between
the change in federal tax rates in 1981 and the Det capital gains tax rate. Since the precision of instrumental variables
estimates depends on the correlation between permanent tax rates and the instrument, removing almost all of the variation
in the instrument would yield uninformative results. Moreover, to the ex.tent that the remaining variation corresponds
to movers, who may have reasons for realizing capital gains independent of tax effects, interpreting the estimated
coefficient as primarily a permanent tax effect may be unwarranted.
8
m. Data
The data are from a panel of individual income tax returns for about 11,000 taxpayers for
the years 1979 to 1983. (U.S. Department of the Treasury, 1979-1983) In addition to detailed
tax r.eturn data, the panel ~ncl~des the ages of taxpayers for each return. The panel sample was
stratIfied to oversample htgh-Income taxpayers; thus, a much larger proportion of the sample
(53.4 percent). had capital gains thar:t in the population at large (18.5 percent). The Treasury
department edIted th~ data for consIstency and developed programs to calculate marginal tax
rates. (James M. Cllke and Roy A. Wyscarver, 1987) Some observations were discarded
because the data were internally inconsistent.
Summary statistics for the data and instruments used in estimation are shown in Table 1.
Weighted and unweighted statistics differ because the sample was stratified. We use unweighted
data for estimation, but test for the possibility that endogenous stratification biases the estimates. is
Our data were originally prepared by Auten et al. (1989), but we have made several
improvements. We created the instrument for permanent tax variation (ts) by computing the
combined federal and state marginal tax rate on capital gains for a taxpayer with $100 million
of taxable income. We also modified the first-dollar tax rate instrument (to) by setting several
possibly endogenous components of income and deductions equal to zero. This was done for
long- and short-term capital gains and losses, capital loss carryovers, interest, dividends, business
losses, charitable contributions, and the deduction for taxes paid and investment interest expense.
Auten et al. did not consider the deduction items other than charitable contributions to be
endogenous.
The sample period for estimation is 1980 to 1983 so that lagged values could be used.
Observations on individuals were included in estimation whenever the current and lagged data
were valid, which yielded a total of 42,406 observations. The dependent variable is net longterm capital gains before carryover of prior year losses as reported on Schedule D. The tax rate
measure is the combined federal and state marginal rate, based on applicable tax law for each
year and each taxpayer's income and deductions. 16 To smooth out kinks in the tax schedule and
to represent the lumpiness of capital gains transactions, the marginal tax rate on capital gains was
computed for a defined transaction, rather than for a dollar of capital gains. The capital gain on
the defined transaction is the maximum of $1,000 or the square root of imputed wealth. 17
l>ne sample was stratified based on income, which includes capital gains realizations and other possibly endogenous
variables.
16Because of the way the data were coded by the IRS, state of residence is available for all returns only in 1981. In
other years, we used the actual state ifit was available, or the state in 1981, otherwise.
17As a sensitivity test, we also estimated the model using a marginal tax rate computed with a defined transaction of
$1,000. This made almost no difference for the estimated effect of permanent tax rates, but increased slightly the
estimated effect of transitory tax rates.
9
TABLE I-DESCRIPTIVE STATISTICS FOR
VARIABLES USED IN MODEL ESTIMATION
Variable Description
Net Long-Term Capital Gains
Percentage with Net Positive Gains
Marginal Tax Rate on Capital Gains
First-Dollar Tax Rate Instrument (TO)
Maximum Tax Rate Instrument (T,)
Imputed Permanent Income
Current Income (Exogenous Parts)
Imputed Wealth (Gross Assets)
Imputed Corporate Stock
Business Losses Lagged
Rent Losses Lagged
Population-Weighted
Mean
Coefficient
of Variation
3.0
31.67
18.5
11.9
0.54
11.1
0.54
23.3
0.15
0.96
28.8
2.07
28.8
0.83
125.3
4.81
11.3
15.19
1.6
13.25
0.4
Unweighted
Coefficient
Mean
of Variation
245.4
7.00
53.4
15.8
0.66
13.1
0.73
23.4
0.15
125.7
1.64
283.2
3.30
286.5
6.70
118.3
8.61
3.96
101.8
10.1
8.15
Notes: Dollar amounts in thousands of 1981 dollars. Marginal tax rates are in percentages.
Statistics are for pooled years, 1980-1983.
10
The computed marginal tax rate is the change in tax liability divided by the amount of the defined
capital gain. 18
Other regressors are discussed above in Section II, and summarized in Table 1. Wealth
was imputed by using a tobit model to regress the logarithm of total wealth, as reported in a 1982
sample of estate tax returns, on age and log capital income reported on 1981 income tax returns.
The estimated wealth regression was used to impute wealth for taxpayers in our panel sample for
each year based on lagged values of the regressors. Corporate stock was imputed the same way.
Lagged business losses were computed as the sum of losses on rental property, losses reported
on partnership returns, and losses reported by personal services corporations.
Permanent income was imputed by using the panel sample to regress the logarithm of a 5year average (1979-1983) of real positive income on taxpayer characteristics. 19 The regression
estimates were used to impute annual permanent income based on lagged values for the
regressors. Current income, listed in Table 1, is defined as positive income excluding
endogenous sources such as capital gains. 20 In the regression model, transitory income is the
logarithm of the ratio of current to permanent income.
Family size is the number of personal and dependent exemptions claimed on the tax return.
Marital status is based on tax filing status. Age was derived from social security records.
The sample period includes the Economic Recovery Tax Act (ERTA) of 1981, which
reduced top tax rates on both ordinary income and capital gains by 29 percent and introduced
many new tax preferences. The advantage of covering this period is that the change in tax law
adds substantial variation to the statutory tax rates. The primary disadvantage is that the major
tax change was far from a controlled experiment, and some of the response to the statutory
change in capital gains tax rates may be transitory, although the aggregate change was controlled
for by time dummies.
18S1emrod and Shobe (1990) argue that the marginal rate should be adjusted when the taxpayer has net capital losses
to account for the fact that unused losses are at least partially deductible in future years. In our tax calculation, we
consider only the current year, which implies a zero marginal tax rate on capital gains for taxpayers with nondeductible
net losses. Given the small fraction of returns subject to the capital loss limitation, this difference is unlikely to affect
empirical estimates. Moreover, since the capital loss limitation is essentially transitory, the estimates of permanent effects
are unlikely to depend on the treatment of losses.
19positive income includes all positive components of income (including net positive capital gains).
approximation of economic income used by the IRS and in several earlier studies.
It is an
20Current income and permanent income were scaled so that they had the same weighted population means. The
unweighted mean for current income exceeds mean permanent income because the sample was stratified to over sample
high-income taxpayers. Thus, people in the sample tend to have high transitory incomes. The wealth and stock variables
were scaled to match the aggregates reported in the Survey of Consumer Finance for 1983, converted to 1981 dollars.
11
IV. Estimation Results
Estimates for equations (2) and (3) are shown in Tables 2 and 3. Table 2 shows estimates
of tax rate coefficients, the corresponding elasticities, and results for three restricted models.
Table 3 shows the coefficient estimates for the non-tax variables.
The first three columns in Table 2 show the marginal tax rate coefficients in the level
equation (3) and the criterion function (2). To interpret these coefficient estimates, recall from
footnote 6 that the total effect of changes in the permanent tax rate depends on the sum of the
three tax rate coefficients, whereas the effect of transitory deviations depends only on coefficients
of the current tax rate. Thus, the coefficient of the permanent tax rate in the full model is a
measure of the difference in the effects of changes in the permanent and transitory tax rates.
The estimated current tax rate coefficient in the full model is negative and statistically
significant at the 99 percent level in both the criterion function and level equation. The sign
implies that individuals are more likely to realize capital gains (the criterion function) and realize
more capital gains (the level equation) when they face temporarily low marginal tax rates. The
size and significance of the coefficients imply that transitory changes in tax rates have a stron~
effect on taxpayer decisions about whether to sell appreciated assets and realize capital gains.
The lagged tax rate coefficient is small and insignificant, which implies that lagged tax rates
do not affect current capital gains decisions, holding current and permanent tax rates and other
included variables constant. This result is inconsistent with the conventional wisdom that the
response in the first year to a capital gains tax change is larger than the long-run response. It
is, however, consistent with Kiefer's simulations, discussed in Section 1. 22
In contrast to the transitory effects, the estimated coefficient of the permanent tax rate is
positive, nearly as large as the current tax rate coefficient, and significant at the 99 percent level
in both the level equation and criterion function. This result implies that permanent changes in
the tax rate have substantially smaller effects than transitory changes. These large and significant
differences refute the basic assumption underlying the validity of previous micro data studies.
21Although our model includes measures of permanent and transitory income, the transitory tax rate component may
also proxy for variation in transitory income not controlled for by other variables.
22K.iefer's simulations suggest a potentially larger • intermediate-term· effect, several years after a tax change.
Unfortunatel y, there is not enough independent variation in tax rates in our data set to allow us to measure such effects
with any precision.
12
TABLE 2-ESTlMATED COEFFICIENTS AND ELASTICITIES
OF MARGINAL TAX RATE VARIABLES
Estimated Model
Full Model
Level Equation
(Equation 3)
Criterion Function
(Equation 2)
Marginal Tax Rate Coefficient
Current
Lagged
Permanent
-0.145
(0.014)
{). 00 l3
(0.011)
0.116
(0.036)
-0.084
(0.005)
0.003
(0.006)
0.088
(0.016)
Exclude Transitory and Lagged Tax Rates
Level Equa tion
-0.020
(0.022)
Criterion Function
-0.18
(0.48)
Transitory
Elasticity
-6.42
(0.34)
-0.17
(0.42)
0.007
(0.010)
Exclude Permanent Tax Rate
-0.144
Level Equation
(0.014)
Criterion Function
Permanent
Elasticity
- 0.083
(0.005)
0.039
(0.005)
-6.10
(0.33)
0,036
(0.002)
Exclude Permanent and Lagged Tax Rates
Level Equation
-0.113
(0.010)
-4.19
(0.22)
Criterion Function
-0.051
(0,003)
Notes: Standard errors are in parentheses, Estimated coefficients of other variables
included in the model are in Table 3. Elasticities are computed at an average tax rate of
18.0 and an average lambda of 2.52. See equation 8.
13
The last two columns show the elasticities. The elasticity (e) measures the effect of a small
change in the permanent tax rate:
(8)
where A(h+op) is the reciprocal of the Mills ratio evaluated at the mean of the systematic part
of the criterion function (h) Wus the covariance between the error terms in the criterion function
and the level equation (op). 3 The transitory elasticity is given by a similar equation, excluding
the permanent and lagged tax rate coefficients. It is interpreted as the elasticity with respect to
a change in the current tax rate, holding the permanent and lagged tax rates constant.
The estimated permanent elasticity is -0.18, which implies that a 1 percent decrease in
permanent tax rates would increase expected realized net long term capital gains by
approximately 0.18 percent at average levels for all variables in 1983. However, the relatively
Jarge standard error implies that we cannot reject the hypothesis that permanent changes in capital
gains tax rates have no long-term effect on capital gains realizations.24 The standard error is
also large enough that long-run elasticities of 0.0 and -1.0 are both included in a 95-percent
confidence interval.
The estimated transitory elasticity is -6.42, which is larger in absolute value than most
previous elasticity estimates from micro data. 25 The high transitory elasticity suggests that the
response to a temporary tax change would be extraordinary, with realizations expected to increase
by more than six times the percentage change in the tax rate. This is consistent with the dramatic
increase in realizations just after passage of the Tax Reform Act of 1986, as discussed in the
introduction.
The second panel of the table shows what happens to estimates of the permanent elasticity
when the current and lagged tax rates are excluded from the estimated model. Assuming that
the transitory component of the tax rate is uncorrelated with the permanent (state) tax rate
instrument, the estimates of the permanent tax rate coefficient and elasticity are still consistent
when the current and lagged tax rates are excluded. The permanent elasticity estimate changes
very little, from -0.18 to -0.17, but the precision increases slightly. The transitory elasticity
cannot be determined from this specification.
The third panel shows the effect of excluding the permanent tax rate, but including the
current and lagged tax rates, as in Auten et aI. (1989). The current tax rate coefficients and
implied transitory elasticity decrease slightly, and the lagged tax rate coefficients increase and
become highly significant. This result makes sense because the average of tax rates over two
years should be positively correlated with the omitted permanent tax rate. The omission would
thus positively bias the current and lagged tax rate coefficient estimates. This result suggests that
the lagged tax rate partially proxies for the omitted permanent tax rate.
2JDerivation is available from the authors on request. Permanent and transitory elasticities were computed for 1983
means of the permanent tax rate and A, which were 18.0 and 2.52, respectively.
24We refer to long-term changes because variation in the permanent tax rate instrument represents essentially cross'
section variation in state marginal tax rates. While the combined state and federal marginal tax rates changed over time
during our sample period, much of the possible influence of this source of variation was removed by including time
dummy variables in our model.
:'See, e.g., Slemrod and Shobe (1991), Auten et aI. (1989), and Gillingham et aI. (1989) for recent estimates.
14
The fourth panel shows the effect of omitting both the lagged and permanent tax rates as
in Gillingham et al. (19.89). The tr~sit~ry elasticity estima~e becomes smaller, probably bec~use
the first~dollar tax rate Instrum~~t IS ~sI~vely corre!ated WIth ~.e pern:tanent tax rate. A positive
correlatIOp wou~d cause a po~Itlve bIas. In the transItory el~stlcIty eS~I?ate, which may explain
why prevIous mICro data studIes have YIelded smaller transItory elastIcIty estimates. This result
is consistent with Slemrod and Shobe's (1990) finding that elasticity estimates were biased toward
zero by failure to control for unmeasured fixed effects, such as the permanent tax rate.
The effects of other variables are summarized in Table 3, which reports estimated
coefficients for the level equation, the criterion function, and the combined effects of implied
changes in the values of both functions on the expected value of capital gains realizations. 26 For
continuous variables, the estimates in Table 3 are reported as elasticities. For dummy variables,
i.e., those followed by (D) in the table, the effects are reported as percentage changes in
expected capital gains realizations implied by changing each dummy variable from zero to one.
The results seem generally consistent with life-cycle motives for saving and consumption,
modified somewhat by the incentive to hold assets with gains until death. Capital gains
realizations are significantly positively related to permanent income, but negatively related to
transitory income, suggesting a consumption motive for realizations. Wealthier people are much
more likely to realize capital gains, and realize larger gains than average. The composition of
wealth also matters. A larger share of stocks in the portfolio--as measured by the stock/wealth
variable--makes people significantly more likely to realize gains, but the average size of a gain
is smaller, ceteris paribus. This result may be a consequence of the lower transaction costs for
stocks than for other kinds of assets, such as real estate. The positive and significant relationship
between gains and lagged business losses reflects the well-known relationship between tax
shelters and capital gains, although rental losses (a subset of business losses) do not seem to have
a very large independent effect on realizations.
Holding wealth and other variables constant, the pattern of realizations follows the expected
life-cycle profile except for the oldest cohort. The level of realizations declines steadily through
the peak earning years of 50-59, and then increases. The likelihood of realizing gains steadily
increases, perhaps reflecting the fact that older people are more likely to own assets that yield
capital gains. The percentage change in realizations is also U-shaped through age 69. However,
the oldest taxpayers realize less capital gains than the 60-69 cohort, and are slightly less likely
to realize. Although this difference is statistically insignificant, it is consistent with older
taxpayers avoiding realizations to take advantage of the step-up in basis at death.
The Mills ratio coefficient equals the product of the standard error of the error term in the
level equation, (3), and the correlation between the error terms in equations (2) and (3). The fact
that the coefficient is nonzero implies that ignoring sample selectivity would lead to bias~ and
inconsistent parameter estimates. The negative sign i~plies th,at the ~rror terms are negatlv~ly
correlated. Thus, the tobit model used in some preVIOUS studIes, whIch assumes a correlatIOn
of one, would be inappropriate.
2~ecall from Section II that these coefficients may not be estimated consistently.
15
TABLE 3-ESTIMATED COEFFICIENTS OF NON-TAX VARIABLES INCLUDED IN MODEL
Right-Hand Variablea
Intercept
Coefficients
Level
Criterion
Eguation
Function
3.78
-9.70
(1.25)
(0.30)
Elasticity
or
Percentage
Chan e ti
Ri ht-Hand Variablea
Age 60-69 (D)
Coefficients
Criterion
Level
Function
Equation
0.49
-0.81
(0.04)
(0.16)
Elasticity
or
Percentage
Cha~~
41.0%
Age 70 or Older (D)
-0.85
(0.17)
0.48
(0.05)
31.4%
Southern Region (D)
0.23
(0.05)
0.009
(0.02)
29.1%
2.10
Western Region (D)
0.17
(0.06)
-0.019
(0.02)
12.4%
0.07
(0.008)
0.10
Northeast Region (D)
0.35
(0.06)
-0.13
(0.02)
1.6%
0.03
(0.009)
0.05
(0.003)
0.16
Year 1981 (D)
0.17
(0.14)
0.15
(0.04)
72.3%
-0.002
(0.005)
0.006
(0.002)
0.01
Year 1982 (D)
-0.51
(0.11)
0.13
(0.04)
-17.3%
Family Size
0.009
(0.02)
-0.012
(0.006)
-0.06
Year 1983 (D)
-0.36
(0.08)
0.17
(0.03)
6.4%
Married (D)
0.19
(0.07)
0.03
(0.02)
30.9%
Inverse Mills Ratio
-2.68
(0.18)
Age 30-39 (D)
-0.03
(0.15)
0.20
(0.04)
62.2%
Standard error (Sigma 1)
Age 40-49 (D)
-0.61
(0.15)
0.41
(0.04)
44.9%
Age 50-59 (D)
-0.87
0.47
28.7%
Permanent Income (L)
0.17
(0.06)
0.15
(0.02)
0.55
Transitory Income (L)
-0.12
(0.02)
-0.10
(0.006)
-0.37
Wealth (L)
0.56
(0.08)
0.61
(0.02)
Slocks/Wealth (L)
-0.09
(0.03)
Business Losses Lagged (L)
Rent Losses Lagged (L)
Observa lions
3.43
22,635
Notes: Standard errors are in parentheses.
a Logarithmic variables are indicated by (L). Dummy variables are indicated by (D).
b Numbers represent elasticities for continuous variables and percentage changes in expected long-term gains for dummy
variables. All elasticities and percentage changes are evaluated at unweighted sample means of right-hand variables.
16
42,406
Sensitivity tests for alternative sJ>e<:ificati<,>ns and segments of the data set are reported in
Table 4. !he result~ ~l confirm our baSIC findmg that permanent elasticities are much smaller
than tran.sItor¥ elaSticIties. The permanent elasticity is not significantly different from zero in
any specIfication.
. ~e log-log m~el tests an approximately constant elasticity specification, which we view
as mfe~lOr to the semI-log form .. The results are similar to those under the semi-log form, but
have hIgher standard errors. WeIghted estimates are also consistent with our basic results. This
resul.t ~ugge~ts that Joseph J. Minarik's (1981) finding that weighting could substantially alter
elaStICIty est~mat~s was a consequence of other estimation problems rather than endogenous
sample stratIficatIOn. We excluded taxpayers from high- and low-tax states to test for the
possibility of en~og~neity bias in our state tax rate instrument. This experiment raises the
standard errors sIgmficantly because much of the variation in the instrument is sacrificed, but
does not alter the key conclusions. Results are similar when the sample is restricted to 1982 and
1983 (after enactment of ERTA). Even when truncation is ignored and the model is estimated
by two-stage least squares, the elasticity estimates do not change much. Estimating the model
by two-stage least squares based on a sample of realizers only, the transitory elasticity changed
significantly, but the effect on the permanent elasticity estimate is small and insignificant.
V. Conclusion
It has long been suspected that differences between transitory and permanent responses to
capital gains tax changes were at the heart of the conflicting empirical evidence from crosssection and time-series data. Using state tax rates to distinguish transitory from permanent tax
effects, and correcting other econometric problems with previous studies, we find that the
difference is large and statistically significant. The difference in estimated response is even
larger than the differences between past empirical results from careful micro-data studies, which
measured a combination of permanent and transitory effects, and time-series studies, which are
likely to have measured primarily permanent effects of changes in tax rates.
Our analysis has some limitations. First, the capital gains realizations elasticity is only one
of many factors that affect the proper taxation of capital gains. For example, our analysis
ignores the effects of capital gains taxes on the cost of capital and the allocation of capital among
kinds of investments, and it says nothing about arguments for taxing capital gains on equity
grounds. Second, this paper has followed all previous empirical research in estimating a reduced
form model. Although this was necessitated by data limitations, it was also important to show
that permanent and transitory tax effects could be estimated separately using a model otherwise
similar to previous research. Any explicit structural model would require assumptions about the
nature of preferences and individuals' optimization problems and the estimation method itself
would be a radical departure from all prior research. That might lay open such an analysis to
the criticism that the structure of the model was generating the results. The drawback of
estimating a reduced form, however, is that the estimated parameters are functions of the tax law
and macroeconomic environment and may thus change over time.
The distinction between transitory and permanent tax effects may explain some other
empirical anomalies. For example, the empirical evidence on the tax-sensitivity of charitable
contributions seems to exhibit a similar divergence between time series and micro data estimates.
The methodology developed here may help to resolve such disparities.
17
TABLE 4-SENSITIVITY ANALYSIS
Permanent Elasticity
Transitory Elasticity
Estimate
-0.17
Std. Error
0.39
Estimate
-3.32
Std. Error
0.14
-0.06
N/A
-5.63
N/A
42,070
Exclude high and low-tax states
0.33
1.46
-5.34
0.34
24,188
Post-ERTA (1982 and 1983)
0.73
0.63
-9.28
0.37
21,062
0.11
0.74
-6.91
0.36
42,406
-0.27
0.49
-4.63
0.32
22,635
Sensitivit Test
Log-log model
Weighted estimates
Sample Size
42,406
Ignore truncation (2SLS)
A II observations
ReaJizers only
Notes: Unless specified, aU estimates are for the semi-log model.
• Standard errors are unknown. Excludes returns without valid weights.
18
REFERENCES
Auerbach, Alan J., "Capital Gains Taxation i~ the l!~ited States: Realizations, Revenue and
Rhetoric," Brookings Papers on EconomiC Actlvlty, 1988, (2), 595-631.
_ , "Capital Gains Taxation and Tax Reform," National Tax Journal, September 1989, 42,
391-401.
Auten, Gerald E., Burman, Leonard E. and Randolph, William C., "Estimation and
Interpretation of Capital Gains Realization Behavior: Evidence From Panel Data,"
National Tax Journal, September 1989, 42, 353-374.
_
and Clotfelter, Charles T., "Permanent Versus Transitory Effects and the Realization of
Capital Gains," Quanerly Journal of Economics, November 1982, 97, 613-632.
Balcer, Yves and Judd, Kenneth L., "Effects of Capital Gains Taxation on Life-Cycle Investment
and Portfolio Management," The Journal of Finance, July 1987, 42, 743-758.
Bogart, William T. and Gentry, William M., "Capital Gains Taxes and Realizations: Evidence
from Interstate Comparisons," National Bureau of Economic Research (Cambridge, MA)
Working Paper 4254, January 1993.
Bolster, Paul J., Lindsey, Lawrence B. and Mitrusi, Andrew, "Tax-Induced Trading: The
Effect of the 1986 Tax Reform Act on Stock Market Activity," The Journal of Finance,
June 1989, 44, 327-344.
Burman, Leonard E. and Randolph, William C., "Theoretical Determinants of Aggregate Capital
Gains Realizations," mimeo, Congressional Budget Office and U.S. Treasury, September
1992.
_ , Clausing, Kimberly and O'Hare, John, "Tax Reform and Realizations of Capital Gains in
1986," mimeo, Congressional Budget Office, Harvard University, and Joint Committee on
Taxation, March 1993.
Cilke, James M. and Wyscarver, Roy A., "The Individual Income Tax Simulation Model," in
Compendium of Tax Research 1987, Washington, DC: Government Printing Office, 1987.
Constantinides, George M., "Optimal Stock Trading With Personal Taxes," Journal ofFinancial
Economics, March 1984, 13, 65-89.
Feenberg, Daniel, "Are Tax Price Models Really Identified? The Case of Charitable Giving,"
National Tax Journal, December 1987, 60, 629-633.
Feldstein, Martin, Slemrod, Joel and Yitzhaki, Shlomo, "The Effects of Taxation on the Selling
of Corporate Stock and the Realization of Capital Gains," Quanerly Journal ofEconomics ,
June 1980, 95, 777-791.
Gillingh~m, Robert and Greenlees, John S., "The Effect of Capital Gains Tax Rates on Capital
Gatns Tax Revenues: Another Look at the Evidence," National Tax Journal June 1992
45, 167-178.
'
,
19
_ , __ and Zieschang, Kim D., "New Estimates of Capital Gains R~ization Behavior:
Evidence from Pooled Cross-Section Data," Office of Tax AnalysIs Paper 66, U.S.
Department of the Treasury, May 1989.
Gravelle, Jane G., "A Proposal for Raising Revenue by Reducing Capital Gains Taxes,"
Congressional Research Service Report 87-562E, Library of Congress, June 30, 1987.
_ , "Limits to Capital Gains Feedback Effects," Congressional Research Service Report 91-250
RCO, Library of Congress, March 15, 1991.
Heckman, James J., "The Common Structure of Statistical Models of Truncation, Sample
Selection and Limited Dependent Variables and a Simple Estimator for Such Models,"
Annals oj Economic and Social Measurement, Fall 1976, 5, 475-492.
Hendershott, Patric H., Toder, Eric and Won, Yunhi, "Effects of Capital Gains on Revenue and
Economic Efficiency," National Tax Journal, March 1991, 44, 21-40.
Jones, Jonathan D., "An Analysis of Aggregate Time Series Capital Gains Equations," Office
of Tax Analysis Paper 65, U.S. Department of the Treasury, May 1989.
Kiefer, Donald W., "Lock-In Effect Within a Simple Model of Corporate Stock Trading,"
National Tax Journal, March 1990, 43, 75-95.
Lee, Lung-Fei, Maddala, G. S. and Trost, R. P., "Asymptotic Covariance Matrices of TwoStage Probit and Two-Stage Tobit Methods for Simultaneous Equations Models With
Selectivity," Econometrica, March 1980, 48, 491-503.
Minarik, Joseph J., "Capital Gains," in H.J. Aaron and J.H. Pechman, eds., How Taxes Affect
Economic Behavior, Washington, DC: The Brookings Institution, 1981, 241-277.
Neumark, David and Wascher, William, "Employment Effects of Minimum and Subminimum
Wages: Panel Data on State Minimum Wage Laws," Industrial and Labor Relations
Review, October 1992, 46, 55-81.
Seltzer, Lawrence H., The Nature and Tax Treatment oj Capital Gains and Losses, New York:
National Bureau of Economic Research, 1951.
Slemrod, Joel and Shobe, William, "The Tax Elasticity of Capital Gains Realizations: Evidence
from a Panel of Taxpayers," National Bureau of Economic Research (Cambridge, MA)
Working Paper 3237, January 1990.
Stiglitz, Joseph E., "Some Aspects of the Taxation of Capital Gains" Journal oj Public
Economics, June 1983, 21, 257-294.
'
U.S. Department of the Treasury, Internal Revenue Service, Statistics of Income Division
Special Panel of Tax Returns, 1979-1983.
'
U.S. Department of ~e Treasury, Repon to the Congress on the Capital Gains Tax Reductions
oj 1978, Washington, DC: U.S. Government Printing Office, September 1985.
20
APPENDICES
These appendices derive conditions for consistency of the IV estimator for permanent and transitory
tax effects discussed in Section II, derive a consistent estimator for the generalized tobit model with
an endogenous regressor in both the criterion and level equations, discussed in Section III, derive
elasticities for the simultaneous selection model, examine the simultaneous equations bias induced by
using actual tax rates or proxy variables as regressors to estimate tax effects, as has been done in several
influential earlier studies and examine the variation in tax rates in the panel.
Appendix A. Consistency or the IV Estimator
The linear capital gains model can be written as
g
= Hr
where H = [X:
tp :
(At)
+ E
~ J, r' = [y~ : YI : Y2]' ~ s t -tp' and it is assumed for simplicity that all variables are
expressed as deviations from means. Note that the model has been expressed for convenience in terms
of the permanent tax rate, t p' and the transitory component of the current marginal tax rate,
~.
It is
also assumed that there are n Li.d. observations. and that H is of full column rank, conformable with
r.1
The estimator,
r, can be written as
(A2)
where
H-[X:tp:~J, tp",WI(W;WlfIW;t. WI=[X:tJ, ~=t-tp' t=WiW~W2.rIW;t, and
W2=[WI: tol. Note that ~ is orthogonal to X and tp. from which it follows that Yo and YI are
instrumental variables estimates, where t p is the instrument for t p in equation (Al). As shown below.
consistency of Yo and
y1 depends on the covariance between X and t s with ~ and E. Consistency of Y2
depends on the covariance of to with tp and
E.
conditional on X and ts·
lit is also assumed that the variables have finite moments up to at least the third order. In this appendix, Ihe
matrix X is not necessarily defined in the same way as in the main body of the paper. In Ihe context of secondstage estimation of the generalized tobit model. for example. the estimated inverse Mill's ratio can be treated
as a column of X.
The Probability Limil of
A.
By using the fact that
partitioned inverse,
~
t
is orthogonal to X and tp. and applying well known rules for a
r can be rewritten as
'Yo
= (XIMf<)-lX'M~
(A3)
Y
=
(t /Jxt p) -I t /J~
(A4)
'Y2
=
(~'~rl~'g,
(AS)
1
where Mp =[1" -t/i:; tpr1i:;1 and Mx =11.. -X(X'X)-lX']. In the remainder of this appendix, equations
(A3), (A4), and (A5) are used to derive the probability limits of Yo' Y1 , and Y2 as n -aD. The
derivations that follow also use the fact that
and
~
tp
can be rewritten as
can be rewritten as
1.
The proba bility limiJ of Yo
By combining (AI) and (A..1).
Because
tp=t-~
Yo (the coefficient on X) can be written as
and Mpt =0, Yo can be rewritten as
(A6)
22
Under the assumptions that var(X) is nonsingular. var( t I X) > 0, and by repeated application uf
J
Khintchine's theorem to the terms in equation (A6). it can be shown that as
"-00.
= Yo +klvar(X)-I[(Y2 -YI)COV(X,~) +COV(X,E))
Plim(yo)
(:\7)
+k2var( ts I X)-·[cov( tJ,~1 X) +cov( t s,E IX)),
where k. and k2 are known (messy) nonzero functions of the second order moments. Furthermore,
using the expressions for k. and k2' it can be shown that if cov( t s' ~ IX) =cov( t I.e IX) =0. and
cov(X,e) =0, equation (A7) reduces to
(A8)
(We define the expression cov(x,y I z) to be the partial covariance between x andy givenz, i.e .. after the
linear influence of z is removed from x and y.)
Thus. if
t s
is uncorrelated with
~
and e . conditional on X. and X is uncorrelated with e . then
the probability limit of Yo differs from Yo by the product of the difference between the transitory and
permanent tax effects and a familiar term for omitted variable bias, where
2.
The probability limit of
By combining (AI) and (A4).
y.
~
is the omitted variable.
Y1
(the coefficient of
fp)
can be written as
Under the assumption that cov(t s' t IX) JtO, repeated application of Kintchine's theorem can be used
to show that
=
Yl
+
cov( t A~ IX)
Y
(Y2- l) cov(ts.t IX)
Thus , y. 1 is a consistent estimate for y • if
ts
+
cov( t s,E IX)
cov(ts,t IX)
is uncorrelated with '" and
(A9)
E
conditional on X.
Note that under the assumption. COV(ts.E IX) =0, (A9) can be rewritten as a weighted average
of Yl and Y2:
23
(AIO)
where
e =COV('t s .~IX)
1
CO\!( 't s' t
IX)
3.
•
The probability limit of
Y2
By similar reasoning, under the assumption that
cov( fo' f
Ix. t J ~ 0, it can be shown that the
probability limit of V2 (the coefficient of J.lJ is
(All)
Note that under the assumption, CO~('to,E IX, tJ =0, (A10) can be rewritten as a weighted
average of y 2 and YI:
(AI2)
24
Appendix B. Consistent Estimation of Generalized Tobit Model With Endogenous Regressors in
Both the Probit and Level Equations
The generalized tobit model in the paper is the following three equations
(A13)
if 1">0 }
otherwise '
(AI4)
and
tt ==
(AI5)
f(X, Y,g) .
To simplify exposition, we begin by treating
tp
as if it is known and exogenous, and focus on
the endogeneity of tr Assume that, for purposes of the first-stage probit estimates, the reduced form
for tr is approximately linear in X, t p ' tt_}' and to- 2 This constructed instrument, to> is a "first-dollar"
marginal tax rate, computed with the endogenous sources of income, g and Y, set equal to 0:
to
==
(AI6)
f(X, 0,0)
(recalling thatfis the tax function in equation (A15)).
Let Z be the matrix:
(AI?)
Then the linearized reduced form for
tl '"'
Zs
+
t
I
is
(A18)
u ,
where x is a parameter vector and u is an error term that is assumed to be uncorrelated with Z.
~e assumption of linearity is only for convenience. The IV procedure could produce consistent estimates
even if the tax rates were highly non·linear.
25
Substituting the reduced form for
in (At3) yields
t[
(A19)
Following Lee, et al (1980), the conditional expectation of capital gains is
(A20)
Using the standard formula for truncated means of normal random variates, the conditional
expectations may be written as:
~
(A21)
E(t,II">O) = Z1t + (0..1 + ~Oj',.)~ .
and
(A22)
where
~
and
~
are the standard normal density and distribution functions, respectively, evaluated at
X"o +Ilt tp +1I:!(Zlt)+~t'_I'
The difference from the model of Lee, et al (1980), appears in the a UI term that appears in the
conditional mean for
'tt'
This term is unambiguously positive, which implies that the conditional mean
for 'tt is almost surely different from the unconditional mean, even if the covariances between different
error terms are zero. This implies that correcting for selectivity is essential to finding consistent
parameter estimates even if the error terms in equations (AB) and (A14) are uncorrelated, i.e., even
if
0 12 =0.
A similar potential bias from ignoring selectivity would occur because
IV estimator described in section II replaces
tp
tp
is unobserved. The
with tp in both the probit and level equations. Thus.
the preceding analysis applies, using tp -t p -X(XIX)-IX/~ in place ofu and with cx l substituted for
cx:?' The potential selectivity bias discussed above is thus compounded. Fortunately, the solution is the
same in both cases.
26
Appendix C. Computing Permanent Elasticities in the Selection Model
Let gj be net long-term capital gains for individual i, and let E be the expectation operator
(conditional on r',p and X, and r
I
,= t 'r1 =t I,p ).
',I,'
Then the long-term elasticity of gains with respect to
permanent tax rates, e" is
ej
=
-
aEg,
t
a;-"oP
Eg
'oP
(A23)
.
'
For the semi-log model, it may be shown that the expression in (A23) is:
(A24)
where A(') is the reciprocal of the Mills-ratio function
(~/~).
h, is the systematic part of the criterion
function, equation (A 13), and a p is the covariance between the errors in the two equations. 3 The first
part of (A24) is the response of the level of capital gain conditional on realizing a capital gain. The
second part is the sum of the direct effect of tax rates on the probability of realizing and the indirect
effect through the covariance in errors between the criterion and level equations.
For the log-log model, the ~Iasticity is:·
(A25)
The elasticity of aggregate realizations with respect to the permanent tax rate is the weighted
s
sum of the individual elasticities, evaluated at the permanent tax rates. The correct weights are the
sample weights multiplied by the amount of capital gains. In practice, the results are virtually identical
3See
Appendix D for the proof.
'Recall that the tax terms have the form log( 1+ t ~p) and that t ~p is measured in percents.
sOne might be tempted to compute the individual elasticities at the actual tax rates rather than the expect,ed
permanent tax rates. This procedure would bias estimates because tax rates are endogenous and correlated WIth
the level of capital gains. There is also a selectivity bias.
27
if (A24) and (A25) are evaluated at the gains-weighted means of permanent tax rates and
,-.6
B~cauSI!
the first part of each expression is conditional on realizing a capital gain. the appropriate average
td..X
rale is the average estimated permanent lax rale for realizers. which is 19 percent in 1983. For the
second part. we use the unconditional average permanent tax rate. which is 18 percent. The weighted
average values of A. which depend on estimated parameters. are 3.1 for the semi-log model and 2.9 for
the log-log model.
Appendix D. Derivation of Elasticity Formula
The formula for elasticity is complicated somewhat because the dependent variable in the
selection model is in logarithms. This appendix derives the general formula for the log-selection model,
which was applied in Appendix C.
A.
Etpectanon in a Generalized Tobit Model with Log Dependent Variable
The model may be written in general form as:
In Y, = f(XJ +
if h (XJ +
othtrwist
VII
=0
~,
;t
0
I
for i= 1, ... ,N. Assume that, conditional on Xi' both VIi and U2; are independent, identically distributed
random variables such that v,; - N(O.a~). u2i
vli and Ua is p
= 0l'i OI'
standard normal,
Uli'
as
-
N(O,l),andE(v l ,u 2i )
.. 0
12
,
The correlation between
We can rewrite the nonstandard normal random variable, Vli' in terms of the
V11
~
01"1/'
. 6Computi~g. the elasticities Cor the main specifications using micro-simulation changed only the third
slgmficant dlglt oC the estlmates. We report elasticities at the mean because they are easier to reproduce,
requiring only a calculator and the parameter values reponed below.
28
The expectation of Y, conditional on X , is:
(A26)
(treating the value of EY; as 0 if h (x) +U 2i <0).
The complication in equation (A26) is the conditional expectation. The following lemma
derives its value.
Lemma:
(A27)
Proof:
Let u t and u 2 be jointly standard normal with correlation p. Their joint density is:
(A28)
The conditional mean ofe
ou
,
given u2 ~
C
is
-(A29)
E
(eaa11~~c)
• ...::..c_--=-_ _ _ _ _ __
1 - ~ (c)
where ~ is the univariate normal distribution function.
29
Finding the solution to (A29) involves integrating out u 1 and then recognizing that the
remaining terms in u 2 are proportional to a normal density. The numerator of (A29) may rcwfIltcn as:
N =
1
..
ffe
Q
21t J1-P2
(·l'''2>
dU 1
d~t
c -.
where
Rearrange q so that it is in the form
where ~ does not depend on u 1 and r(~ depends only on
:a
-
u; - 2 [P"2
+
a(1-p2)]~
+
[P"2
+
U-z-
Then
o(1-p2)r-[p~
+
o(1-p~r ..
u:
2 (1 - p~
• -
1
2(1 - p~
[u 1
-
P"2 -0(1 - p2)f -
30
1
2(1-p2)
(U: - (p~ + o(1_p~)2].
Substitute into (A30) and rearrange:
• exp [ -
N
=
f
1
2(1 - p~
(u: - (p",
+
.(1 -
p')flI
x
..j21C
c
• exp [ -
J
(
--
1
(., -
p", - •(1 - p')f] 1
2 (1 - e~
J21C(1 - p~
du1 ~.
The integrand inside the parentheses is (by design) the normal density for mean
variance 1 - p2. Thus, the integral is 1.
N, therefore, simplifies to:
_exp[ - 1 [r4 -(p~
N =J
2(1 - p~
r:
+
0(1-P~)2]]
~.
.j2i
Complete the square on the bracketed expression:
Substituting this for the numerator of (A29) completes the proof.
31
[PU2
+ 0(1 -
p~ ] and
Substituting (A27) into (A26). the unconditional expectation of Y may be rewritten as:
B.
Elasticity
The elasticity is defined as
aEYt
XI
ax/
EYI
(A32)
Ej = - - ' - ,
The partial derivative, from (A31), is:
Substituting into (A32) yields
where A.i is the inverse Mills ratio:
32
Appendix E. Identification and Bias in a Simplified Model or Endogenous Taxable Income
While virtually all past studies of capital gains have recognized the endogeneity of tax rates. the
corrections for endogeneity have not followed standard econometric procedure. This appendix shows
how these unconventional approaches are likely to bias estimates of capital gains responses.
A.
7
Identification
A simple model of capital gains realizations is used to illustrate problems with previous
solutions to the endogeneity problem.
The model ignores sample selection and the excluded
permanent tax rate, which are discussed in the paper. Suppose that the marginal tax rate on capital
gains is a non-linear function of the exogenous variables, X, but that it is approximately linear in capital
gains, g, and other endogenous income, which is grouped together in one variable, Y. The system of
equations may be written as
(A33)
(A34)
where Zj~t, X;),
t, =[(X,Y.g)
for i=1.2, and
1::1
to(X)
+
6' (g
+
(A35)
Y).
Suppose thatg and Yare always observable, and that permanent tax rates are observed and are
part of the vectors Xl and Xz, which are subsets of X. The variables in (A33)-(A35) are conformable
data matrices with N observations, so g, Y. t (' TJ I' TJ 2> and to are N xl. Xl is Nxkl' X z is N >de,,!:, and X is
Nxk,
where
k~max(kl,k2)'
The
error
terms
have
asymptotic
covariance
7Technically, we are not examining bias but the difference between the probability limit of alternative
estimators and the actual parameter values: the magnitude of the inconsisten<.)'. We use the terms "bias· or
"asymptotic bias- as convenient shorthand.
33
a,} = E(T).fJ), for i=1,2, and j=1,2, and are uncorrelated with X.
The parameter vectors have
conforming dimensions. In addition. define a matrix, Zo as
(A16)
where to is the first-dollar marginal tax ratc.
Suppose also that the moments of the Z matrices converge to positive definite matrices, i.e.,
ZlZ.
plim - '-'
N-
N
= Q;,
(A37)
for i = 0,1,2 .
Under these conditions, consistent estimation is straightforward. Because to(X) is a known
non-linear function and is correlated with
't I'
but not with 11\ or 11z, to is a good instrument for tr All
of the model's parameters are identifiable for two reasons. First, non-linearity of to would be sufficient
by itself. Second, many of the elements of X that enter the tax calculation (i.e., exogenous factors that
determine transitory tax rates) do not enter equations (A33) and (A34), so the parameters of the model
could be identified even if tax rates were linear.
The key coefficients,
instrument for
tl"
~I
and
~:!'
can be estimated by two-stage least squares using to as an
This estimator is analogous in this simple model to the estimator described in the
paper.
B.
Pr~ious
Studies
Instead of two-stage least squares, many past studies have used a proxy variable in place of tr
The proxy tax rate was either a "first-dollar" tax rate, which is a marginal tax rate computed by setting
realized capital gains, but not other income, equal to zero, or a marginal tax rate computed by setting
capital gains equal to an estimated value, conditional on exogenous taxpayer characteristics.
The class of proxy variables used in previous studies may be written as
i, :: f(X,YJr(X)) .
(A18)
When heX) equals 0, t r is the first-dollar tax rate used in previous studies. When heX)
IS
a function
whose expected value equals actual capital gains, g. if is a "fitted last-dollar tax rate," Because parts
34
of other income. Y, are endogenous, if is correlated with the error term, '11' in equation (AJ3 l, it
follows that such proxies will produce inconsistent estimates regardless of the choice of h(X).8
1.
Least squares bias
The problems in using the proxy variables can be illustrated by examining the naive least
squares estimator of the tax rate coefficient in the capital gains equation.
Pl'
The asymptotic bias in
this estimator, ~I' is
(A39)
where ql is the top left element of
The reduced form for
't,
QI-I
This scalar is positive because 0, is positive definite.
is, from equations (A33)-(A35),
(A40)
The constant factor, k, is positive because 0 is non-negative (marginal tax rates are assumed to be a
non.(jecreasing function of income) and PI and YI are negative (endogenous income falls with tax
rates). Substituting this reduced form into (A39) yields the asymptotic covariance between
'tt
and 1"Jl:
s,nere are other problems with such proxies. First, the use of a proxy variable in place of actual tax rates
causes coefficient estimates to be biased toward zero. Second, the use of first-dollar tax rates in place of aClual
tax rates would cause coefficient estimates 10 be biased away from zero. However, if estimation were otherwise
appropriate (i.e., the first-dollar rate were really exogenous. selectivity were properly accounted for. and the
model were properly specified), then el~tklly estimates based on first-dollar tax rates would be consistem
(except for the proxy-variable bias just noted).
35
,
t, I'll
P1I· m
N-
N
=
k( 011
\
(A41)
+ 0IV .
The bias is non-zero almost surely. If the absolute value of the variance of 1'1 I exceeds the
covariance between the two equations' errors (which seems likely), the bias will be positive (i.e ..
towards zero).
Figure 1 illustrates this bias for the case of
0 12 =0
(or capital gains is the only endogenous
source of income). Suppose that two taxpayers were identical, except that they had different
unobserved '11 values. On the figure, the taxpayer with the lower '11 corresponds to gain function, 00,
and taxable income function II. The taxpayer with the high '11 has higher gains at every marginal tax
rate, represented by the shift from GG to G'G'; taxable income is correspondingly higher represented
by IT. Because the tax schedule is progressive (marginal tax rates are upward sloping with respect
to income), the equilibrium tax rate is higher for the taxpayer witb higher '11 than for the otber. In this
example, equilibrium gains actually increase from G to G' as equilibrium tax rates increase from
-r to -r'. A regression line drawn through the two points would slope upward. It is clear that this
positive correlation has nothing to do with the behavioral response of taxpayers to capital gains tax
changes. In fact. gains are negatively related. Thus, the least squares bias reverses the sign of the
relationship in this example.
2.
Estimates based on proxy tax rate
Most studies of capital gains realization behavior have used a proxy tax rate, such as it defined
in (A38). From (A35), the proxy tax rate is
J(X,Y,h(X)) • to(X) + 6 . (h(X) + Y) .
Substituting in the reduced form for Y. t, may be written as
36
(A42)
(AU)
The asymptotic bias of an estimator based on proxies from its "true,,9 value is proportionallo
(A44)
If 0 12 is zero (or negative, but small), the asymptotic bias will be negative because y 1 is assumed to be
negative. Thus, using the first-dollar tax rate is likely to bias realization elasticity estimates away from
zero causing estimated elasticities
3.
to
be too large in absolute value.
Average tax rale as measure of permanent tax rate
As a proxy for the permanent marginal tax rate, Auten and Clotfelter used a 3-year moving
average of actual capital gains tax rates. including the actual current year tax: rate. This procedure
results in biased and inconsistent estimates of permanent tax: effects for the same reason that nnaive"
least squares, discussed above, results in inconsistent estimates of the transitol)' tax: effect. Assuming,
as above, that the other regressors are not correlated with the disturbance terms. the Auten-Clotfelter
procedure is roughly equivalent to using
'CP,
"1 .•
/3, and
t
l
./3 as regressors.
Because the lagged tax:
rates are assumed to be predetermined, they would be part of Xl' and the analysis of bias simply
proceeds substituting
t/3 for
"I in Equations (A33)-(A35).
It can be shown that the resulting bias
would be proportional to k( all + od!3. Thus. the bias would have the same sign as the "naive" least
squares bias tbat results from ignoring endogeneity. Under plausible assumptions, the magnitude of
the bias would be about a third of the bias in the naive model. Because the least squares bias can be
severe, reducing the bias by two-thirds could still result in seriously flawed estimates, even if estimation
were otherwise appropriate.
In a long enough panel, if tax law remained constant, the endogeneity bias could be limited or
avoided--for example by excluding the current year from tax rate averages. However, with currently
9The -(rue· parameter is not ~I from Equalion (1) if a first-dollar tax rate is used (h(X)=O). In that case, the
parameter would refl~( the relationship between capilal gains and the first dollar rate. However. this, by itself,
does not bias elasticity estimates. (See footnote 8.)
37
available data sets, using average tax rates to proxy for permanent effects would result in potentially
serious biases because of the endogeneity of current lax rates just discussed and because avcragcs of
a few years' tax rates are insufficient to identify the separate effect of permanent from transitory lax
changes.
38
Appendix F. Variation in Tax Rates in the Panel
The central identification problemA-estimation of the permanent effect--would disappear if
there were no transitory variation in capital gains tax rates. In this case, all differences in tax rates
would represent permanent tax effects and econometric evidence from micro data would only reflect
the effects of permanent tax changes. The effect of transitory tax changes could not be identified, but
it would be irrelevant.
The data, however, show that there is considerable transitory variation. Tax rates for individual
taxpayers traced over five years (1979 to 1983) vary substantially, and the variance increases over time.
even after controlling for the effect of the major tax legislation in 1981, as illustrated in Figure 2.
To create Figure 2, taxpayers were divided into ten groups that correspond to deciles of the
unconditional sample distribution of first-dollar capital gains tax rates in 1979. 10 Each decile group was
then followed through 1983 to examine how closely the group's conditional distribution in following
years corresponded to the unconditional distribution of first-dollar capital gains tax rates for each year.
In the figure, the distribution of each group is represented by its quartiles. A tendency for the
conditional quartiles to approach the unconditional quartiles quickly would indicate a high degree of
intertemporal variation in first-dollar tax rates for each taxpayer. However, if the conditional
distributions remained relatively fIXed, this would suggest that most variation in tax rates represents
permanent differences among taxpayers.
For eacn of the ten decile groups, the figure displays three lines that show how the fIrst. second
(median), and third quartiles of their conditional distributions are related to the percentiles of the
unconditional distribution in each of the five years from 1979 through 1983. For example, consider
taxpayers in the first decile of the unconditional distribution in 1979, represented by the left-most panel
o[ Figure 2. By construction, the median for the first decile in 1979 corresponds to percentile 5 of the
unconditional distribution; the first and third quartHes of the conditional distribution correspond to
percentiles 2 and 7 of the unconditional distribution. However, after five years, the first, second. and
third quartiles of the conditional distribution for the first group equaled percentiles 5, 13, and 28 of the
unconditional distnbutioD. Similarly, the figure shows that the three conditional quartiles for taxpayers
l~e sample used to construct Figure 2 only includes taxpayers who realized net positive long-term capital
gains at least once between 1979 and 1983. The first-dollar tax rate is the marginaltu rate on the first dollar
of long-term capital gains. i.e., computed with capital gains set to zero.
39
who were in the 5tb decile in 1979 equaled percentiles 42.45, and 47 of the unconditional distribution.
but changed to equal percentiles 30. 50, and 63 of the unconditional distribution by 1983. 11
The graph shows that there was substantial intertemporal variation in first-dollar capital gains
tax rates between 1979 and 1983. In all ten decile groups, the conditional distributions noticeably
increased in dispersion over the five year period. Further, the tendency of conditional medians to drift
toward the unconditional medians shows that taxpayers with low tax rates in 1979 were likely to have
had tax rates below their permanent levels; taxpayers with high rates in 1979 were likely to have been
experiencing unusually high rates in that year.
While providing strong evidence of transitory volatility in tax rates, Figure 2 also illustrates that
there are systematic differences in the permanent tax rates of different taxpayers. The distribution of
the bottom five deciles remains below the population distribution for all fives years, and the top five
deciles remain above the population distribution. Were tax rates purely random (transitory), the
conditional distributions would have equalled the population distribution in 1980 through 1983.
11 By comparing quartiles of conditional distributions
to percentiles of the unconditional distributions, we have
deliberately abstracted from intenemporal variations tbat would have resulted from general shifts in Ihe
marginal tax·rate schedule clue, for example, to statutory changes in marginal tax rates in 1981 and 1982. As a
result, Figure 2 provides a better picture oC the degree to which dispersion of marginal tax rates in a cross
section sample results from intertemporal variation because general shifts that are not represented by the figure
would not result in cross-section variation in tax rates.
40
Figure 1
Least Squares Endogeneity Bias
Capital Gainsrraxable Income
/'
I'
Tax
Schedule~
G'
G···············
Regression
/'
Line -----.... ,/'/'"
o
10
20
,,"'1
30r
T
I
40
Marginal Tax Rate on Ordinary Income (percent)
50
Figure 2. Intertemporal Variation of First-Dollar Marginal Tax Rates on Gains
Quartiles in 1979 to 1983 Conditional on Decile in 1979
df!cile 10
in 1979
decile 9
100
in 1979
c:
o
'+='
.c
...
';;::
1ec.ile 7
(t)
o
...
a:
::
I-
CD
ta
1i
c:
'6»
In
80
decile 6
Third
Quartile
in 1979
decile 4
a;
c:
o
'+='
c:
o
u
=a
60
....
decile 2
in 1979
Median
decile 1
in 1979
v---......-.
40
c
:;,
o
CD
/
~
in 1979
decile 3
in 1979
First
Quartile
79
81
83
IT
II I / '
Third
Quartile
~
years
....
years
79
81
81
83
79
81
83
years
83
First
Quartile
years
years
20
79
81
83
years
'+='
C
CD
U
CD
...
Lines Represent Quartiles of Conditional
Distribution for a Given Decile in 1979
/
years
4.
79
o
Median
years
I I I I
79
1979
rll·~··~···
In 1979
decile 5
...
ta
~
~
decile 8
in 1979
::l
81
83
years
79
81
83
years
The graph is based on a weighted sample of taxpayers who realized gains in at least one year between 1979
and 1983. Taxpayers ware sorted according to their first-dollar marginal tax rate on capital gains in 1979.
The lines show how the distribution of marginal tax rates changed over the five years of tha panel.
~'e
Quartik{~
i~~"1;9 ~
first quam Ie
I
79
I
I
81
years
I
I
83
OTA Papers
DYNAMIC INCOME, PROGRESSIVE TAXES, AND
THE TIMING OF CHARITABLE CONTRIBUTIONS·
by
William C. Randolph
Congressional Budget Office
U.S. Congress
OTA Paper 69
August 1994
DYNAMIC INCOME, PROGRESSIVE TAXES, AND
THE TIMING OF CHARITABLE CONTRlBUTlONS·
by
William C. Randolph
Congressional Budget Office
U.S. Congress
OTA Paper 69
August 1994
OTA Papers and Briefs are circulated so that the preliminary fmdings of tax research conducted
by staff members and others associated with the Office of Tax Analysis may reach a wider
audience. The views expressed are those of the authors, and do not reflect Treasury policy.
Comments are invited, but OTA Papers and Briefs should not be quoted without permission from
the authors. Additional copies of this publication may be purchased from the National Technical
Information Service, 5285 Port Royal Road, Springfield, VA 22161
Office of Tax Analysis
U.S. Treasury Department, Room 1064
Washington, DC 20220
• Thanks to Gerald Auten, Leonard Burman, Eric Engen, William Gale, David Harris,
David Johnson, James Nuons, Mark Wilhelm, and many other colleagues and seminar
participants for comments and suggestions. Most research for this paper was conducted
While the author worked for the Office of Tax Analysis, U.S. Treasury. All views are the
author's, and do not represent official views or positions of the Congressional Budget Office
or the U.S. Treasury. Address: Congressional Budget Office, 2nd and D Streets, S. W.,
Washington, DC, 20515; Tel: (202) 226-2859; INET: BILLR.TAD@CBO.GOV
Abstract
The permanent income hypothesis suggests that empirical studies have underestimated how much
permanent income affects charitable giving if people smooth their giving when transitory income
changes. But the studies may have also overestimated the effect of permanent changes in tax prices.
This is because changes in transitory income also change the relative tax prices of current and future
giving when marginal tax rates increase with income, which may cause people to substitute between
current and future giving. I first examine these issues using a simple demand model. I then study
the issues empirically using a ten-year panel of tax-return data (1979-1988) that spans two major taxlaw changes. The data allow me to separately estimate the effects of permanent income, transitory
income, current tax prices, expected future tax prices, and other variables. Compared to price
elasticities from previous studies, I find that giving is much less elastic with respect to permanent
changes in tax prices, but more elastic with respect to transitory price changes. I also find that giving
is much more elastic with respect to permanent income, but less elastic with respect to transitory
income changes. The results imply that people smooth their giving when transitory income changes,
but time their giving to exploit transitory price changes.
- 1-
1. Introduction
Governments have historically supported philanthropic causes through a variety of direct
spending and transfer programs, and by providing incentives designed to encourage private
philanthropy through matching grants and special provisions of the tax system. Since its beginning,
the U.S. income tax has provided incentives for private philanthropy by allowing people to deduct
charitable gifts from taxable income. This deduction is widely thought to encourage giving because
it decreases the amount of other consumption people must forgo at the margin, the "tax price," for
each additional dollar they give to charity.
To measure the incentive effects, empirical studies have modelled giving by individuals as
a commodity. The key results are summarized in terms of elasticities of demand for giving with
respect to changes in after-tax income and tax prices. Clotfelter (1985) surveyed more than a dozen
empirical studies of individual giving. The studies typically found that giving is income inelastic,
but highly price elastic. Steinberg (1990) surveyed at least twenty more recent studies, and found
that the results were not very robust to changes in data and model design. In a recent study, Auten,
Cilke, and Randolph (1992) compared the predictions of a standard model of charitable giving to
observed changes in giving by people in different income groups following two major tax changes
in the 1980's. They found that the predictions were very different from the actual changes. For
many income groups, predicted changes actually had the wrong sign.
In this paper, I present evidence that the price and income elasticity estimates from previous
studies were biased because they did not distinguish fully between direct and indirect effects of
permanent and transitory income. Differences between the direct effects are implied by Friedman's
(1957) permanent income model. If people smooth their consumption, giving would be less
-2-
sensitive to transitory than permanent income. Some studies, including Schwartz (1970), Feldstein
and Clotfelter (1976), Reece (1979), and Clotfelter (1980), have tried to separately measure the
direct effects of permanent and transitory income, but the results have been weak. Previous studies
have not, however, accounted for differences between the indirect price effects of permanent and
transitory income. The effects are likely to differ because permanent and transitory income have
different effects on the current and expected future tax prices of giving. Marginal tax rates increase
with income, so a person with relatively high permanent income will tend to face a relatively low
tax price both in current and future years. However, a person with a relatively high transitory
income will tend to face a tax price that is currently low relative to future years, when transitory
income is expected to be lower.
Casual observation and some econometric evidence suggests that people are willing to
substitute giving between current and future years to take advantage of changes in relative current
and future tax prices. For example, in studies of the 1980's changes in tax laws, Clotfelter (1990)
and Auten, Cilke, and Randolph (1992) observed one-time increases in charitable giving during 1981
and 1986. During those years, people appeared to accelerate future giving to avoid the pending
statutory increases in tax prices. Broman's (1989) econometric analysis of behavior surrounding the
tax reductions passed in 1981 also suggests that people anticipated the changes by substituting
current for future giving. As another example of substitution, charitable giving is sometimes used
for end-of-year tax planning. In December, when people know whether taxable income for the past
year is higher or lower than usual, they can either accelerate future giving to take advantage of a
temporarily low tax price or defer giving to avoid paying a temporarily high tax price.
-3As I show in the first part of this paper, if part of the tax-price variation in data used for past
studies resulted from transitory income variation, and if people smooth their consumption, but are
willing to substitute between current and future giving in response to changes in relative tax prices,
the existing elasticity estimates will tend to understate the effects of changes in permanent income
and overstate the effects of permanent price changes. Likewise, the elasticity estimates will tend to
overstate the effects of changes in transitory income and understate the effects of transitory price
changes.
I first use a simple demand model to examine the basic empirical identification problem.
I then estimate an empirical model of charitable giving based on a ten-year panel (1979-1988) of tax
return data. The data allow me to separately estimate the direct income effects and indirect price
effects of penn anent and transitory income. I take advantage of the longitudinal aspect of the data
and changes in the degree of marginal tax rate progressivity that followed the tax-law changes in
1981 and 1986. In contrast to previous studies, rather than depending on cross-sectional variation
of income along a given nonlinear tax-price schedule, the parameters are identified by statutory
changes in the tax schedule. I The estimation method is similar to the method that Burman and
Randolph (1993) used to estimate the effects on capital gains realizations of permanent and
transitory changes in marginal tax rates.
My results differ substantially from the results of previous studies. Giving appears to be
much less sensitive to permanent price changes and much more sensitive to transitory price changes.
Giving also appears to be much more sensitive to permanent income and less sensitive to transitory
) Feenberg (1987) analyzed the potential problems caused by depending too heavily on
nonlinearity of a particular tax schedule to identify charitable giving models.
-4Income. These results suggest that previous studies have estimated the average effects of transitory
and permanent price and income variations. The results also raise questions about the effectiveness
of tax incentives in affecting the level, rather than just the timing, of charitable giving by individuals.
2. The Direct and Indirect Effects of Income
In this section, I use a simple demand model to show how permanent and transitory changes
in income can affect individual charitable giving when marginal tax rates increase with income.
Suppose that an individual chooses how much to consume personally and how much to give to
charity in each of two periods. Income is exogenous and subject to tax, but giving is deductible.
For simplicity, interest and discount rates are zero. The individual's decision problem is represented
by equation (l ),
Maximize U(g ),f!~ ,x ),x2 )
subject to:
g)
g,t
where g
t
and
XI
g2
+
X,
t
x)
+
Yt
(1)
:o!:
+ \
0,
t =
~
y) - T(y) -g)
+
Y2 - T(Y2- g)
1,2
are the levels of charitable giving and personal consumption in period t,
respectively. Exogenous levels of pre-tax income are given by YI and Y2- The tax function, T(-), is
twice-differentiable, and marginal tax rates are assumed to be positive and non-decreasing, so that
T(y), T'(y), and
T"(y)~O
for all y.2
2 Differentiability simplifies the analysis considerably _ Neither it nor the assumption of
non-decreasing marginal tax rates is necessary for the results of this section.
-5The problem can be expressed in a more standard fonn by rearranging the budget constraint:
where:
(2)
Y\ = y\ - T(y,)
+
[T(y,) - T(y,-~) - StTI(y\-~)],
PI = 1 - Tty,-St).
t = 1,2.
Although the budget constraint is a nonlinear function of giving in each period, the individual's
decision has a standard form in terms of marginal tax prices, p] and P2, and "modified" after-tax
income, Y] and Y2' Modified after-tax income equals after-tax income when giving is zero plus an
implicit premium that results from the fact that inframarginal amounts of giving are deducted at
higher rates than the marginal tax rate.
First ignoring nonlinearity of the budget constraint, demand exhibits Slutsky and other
familiar properties in terms of Pt and Y. for t = 1, 2. I use this fact along with the nonlinear
dependence of the budget constraint on giving to derive the different effects of temporary and
permanent changes in pre-tax income. The effects on giving can be decomposed into direct effects
through changes in income and indirect effects through changes in tax prices.
First, consider a permanent change in income. Pre-tax income can be decomposed into
permanent, y", and temporal, YtT , components, so that Yt = Y· + YtT for t = 1,2. The effect on g] of
a change in the permanent component is given by equation (3).
(3)
=
1 -
-6-
respectively, and Y· is "pennanent" modified after-tax income, i.e., (Y 1+Y2)/2. 3
The first term in the numerator, PI' ao 1/ ay', accounts for the direct effect of a permanent
change in income. The second term in the numerator appears because marginal tax rates change with
income. It shows that a permanent change in income will affect giving indirectly by changing the
tax prices in both periods.
This second term, including the minus sign, is non-negative because T" ~O
and aH 1/ aPI + aH 1/ aP2 ~ 0 according to the Slutsky properties. 4 A permanent increase in income, for
example, would increase giving by increasing resources and pennanently decreasing the tax price.
For comparison, consider the effect of a temporary change in y I T without a change in y2T.
The effect on giving in period I is now expressed by equation (4).
~. aG 1(PI'P 'y ')
2
2
ay'
_ (
aH 1(PI'P2'U ') + aH 1(PI'P2'U
aP l
'»).
Til
ap 2
1-
(4)
+
Equation (3) and the expressions in the rest of this section were simplified by assuming
that y1 equals Y2 initially, and preferences are weakly separable between giving and other
consumption. Preferences are also symmetric in gj and g2' i.e., U(gj,g2,X 1,X2) = U(g2,gl'X 1,X2).
3
4 The denominator in equation (3) is greater than or equal to 1 because marginal tax rates
are increasing in income. It reduces all marginal effects in the numerator proportionally to
account for curvarure of the budget constraint.
- 7-
Equation (4) differs from (3) in two significant ways. First, the direct effect in (3),
p] .
aa I( ay ., is reduced by half in (4) because the individual would choose to spread the change in
YIT over two periods. Second, there is an additional term in (4) that accounts for the fact that a
temporary change in income will have an additional indirect effect by changing the price of gl
relative to g2' This tenn has the same sign as
aH aP
1/
2
because T" ~O and all] / aP l -
aH ]/ap :s:o
2
according to the Slutsky properties. Thus, if gl and g2 are demand substitutes, so that aH] / aP2 is
positive, the indirect price effect will be larger in absolute magnitude if the change in y I is
temporary, as in equation (4), than if the change is permanent, as in equation (3).
Such behavior may be important for empirical analysis, especially for the analysis of crosssection data, from which we can't easily tell whether observed income differences are permanent or
transitory. To see this, first suppose we could observe giving in period 1 by two otherwise identical
individuals who have a small difference between their levels of pre-tax permanent income. Based
on the demand problem above, the difference between their levels of gl can be expressed as a
function of differences in their period 1 levels of modified after-tax income and tax prices according
to (5).
dg]
dY 1
= aG l(p!,p ,y .)
2
ay·
. dY 1 +
dy]
laG I(P ,P ,Y .)
1
OP]
2
+
aG l(pI'P2'Y .)]. dP l
OP2
dy]
(5)
-8-
According to (5), the marginal effect of the observed difference in Y 1 is GG I ! ay', which is the same
as the marginal effect of a change in modified after-tax permanent income. The marginal effect of
the observed difference in PI is aG 1 /aP 1 +aG l lap 2 , which is the same as the marginal effect ofa
proportional, "permanent", change in PI and P2•
For comparison, suppose that the income difference is purely transitory, so that the two
individuals have the same pre-tax lifetime wealth, i.e., dylT = -dy/ and dy·=O. Now the observed
difference in gl is given by equation (6).
+
1
[aG (P 1,P2,Y·)
aP I
_ aG1(P1,PZ'Y')]. dP1 ,
aP2
dYI
(6)
Compared to equation (5), there will be no direct effect of the change in y I through its effect on YI
because the change in pre-tax income is purely transitory. The indirect effect ofYI through its effect
on PI will also differ from the corresponding effect in equation (5) because the intertemporal price
effect, aG 1/ ap2 , is subtracted instead of added. This is because a purely transitory change in income
changes PI and P2 inverse proportionally, whereas a pennanent change in income changes PI and
P2 in direct proportion. If gl and g2 are substitutes and giving is a nonnal good, so that aG 1/ aP I is
negative and aG II ap z is positive, the marginal price effect in (6) will be larger in absolute value than
the marginal price effect in (5). The observed effect of the price difference would therefore overstate
the effect of a permanent change in tax prices. The observed effect of the income difference would
understate the effect of a permanent change in income.
-9-
Suppose that we could observe a large number of such almost identical individuals in a crosssection sample, but the sample is a mixture of people who have differences in pennanent and
transitory income; we can't tell which. Based on such data, a linear regression of observations of gl
on YI and PI would yield regression coefficient estimates that would be weighted averages of the
marginal income and price effects shown in equations (5) and (6).5 The weights would be unknown,
because they would be functions of the unknown extent to which cross-sectional income and price
differences are pennanent or transitory. We could not use the estimated coefficients to identify the
permanent and transitory marginal effects. Used as they are, the estimates would produce biased
policy predictions. They would understate the effect of tax-policy induced permanent changes in
after-tax income and overstate the effect of tax-policy induced pennanent changes in tax prices.
3. Empirical Model
I address these intertemporal issues empirically by using a ten-year panel of individual1axreturn data that spans a period in which there were significant statutory changes in income tax rates
and longitudinal variations in income for individuals in the sample. As an empirical strategy, I
generalize the standard model of charitable giving, in which giving depends only on current income
and prices, to include expected future income and prices. This allows me to examine whether there
are differences between the effects of transitory and permanent changes in income and prices.
Rather than extending the Cobb-Douglas type demand function typically used in previous
studies by simply adding regression tenns for expected future income and prices, I extend the model
This assumes that the estimation method would account for the fact that Y1 and P 1 are
endogenous functions of gl'
5
- 10-
by using a more flexible demand specification based on the expenditure-share fonn of the flexible
"almost ideal" demand (AID) model of Deaton and Muellbauer (1980).6
(7)
+
y.
0 1 Log(_rt)
•
Yil
+ ()
~
log(Y*)
tt
+
Pit
0s[Log(-)Y
•
•
+ 06 Log(Pit )·Log(Pit) + Eit ,
~
According to (7), individual i in year t decides how much to "spend" on charity. The dependent
variable, Wit' is the share of current income spent on charity. It equals the current tax price of
giving, Pit' times the amount of giving, gil' divided by current modified after-tax income, Yit . As
in Section 2, though expressed differently, modified after-tax income equals after-tax income before
giving is deducted plus the implicit premium realized by givers when inframarginal giving is
deductible at higher tax rates than the marginal tax rate.
The giving decision is affected by current income, Yil , expected-future income, Yit ", the
current tax price, Pit' and the expected-future tax price, Pit". The model thus allows people to base
giving decisions on current income and tax prices, and whether current income and tax prices are
high or low relative to future years.
Because other consumer expenditures are not observed in tax-return data, to derive (7)
from an expenditure share equation, I substituted current income, Y, for total expenditure and
added expected future income, Y*, to the right side in a way similar to Y. This implicitly
assumes that total expenditure and giving may depend on both current and expected future income.
6
- 11 -
Following the analysis in Section 2, I expect a proportional change in Yand y* to affect
giving more than a change in Y only, and a proportional change in P and P* to affect giving less than
a change in P only. The functional fonn, however, also allows the opposite. This flexibility is
important because giving may be more, rather than less, sensitive to transitory income changes. For
example, people may smooth their other consumption by adjusting charitable giving instead of
borrowing or saving. Likewise, people may be less rather than more sensitive to temporary price
changes because it takes them time to adjust to price changes, as suggested by Clotfelter (1980).
Other potentially important terms are also included in the model. Observed individual
characteristics are included in the vector XiI' These include a person's age and age-squared, which
allows for a life-cycle pattern of giving behavior unaccounted for by the other variables. A life-cycle
pattern of giving might exist if people's discount rates differ from market interest rates, if people
schedule conswnption around raising children, or if there is a precautionary motive behind the
schedule of life-cycle consumption or giving decisions.
Xit
also includes a dummy variable for
marital status. An additional variable, the count of total tax exemptions, is also included to allow
the size of a consumer unit to affect the level of giving.
To allow for unobserved individual characteristics that may affect giving, the model includes
an individual-specific intercept, aOi' The intercept is also allowed to vary over time by including aCt,
which is controlled for by including time dummy variables. This allows for the effects of aggregate
changes in interest rates, other macroeconomic conditions, or government social policies that may
affect individual charitable giving. For example, during a recession, the need for charity may
- 12 increase, and those still doing well may respond by giving more. Giving may also change because
people substitute privately for aggregate changes in government social programs (Kingma, 1989).
4. The Data
The data were selected from a ten-year panel of U.S. federal tax return data, from 1979
through 1988 (U.S. Department of the Treasury, 1979-1988). This panel follows the tax returns
of more than 12,000 people who were listed as the primary tax-return filers in each year. The
original panel sample was stratified to over-sample tax returns of people who reported relatively high
incomes in 1981. This ensures that the sample includes a relatively large number of high-income
taxpayers, who account for a substantial fraction of total giving by individuals. For example, about
a third of all deductible contributions in 1990 were made by people with incomes exceeding
$100,000 in 1991 dollars (Auten, Cilke, and Randolph, 1992).
One advantage of tax-return data is that it provides detailed information about many
components of income. The detail provides a means for studying charitable giving, and allows
precise measurement of marginal tax rates, total federal taxes, and tax prices of charitable giving.
Another important advantage is that the panel is ten years long, and spans two major tax-law changes
in 1981 and 1986. Ten years of annual income for each taxpayer allow me to estimate the effects
of permanent and transitory income on giving. Combined with the tax law changes, the longitudinal
income data also allow me to estimate the effects of current and future tax prices.
The sample for estimation includes only panel members who filed tax returns in all ten years.
As in previous charity studies based on tax return data, the sample excludes people who did not
- 13 report amounts of giving because they did not itemize deductions. 7 Observations for the years 1981,
1982, 1986, and 1987 were also excluded for estimation. They were the years the major tax changes
were passed and the years immediately following. By excluding those years, I focus the estimation
on measuring the degree to which the direct income effects and indirect price effects of permanent
and transitory income differ during "normal" years like those covered by many past studies of
charitable giving. This allows me to examine whether the previous results are biased. 8
All dollar amounts were converted to constant 1991 dollars. Pre-tax income was measured
by starting with each taxpayer's Adjusted Gross Income (AGI) for each year. AGI was then
modified to adjust for changes in its legal definition over the years. The most important
modification was to add the portion of net long term capital gains excluded from AGI before 1987. 9
One critical variable is the ten-year (real) average of pre-tax income, which is used to create
instruments for estimation.
Total taxes and marginal tax rates were computed based on federal tax rates and taxable
income in each year. The tax price is defined, as in Section 2, as the value of other consumption
forgone at the margin per dollar of charitable giving. However, the price measure is complicated
This may cause selection bias if, for example, people who are more likely to itemize
deductions are also likely to give more than others, conditional on all other variables in the model.
However, this potential problem is probably not serious because other unrelated decisions,
especially whether to own and mortgage a home, are the main determinants of whether people
itemize tax deductions.
7
As a sensitivity test, discussed in Section 8, the model was re-estimated using all ten
years, but it made little difference in the results.
8
Many other modifications were made to AGI to measure pre-tax income. The
modifications are the same as those described in detail in Auten, Cilke, and Randolph (1992).
9
- 14 by the fact that cash and non-cash gifts have different prices, and the panel data do not report
separate amounts for cash and non-cash gifts.
tax
For cash gifts, the price equals 1 minus the marginal
rate for ordinary income. For gifts of appreciated assets such as corporate shares, the tax price
is reduced further to account for taxes not paid on the unrealized appreciation. To account for these
price differences, following Feldstein (1975) and other studies, I calculate the tax price as follows.
(8)
where T: is the marginal
tax
rate on ordinary income,
1.,
is the fraction of net long term capital gains
included in AGI, Cis the fraction of total giving made up of appreciated assets, and "a" is the gainto-value ratio for gifts of appreciated assets, multiplied by the expected present value of capital gains
tax
payments that would have been made in the future had the donated assets been sold instead. The
constant, a, was set equal to 0.5, which was estimated by Feldstein (1975) and Feldstein and
Clotfelter (1976), and has been used in several studies since (Clotfelter, 1985). I estimated the
appreciated assets fraction,
~t'
for six different income classes in each year based on analysis in
Auten, Cilke, and Randolph (1992). For years included in the panel, its value ranged from 0.05 in
1980 for incomes below $20,000 to 0.48 in 1980 for incomes exceeding $1 million ( 1991 dollars).
Means of selected variables are shown in Table 1. The total of 53,703 observations
represents six years of data (1979, 1980, 1983, 1984, 1985, and 1988) for the 75 percent of the
original sample of 12,000 taxpayers who itemize tax deductions. Differences between unweighted
and sample-weighted means result from the original sample stratification. As shown, the sample
- 15 over-represents people with high incomes, who also tend to be older and give more than others on
average. 10
5. Estimation
The main challenges for estimation are that Y and P are endogenous functions of giving and
y* and p* are unobserved. I use an instrumental variables method, similar to that used by Burman
and Randolph (1994), to decompose the observed variation in Y and P into exogenous transitory
and permanent components. To simplify the discussion, equation (7) is rewritten as (9).
cu.
=
01[Log(Pjr) - LOg(Pn')]
+
02 Log(PiI' )
(9)
+
03[Log(Y it) - Log(Y:)]
+
0 4 1og(Y:)
+ ••.
1 call Log(P it ') and LOg(Yit') the "permanent" components of prices and income as a
convenient shorthand, but they are really not permanent. They are expectations that can change over
time when tax laws change or other information is acquired. Similarly, I call the differences of
current levels from expected future levels of incomes and prices the "transitory" components.
To estimate the model, I need at least four exogenous instruments: at least two that are
correlated with the pennanent components, but not with the transitory components, and at least two
that are correlated with the transitory components, but not with the permanent components. II As
10
An extensive descriptive data analysis of essentially the same data can be found in
Auten, Cilke, and Randolph (1992).
When the individual-specific effect, 00i' is treated as a random effect for estimation,
i.e., part of the error structure, the instruments must not be correlated with it. When 00i is treated
as a fixed effect, the requirement is weaker, but the instruments for the permanent components
11
- 16 instruments that should satisfy these requirements, I use the logarithm of current pre-tax income,
the logarithm of its ten-year average, and the products of these two variables with two dummy
variables that indicate major statutory changes in tax rates. The first dummy variable indicates
whether the year of an observation is between the tax-law changes in 1981 and 1986. The second
dummy variable indicates whether the year is after the tax refonn in 1986. These dummy-variable
interactions allow future expectations of after-tax income and tax prices to be different under
different tax laws for particular levels of current and average pre-tax income.
Conditional on other variables in the model, I expect the ten-year average of pre-tax income
to be correlated with expectations because it is correlated with individual characteristics that would
cause persistent differences between incomes and, therefore, after-tax incomes and tax prices.
Further, I expect interactions of the tax-period dummy variables with average pre-tax income to be
correlated v.lth expected future after-tax incomes and tax prices because the changes in tax laws
should change how the expectations depend on average pre-tax income. Likewise, the differences
between current and average pre-tax income, and its interactions with the tax-period dummy
variables, should be correlated with the transitory components of after-tax incomes and tax prices.
These instruments might not separate perfectly the pennanent and transitory components.
For example, the instrument based on differences between current and average pre-tax incomes may
be correlated over time for each individual, conditional on the other variables. In that case, the
instruments for the transitory components would have persistent components that are correlated with
expected future incomes and tax prices. If so, results in Burman and Randolph (1994) imply that
must have some variation independent of the fixed effect over the sample period.
- 17 -
the estimates of transitory income and price effects would be biased toward the corresponding
permanent effects. My tests would therefore be conservative because they would be biased (if at all)
against rejecting the hypothesis maintained in previous studies that the permanent and transitory
effects are equal. 12
Details of the estimation method are in the Appendix. I use a two-stage least squares
algorithm in which there are four first-stage regressions: one for each of the permanent and
transitory components of income and prices. Current values of income and prices are used as
dependent variables in first stage regressions for permanent and transitory components, but the
regressions for the permanent income and permanent price components are estimated by excluding
any instruments that depend on the difference between current and average pre-tax income. This
decomposes the observed variations in after-tax incomes and prices into two parts. One part is
determined by variation in the instruments that results from variation in average pre-tax income and
its interactions with changes in tax laws. The other part is determined by variation in the instruments
that results from longitudinal variation of individuals' differences between current and average
income and its interactions with changes in tax laws.
6. Estimated Effects of Income and Prices
The estimated parameters for equation (7) are shown in Table 2. These estimates are based
on the random-effects model, in which the individual-specific effect,
oQj , is assumed to be random
Under the null hypothesis that the permanent and transitory effects are equal, there
would be no bias even if the instruments do not fully separate permanent from transitory
components.
12
- 18 -
and uncorrelated \\lith the other regressors. According to the results, the hypothesis that permanent
and transitory income have equal effects on giving can be confidently rejected. Permanent and
transitory income would have equal effects if the coefficients of Log(Y*) and Log(Y IY*) were
equal. However, the coefficients differ by 0.049, which is about ten times the standard error of the
difference (0.0048, not shown). Likewise, the coefficients of all price terms are significantly
different from zero. This implies that the effects of current and expected future tax prices are
significantly different. The importance of these differences can be measured by comparing
elasticities.
The elasticities of giving with respect to permanent and transitory income are given by
equation (10).
eg,y.
=
~
ag
g
ay'
=
-
o~
w
d(Y/Y').a
+
(10)
eg,y
: ~ I". .
-
oJ
w
+
The permanent income elasticity, eg.y., is the elasticity of giving with respect to a change in income
when Y and y* are changed proportionally. The transitory income elasticity, eg,y , is the elasticity
of giving with respect to a change in current modified afteHax income, Y, holding permanent
modified after-tax income, Y*, constant.
The elasticities of giving with respect to permanent and transitory changes in tax prices are
expressed as follows, evaluated at P = P*.
- 19 -
eg,P'
=
~ag
g
ap'
02 + 20 6 LogP
=
w
d(PIP').O
- 1
(11)
eg,P
=
p ag
g ap
I
=
dP'-O
o
1
+
0 6 LogP
w
- 1
The permanent price elasticity, eg,p., is the elasticity of giving with respect to a proportional change
in current and expected future tax prices. The transitory price elasticity, eg,p, is the elasticity with
respect to a change in the current tax price, holding the expected future tax price constant. 13 The
permanent price elasticity and pennanent income elasticities could be used, for example, to make
long term predictions about the effects of statutory tax policy changes that pennanently affect tax
prices and modified after-tax income,
The first two columns in Table 3 show the income and price elasticities that are implied by
estimates from Table 2. Column 1 shows the estimated elasticities evaluated at the unweighted
sample means of the dependent variable (0.04) and tax price (0.56) over all years of the sample.
Column 2 shows the estimated elasticities evaluated at means weighted by population weights and
(real) dollars of giving by each taxpayer. 14 Elasticities evaluated at the weighted means are more
appropriate than those at the unweighted means for making predictions about changes in aggregate
giving following changes in incomes or prices.
The 2 appears before a6 for the permanent price elasticity because both P and p. are
changed proportionally, whereas only P changes for the transitory price elasticity.
13
14
tax
price.
The weighted means over all years were 0,089 for the dependent variable and 0.66 for the
- 20The estimated permanent income elasticities are 1.27, unweighted, and 1.12, weighted. In
comparison. the estimated transitory income elasticities are only 0.05, unweighted, and 0.57,
weighted. Whether weighted or unweighted, the hypothesis that the permanent income elasticity
equals the transitory income elasticity can be rejected at less than the 1 percent level. Unweighted,
the difference between permanent and transitory income elasticities is 1.22 with a standard error of
0.12. Weighted, the difference is 0.55 with a standard error of 0.05. The fact that the permanent
income elasticity is larger than the transitory income elasticity suggests that people smooth their
giving relative to transitory changes in income.
These income elasticity estimates are much different from the results typical of previous
studies. For example, Clotfelter (1990) reports that an income elasticity of 0.78 is representative of
previous results. The fact that 0.78 falls between the estimated permanent and transitory income
elasticities is consistent with the hypothesis that previous studies have estimated an average of the
permanent and transitory income elasticities because observed income variation results from a
mixture of permanent and transitory variation.
The differences between permanent and transitory price elasticity estimates in Table 3 are
just as striking. At the unweighted sample means, the estimated permanent price elasticity is -0.06,
and is not significantly different from zero. At weighted means, the permanent price elasticity is
-0.49 \\lith a standard error of 0.06. This estimate is substantially smaller in absolute value than the
price elasticity of -1 .27 reported by Clotfelter (1990) as being representative of previous studies.
The transitory price elasticity estimate, which equals -2.35, unweighted, and -1.57,
weighted, is substantially larger in absolute value than the permanent price elasticity. The
hypothesis that the transitory price elasticity equals the permanent price elasticity can be rejected at
- 21 less than the 1 percent level. Unweighted, the difference between permanent and transitory price
elasticities is 2.29 with a standard error of 0.17. Weighted, the difference is 1.07 with a standard
error of 0.08. This provides strong evidence against the assumption made in past studies that
transitory and permanent price effects are equal. People are apparently willing to substitute their
giving between current and future years to take advantage of changes in relative current and future
tax prices that occur when transitory changes in income temporarily move them up or down the
marginal tax-rate schedule.
To measure how these results can affect policy predictions compared to previous results,
consider the effects of a proportional change in all marginal tax rates. According to my estimates
and those from previous studies, a decrease in marginal tax rates would tend to decrease giving
because tax prices would increase, and the price elasticity is negative. However, after-tax income
would also increase, which would tend to increase giving because income elasticities are positive.
The net effect would depend on the relative permanent price and permanent income elasticities, the
marginal tax rates, and the degree of progressivity of marginal tax-rates. The importance of these
factors is summarized by the following expression for the elasticity of giving with respect to a
permanent proportional change in all marginal tax rates, the "surtax" elasticity.
eB)·
=
where:
(12)
=
_[W(t-t)
+
t(l-t)] ,
(l-t)(l-t)
- 22 where
't
and "1 are the marginal and average tax rates, respectively, and A is the proportional
change in tax rates.
Under different assumptions about marginal and average tax rates, Table 4 compares surtax
elasticities based on price and income elasticity estimates typical of previous studies with surtax
elasticities based on parameter estimates from Table 2.15 In the first panel, which is based on price
and income elasticities typical of previous studies, for all values of marginal and average tax rates,
a proportional decrease in marginal tax rates is predicted to decrease giving. For example, a 1.0
percent decrease in marginal tax rates would decrease giving by 0.54 percent when the marginal tax
rate is 40 percent and the average tax rate is 20 percent. Note that the surtax elasticity increases as
marginal tax rates increase and as marginal tax rates become more progressive.
The second panel shows surtax elasticities based on my estimation results. For many values
of the marginal and average tax rates, the sign of the surtax elasticity actually changes relative to the
top panel. At higher marginal tax rates and degrees of progressivity, the tax elasticities have the
same sign, but are substantially smaller than the corresponding elasticities in the top panel. These
large differences in policy predictions relative to the top panel are the combined results of a larger
permanent income elasticity and smaller permanent price elasticities implied by the parameter
estimates in Table 2. They demonstrate that failure to distinguish between transitory and permanent
income and price effects can lead to substantially biased policy predictions.
15 For the simulations, w was held constant at its giving-weighted mean of 0.089.
- 23 7. Estimated Effects of Other Variables
The estimated coefficients for other variables are shown in Table 2. The estimated
coefficients of age and age-squared imply that people increase their giving expenditure as they grow
older, and at an increasing rate, other things constant. Evaluated at the unweighted sample mean of
the dependent variable, the relationship between giving and age is not statistically different from zero
before age 50. After that, an extra year adds about 1 percent to the amount of giving at age 50, 3
percent at age 60, 4 percent at age 70, and 6 percent by age 90. 16 Figure 1 illustrates the age pattern.
The thickest solid line shows the implied pattern for a hypothetical person for which the dependent
variable equals 0.04 at age 50, other variables constant. 17
Giving may increase with age because age may proxy for life-cycle wealth accumulation.
However, the simplest life-cycle hypothesis implies a wealth profile that increases and then
decreases, whereas the life-cycle pattern of giving increases monotonically, and at an increasing rate.
Such an age pattern of giving is consistent with the precautionary savings behavior that would occur
if people are risk averse and uncertain about future income or how long they will live. If people are
uncertain about their own ability to consume in the future and they can't perfectly insure by
purchasing annuities, for example, it may be prudent to defer charitable contributions toward the end
of the life cycle. Charitable giving, in contrast to food, housing, children, and transportation, might
These estimated percentages are all significantly different from zero at less than the 1
percent level.
16
The step function in Figure 1 is the pattern implied by alternative estimates for a model
that was specified in terms of ten-year age brackets instead of age and age-squared. The result
suggests that the estimated age pattern is not the forced result of using a quadratic function to
summarize the profile. All other estimation results were essentially unaffected by this experiment.
17
- 24 -
be relatively easy to defer. Another possible explanation of the age pattern is that there is a vintage
effect that occurs because the age variable has both longitudinal and cohort-based sources of
variation. For example, older cohorts may be more generous than younger cohorts. It is not
possible, however, to separate the life-cycle pattern from cohort differences from these data.
Marital status apparently makes no difference, regardless of whether the person is married
filing separately with no other dependents (Married= 1, Exemptions= I) or married filing jointly with
no other dependents (Married= 1, Exemptions=2). Giving apparently increases with the addition of
exemptions, but at a rate substantially less than proportional to the increase in exemptions. For
example, following an increase in exemptions, the estimated percentage increase in giving is only
about 5 percent of the percentage increase in exemptions when there are 2 exemptions. The
corresponding increase is still only about 10 percent when there are 4 exemptions. 18 This less than
proportional increase would result, for example, if giving is a quasi-public good within a
household. 19
The coefficients of the year dummy variables show that there was a significant increase in
giving during the middle years of the panel (1983 through 1985) followed by a decline, holding all
other variables constant. For the middle years, the average increase in the dependent variable was
18 These are evaluated at the sample mean of 0.04 for the dependent variable. The
estimated percentage change equals the coefficients of Exemptions, multiplied by the number of
exemptions, divided by 0.04.
Economic inferences should be made cautiously because the information on a tax return
does not necessarily represent the finances of a household. Further, extra exemptions are not
necessarily children. Throughout the first part of the sample period, people could claim an extra
exemption if they were over age 65 or blind. I conducted a sensitivity test using an alternative
variable that excluded the blind and over-65 exemptions. The results were unchanged.
19
- 25 about 0.012, which is a 30 percent increase relative to the unweighted sample mean of the dependent
variable over all years. Although the exact cause of this increase can not be identified, it may have
resulted from a behavioral response to the recession of the early 1980s, or aggregate reductions in
certain government social programs during the middle years. An increase in private giving to offset
reductions in social programs would, for example, be consistent with the crowding-out behavior
studied by Kingma (1989) and others.
The variances of the individual-specific intercept and the regression error imply that the
unobserved individual-specific differences account for a substantial portion of the observed variation
in giving. The total variance of the dependent variable is 0.0071. Almost 50 percent (0.0035) of this
variance is explained by the unobserved individual-specific differences. In contrast, all other
regressors together account for only about 10 percent of the total variance of the dependent variable.
This demonstrates that the unobserved differences are important. It is not possible, however, to infer
from these results whether the unmeasured differences result from iIU1ate taste differences or some
other variables not included in the regression, such as education, unmeasured wealth, or family
background. 20
8. Sensitivity Experiments.
Columns 3 and 4 in Table 3 show the results of two sensitivity experiments designed to
examine, further, how my price and income elasticity estimates differ from previous studies. The
experiments allow me to determine how much of the difference from previous results is caused by
Section 9, which presents fixed-effects estimates for reduced models, addresses the
possibility that the unobserved differences are correlated with other regressors.
20
- 26 the distinction I make between permanent and transitory incomes and prices, and how much of the
change is caused by differences in data, functional form, and estimation methods.
In the first experiment, shown in column 3, the expected future price, Log(P*), was omitted
from the estimated model. The only tax price variables included were Log(P) and Log(P)-squared.
Othetwise, the estimation method was the same as for the full model. As shown, the income
elasticity estimates are about the same as those for the full model in column 2, but the current price
elasticity estimate is between the permanent and transitory price elasticity estimates from the full
model and close to the results from previous studies. This results because variation in the current
tax price is a mixture of permanent and transitory price variation.
For the experiment shown in column 4, all expected future tax price and permanent income
terms were excluded from the model. This restricted model is closest to the standard model from
previous studies. The restricted estimates are very close to the income elasticity of 0.78 and price
elasticity of -1.27 that Clotfelter (1990) characterized as representative of estimates from previous
studies. Such closeness is remarkable, partly because the source of tax price variation for my study
is almost entirely different from the source of tax price variation in previous studies. In the past, the
main source of tax price variation in microdata studies has been cross-sectional variations along the
nonlinear marginal tax rate schedule caused by cross-section variations in taxable income. Here, by
construction of my estimation method, the tax price instruments only exhibit variation independent
of income variation because there were statutory tax changes after 1981 and 1986. Without the taxperiod dwnmy variable interactions as instruments, the income and tax-price parameters would not
be separately identified.
- 27 -
The results of these experiments strongly suggest that the full-model estimates differ from
the results of previous studies because the full model distinguishes between permanent and transitory
income and tax price variations. The differences in estimates do not appear to have resulted from
other differences in the empirical model, data, or estimation method.
The results from additional sensitivity experiments are shown in Table 5. For each
experiment, the top panel shows the implied elasticities evaluated at the giving-weighted means.
To diagnose whether any sensitivity or robustness carries over to values away from the mean, the
bottom panel also shows elasticities evaluated at a tax price of 0.4. The first row of each panel
shows the estimates based on the full-model parameter estimates from Table 2 for comparison.
Experiment 1 shows the estimates based on two-stage least squares when the unobserved
individual-specific effects are ignored. 21 Experiment 2 also ignores the unobserved individualspecific effects, but uses a Tobit method to account for the 4 percent of observations that had zero
amounts of charitable giving. Note that use of the Tobit method makes little difference. In both
experiments, however, the sign ofthe permanent price elasticity changes relative to the full model
when evaluated at the giving-weighted means, although the elasticity changes very little when
evaluated at the lower tax price, as in the bottom panel. The sensitivity at the mean, but not at a
lower tax price, suggests that the functional form might not be flexible enough. Any potential
problem, however, appears to be of second-order importance. The results at the mean are still
These estimates are actually from an intermediate stage of estimation for the generalized
two-stage least squares estimation method used for the full-model results in Table 2. The parameter
estimates are shown in Appendix Table A.2.
21
- 28 consistent v.ith mv central results that giving by individuals is most responsive to transitory rather
than pennanent variation in tax prices.
Experiment 3 replaces the quadratic function in age with a step function that changes at tenyear intervals. The estimated step function is shown in Figure 1. Experiment 4 uses an alternative
exemptions variable that excludes exemptions that could be taken by taxpayers for being blind or
over age 65 in the first part of the sample period. Neither of these experiments affects the key
estimation results.
The fifth experiment included all years in the sample for estimation. For this experiment,
I made no attempt to properly model expectations of future statutory tax changes that were known
by people at the ends of 1981 and 1986. Surprisingly, the elasticity estimates change very little
relative to the estimates based on fewer years, in spite of the fact that future expectations are
measured incorrectly in 1981 and 1986. This robustness probably results from the fact that the
model includes annual time-dummy variables, which would partly control for the effects of one-time
shifts in expectations. Consistent with this explanation, the dummy variable coefficient for 1986
(not shov.n) indicates there was a 14 percent increase in giving during 1986 relative to 1985, other
things constant. This suggests that people accelerated giving during 1986 in anticipation of the
pending increases in the tax prices of giving.
For all estimates reported so far, the instruments based on pre-tax income include capital
gatns. If capital gains and charitable giving are simultaneously determined, conditional on the other
variables, there may be an endogeneity bias in the parameter estimates. To test for this possibility,
in experiment 6, capital gains were excluded from the instrument based on current pre-tax income.
As ShO\\l1, when evaluated at the giving-weighted mean, only the permanent price elasticity estimate
- 29 -
is changed. However, at the lower tax price in the bottom panel, there is virtually no difference from
the full model results. The results of experiment 6 suggest that if capital-gains endogeneity is a
problem for the estimates, it is only of second-order importance, influencing only the shape of the
pennanent price elasticity as a function of tax prices.
9. Random-Effects Versus Fixed-Effects Estimates
The estimates presented so far were produced under an assumption that the unobserved
individual- specific effect in (7) is random and not correlated with the other right-hand variables and
instruments. In principle, this assumption can be tested by comparing the random-effects estimates
with fixed-effects estimates. To do this, fixed effects can be removed by first-differencing the data
over time, or by subtracting individual-specific means from all variables before estimation. For the
full model in (7), unfortunately, this estimation strategy also eliminates important variation in the
instruments for Y' and p'. The instruments for Y· and p' are nearly collinear over the sample period
after the individual-specific means are removed. As a result, I can not estimate or control separately
the effects of Y· and p' using a fixed-effects method.
Nevertheless, it is important to examine the fixed- versus random-effects issue because
studies by Clotfelter (1980) and Broman (1989) used panel data to show that current-year price
elasticity estimate becomes substantially smaller when the panel data are first-differenced., which
would remove fixed effects from the model. Clotfelter's (1980) analysis suggested that the elasticity
estimate is smaller because people adjust to price changes slowly. Broman (1989), however,
provided evidence that people actually adjust to price changes quickly. Her study implies that the
price elasticity estimates for the first-differenced model are smaller because first-differencing
- 30 eliminates a bias caused by unobserved fixed effects. According to Broman's results, not only did
the unobserved fixed effects bias previous price elasticity estimates, but they also biased the
estimated adjustment parameter in Clotfelter's (1980) model.
Table 6 shows random-effects and fixed-effects estimates for two reduced models. The first
model, shown in columns 1 and 2, excludes Y' and P' , similar to previous panel studiesY The
second model, shown in columns 3 and 4, includes Y' but excludes p.. Consistent with results of
the previous panel studies, the price elasticity estimate changes from -1.29 for the random-effects
model in column 1 to -0.76 for the fixed-effects model in column 2. This result suggests that there
is an omitted-variables bias in the reduced model. The bias is caused by correlation of the
unobserved individual-specific effect with other variables in the model. According to the full model
in (7), the random effects estimates in column 1 are biased because the individual-specific means
of Y' and p' are part of the unobserved individual-specific effect in the reduced regressions. The
individual-specific means of Y' and p' are correlated with the instruments used to estimate the
effects of Y and P.
The fixed-effects method used for column 2, however, does not eliminate all omittedvariables bias because Y' and P' also change over time in a way that is positively correlated with
changes in Y and P. Evidence of the bias can be seen by comparing columns 2 and 3. Column 3
shows that when changes in yo are added to the reduced fixed-effects model from column 2, the
current-year price elasticity increases in absolute value from -0.76 to -1.39. Further, the income
Broman (1989) included an expected future price term, but only to capture the effect
of expected statutory changes after 1981. Otherwise, current values of Y and P were assumed to
equal expected future values.
22
- 31 elasticity estimate changes from 0.70 for current income to 1.66 for permanent income and 0.56 for
transitory income.
The fixed-effects estimates are biased in these reduced models because there were statutory
changes in tax rates during the sample period. In the absence of statutory changes, Y· and p. tend
to be negatively correlated because marginal tax rates increase with income. During the sample
period, however, both Y· and p. increased because marginal tax rates were reduced. Once the
individual-specific means are removed from the data for fixed-effects estimates in columns 2 and
3, the positive correlation between changes in Y· and p. remains. Because the changes in Y· and p.
are also positively correlated with changes in P, the price elasticity estimate in column 2 has a
positive bias. For these same reasons, the permanent income elasticity estimate in column 3 is
biased upward because p. is excluded from the model. For the random-effects method in column
4, which also excludes p., most of the positive bias in the permanent income elasticity estimate in
column 3 disappears because Y· and p. are not positively correlated when there are no statutory
changes, and individual-specific means are not removed before estimation.
10. Conclusions:
My results imply that intertemporal income variations combine with progressive marginal
tax rates to affect the way people plan their charitable contributions. Consistent with the permanent
income hypothesis about consumption in general, people appear to smooth their annual giving
relative to transitory changes in income. For price variation, however, the effect is just the opposite.
Because marginal tax rates increase with income, transitory income variations change the relative
current and future tax prices of giving. People appear to respond by substituting between current
- 32 and future giving. In other words, they time their contributions to take advantage of transitory price
changes, treating current and future giving as substitutes.
The results imply that by ignoring the separate effects of permanent and transitory income,
previous studies have typically underestimated the effect of changes in permanent income and
overestimated the effect of permanent changes in tax prices. Compared to the previous studies, I
find that giving is a substantially less price elastic and more income elastic in terms of permanent
changes in prices and income. Giving also appears to be more price elastic and less income elastic
than past studies in terms of transitory changes in prices and income.
For tax policy predictions, it is often the permanent behavioral effects that matter most.
Except during a transition period, the effects of a permanent change in tax policy are determined by
the behavioral effects of permanent changes in incomes and tax prices. As I have shown, the policy
predictions can differ substantially when based on estimates of the permanent elasticities rather than
the elasticities from previous studies, which only predict the effects of changes in current income
and prices.
- 33 -
REFERENCES
Amemiya, Takeshi, Advanced Econometrics, Cambridge, Massachusetts: Harvard University Press,
1985.
Auten, Gerald A., Cilke, James and Randolph, William C., "The Effects of Tax Reform on
Charitable Contributions," National Tax Journal, September 1992, 45, 267-290.
Broman, Amy, "Statutory Tax Rate Reform and Charitable Contributions: Evidence from a Recent
Period of Reform," Journal of the American Taxation Association, Fall 1989, ]Jl, 7-20.
Bunnan, Leonard E. and Randolph, William c., "Measuring Permanent Responses to Capital Gains
Tax Changes in Panel Data," mimeo, U.S. Congressional Budget Office, 1993 and
forthcoming, American Economic Review.
Clotfelter, Charles T., "Tax Incentives and Charitable Giving: Evidence from a Panel of
Taxpayers," Journal of Public Economics, 13, June 1980, il, 319-340.
Clotfelter, Charles T., Federal Tax Policy and Charitable Giving, Chicago and London: The
University of Chicago Press, 1985.
Clotfelter, Charles T., "The Impact of Tax Reform on Charitable Giving, a 1989 Perspective," in
Joel Slemrod, ed., Do Taxes Matter? The Impact of the Tax Reform Act of 1986,
Cambridge, Massachusetts, and London: The MIT Press, 1990, 203-235.
Deaton, Angus S., and John Muellbauer, "An Almost Ideal Demand System," American Economic
Review, June 1980, 70, 312-326.
Feenberg, Daniel, "Are Tax Price Models Really Identified: the Case of Charitable Giving,"
National Tax Journal, December 1987, 40, 629-633.
Feldstein, Martin, "The Income Tax and Charitable Contributions:
Distributional Effects," National Tax Journal, 1975, 28,81-100.
Part I-Aggregate and
Feldstein, Martin and Clotfelter, Charles T., uTax Incentives and Charitable Contributions in the
United States: A Microeconometric Analysis," Journal of Public Economics, 1976,5., 1-26.
Friedman, Milton, A Theory of the Consumption Function, Princeton: Princeton University Press,
1957.
Fuller, Wayne A. and Battese, G. E., "Transformations for Estimation of Linear Models with
Nested-error Structure," journal of the American Statistical Association, 1973, 68, 626-632.
- 34 Kingm~
Bruce R., "An Accurate Measurement of the Crowd-out Effect, Income Effect, and Price
Effect for Charitable Contributions," Journal of Political Economy, 1989, 97, 1197-1205.
Reece, William S., "Charitable Contributions: New Evidence on Household Behavior," American
Economic Review, 1979, 69,142-151.
Schwartz, Robert A., "Personal Philanthropic Contributions," Journal of Political Economy, 1970,
23,1264-1291.
Steinberg, Richard, "Taxes and Giving: New Findings," Voluntas, 1990,1, 61-79.
u.s. Department of the Treasury, Internal Revenue Service, Statistics ofIncome Division, Special
Panel of Tax Returns, 1979-1988.
- 35 Appendix
Estimation steps for the full model are described as follows, where Z
and
z·
= (Log®,~Log®,~Log®).
= (Log(y),d2Log(y),d]Log(y))
Current pre-tax income is y, and y is its ten-year average for
each individual. The tax-law period dummy variables, d2 and d3, indicate whether the year is
between 1982 and 1986 (inclusive) or after 1986, respectively.
First step: First, regress Log(Y) and Log(P) on X, the dwnmy variables for years, and Z*. Use this
regression to create fitted values to be used in place of Log(Y*) and Log(P*). Second, regress
Log(Y) and Log(P) on X, the dummy variables for years, Z*, and Z - Z*. Use this regression to
create fitted values to be used in place of Log(Y) and Log(P). Estimates from the first step appear
in Table A.I.
Second step (2SLS): Use 2SLS to estimate the share equation parameters. The endogenous right
hand variables are Log(PIP*), Log(YN*), [Log(PIP*)]2, and Log(P) Log(P*), which are constructed
by substituting fitted values of Log(Y*) and Log(P*) from the first step, above. The excluded
exogenous variables are constructed by substituting the fitted values of Log(Y), Log(P), Log(Y*),
and Log(P*) from the first step into Log(PIP*), Log(Y/Y*), [Log(PIP*)]2, and Log(P) Log(P*).
Estimates from the second step appear in Table A.2.
Third step (G2SLS): Estimated share equation residuals from the second step are used to estimate
the variances of the noise error term,
Eit'
and the individual-specific random effect, 60i . For this
- 36 step, each variable that was used in the second step is first transformed by subtracting a fraction of
each panel member's mean across years. The transformed variables are then used to repeat the 2SLS
step and obtain operational G2SLS estimates. 23
The estimates are "operational" because they use consistent estimates of the variance
terms in place of actual values. The data transformation was originally derived by Fuller and
Banese (1973) for the two-way variance components regression model.
23
Table 1: Means of Selected Variables
Unweighted means
Sample-population
weighted means
Charitable giving
44,842
1,694
After-tax income (before giving)
472,183
52,551
0.60
0.73
52
44
Marital status
0.86
0.82
Exemptions
3.3
3.2
53,703
53,703
Variable
Tax price of giving
Age
Tctal observations
Table 2: Charity Share Equation Parameter Estimates
(standard errors in parentheses) la
Variable
Intercept
Coefficient
-0.075
(0.01 )
Variable
Coefficient
Log(Y*)
0.011
(0.0007)
Age
-0.0011
(0.0003)
Log (Y/y*)
-0.038
(0.001 )
Age squared
2.0E-05
(2.3E-06)
Log(P*)
0.066
(0.009)
Married
-0.0019
(0.0014)
Log(P/P*)
-0.040
(0.006)
Exemptions
0.00097
(0.0003)
Log(P/P*) 112
0.087
(0.008)
Dummy, 1980
0.0067
(0.001)
Log(P) Log(P*)
0.024
(0.004)
Dummy, 1983
0.013
(0.001 )
Var(delta) Ib
0.0035
Var(epsilon)
0.0029
Total error variance
0.0064
Var(dependent variable)
0.0071
Observations
53,703
Dummy, 1984
0.012
(0.001 )
Dummy, 1985
0.012
(0.001 )
Dummy, 1988
-0.0012
(0.0019)
Notes:
la Estimates from generalized two-stage least squares
Ib Variance of individual-specific random effect
Table 3: Estimated Income and Tax Price Elasticities
(based on parameter estimates from Table 2; standard errors in parentheses)
Unweighted means la
Full model
Full model
(1 )
(2)
1.27
(0.02)
1.12
(0.01 )
Giving-weighted means Ib
Excluding P*
Excluding P*, Y*
I
(3)
I
(4)
Income (point elasticities)
Permanent, d(YN*)
=0
1.17
(0.02)
0.82
(0.09)
Current
Transitory, dY*
=0
0.05
(0.03)
0.57
(0.01 )
-0.06
(0.10)
-0.49
(0.06)
0.60
(0.01 )
Tax price (point elasticities)
Permanent, d(P/P*)
=0
-1.37
(0.09)
Current
Transitory, dP*
=0
-2.35
(0.13)
Notes:
la Mean share = 0.04; mean tax price = 0.56
/a Mean share
=0.089;
mean tax price
=0.66
-1.57
(0.06)
-1.29
(0.07)
Table 4: Comparison of Elasticities of Giving With Respect to a
Proportional Change in all Marginal Tax Rates
Progressivity of
marginal tax rates la
20%
Marginal tax rate
40%
60%
Based on typical results from previous studies Ib
1.0
0.12
0.33
0.73
1.5
0.19
0.54
1.33
2.0
0.22
0.62
1.50
Based on full-model parameter estimates Ic
1.0
-0.19
-0.39
-0.55
1.5
-0.09
-0.08
0.30
2.0
-0.04
0.03
0.54
Notes:
la Ratio of marginal tax rate to average tax rate
Ib Income elasticity = 0.78; Price elasticity = -1.27
Ic Permanent income elasticity = 1.12; Price elasticities are -0.38, -0.53,
and -0.75 at marginal tax rates of 20,40, and 60 percent, respectively
Table 5: Additional Sensitivity Experiments, Elasticity Estimates
Income elasticities
Permanent
Price elasticities
Permanent
Transitory
Evaluated at giving-weighted means /a
Full model (for comparison)
1.12
0.57
-0.49
-1.57
1. Two-stage least squares
1.19
0.60
0.39
-1.55
2. Tobit (otherwise same as 1)
1.20
0.60
0.36
-1.56
3. Age pattern as a step function
1.14
0.57
-0.46
-1.55
4. Alternative definition of exemptions
1.12
0.57
-0.50
-1.56
5. Include all years of panel
1.16
0.53
-0.28
-1.63
6. Capital gains excluded
1.09
0.58
-0.83
-1.65
Evaluated at a lower tax price /b
Full model (for comparison)
1.12
0.57
-0.76
-1.70
1. Two-stage least squares
1.19
0.60
-0.66
-2.07
2. Tobit (otherwise same as 1)
1.20
0.60
-0.66
-2.07
3. Age pattern as a step function
1.14
0.57
-0.75
-1.70
4. Alternative definition of exemptions
1.12
0.57
-0.76
-1.69
5. Include all years of panel
1.16
0.53
-0.62
-1.80
6. Capital gains excluded
1.09
0.58
-0.81
-1.64
Notes:
/a share
/b share
=0.089;
=0.089;
tax price =0.66
tax price 0.40
=
Table 6: Random VS. Fixed Effects Estimates
(reduced models; standard errors
Random effects
(1 )
Vanable
Intercept
Age
In
parentheses)
Fixed effects
(2)
Random effects
(4)
(3)
0.16
(0.01)
/a
-0.14
(0.02)
-0.00044
(2.6E-04)
0.00062
(3.5E-04)
0.0016
(3.5E-04)
-0.0015
(2.6E-05)
2.1 E-05
(2.4E-06)
8.5E-06
(3.4E-06)
1.2E-05
(3.4E-06)
2.4E-05
(2.4E-06)
0.0004
(0.001)
0.0029
(0.002)
-0.0021
(0.002)
-0.0021
(0.001)
00020
(0.0003)
0.00062
(0.0004)
4.8E-05
(0.0004)
0.0010
(0.0003)
Dummy, 1980
0.0032
(0.001)
0.0026
(0.001)
0.0099
(0.001)
0.0071
(0.001)
Dummy, 1983
0.0091
(0.001)
0.0048
(0.001)
0.022
(0.001)
0.020
(0.001)
Dummy, 1984
0.009
(0.001)
0.0040
0.001
0.020
(0.001 )
0.020
(0.001)
Dummy, 1985
0.0084
(0.001)
0.0040
(0001)
0.018
(0.001)
0.020
(0.001)
Age squared
Married
Exemptions
Dummy, 1988
la
0.0097
(0.002)
0.017
(0.002)
Log( YO)
0.098
(0.006)
0.050
(0.003)
Log(Y)
-0.016
(0.001 )
-0.027
(0001)
-0.039
(0.001)
-0.035
(0.001)
Log(P)
-0057
(0.01)
0.012
(0.01)
-0.034
(0.005)
-0.054
(0.01)
-0.038
(0.005)
-0.011
(0.005)
-0.00021
(0.0005)
-0.025
(0.005)
Current tax pnce
-1.29
(0.07)
-0.76
(0.06)
-1.39
(0.06)
-1.37
(0.09)
Current income
0.82
(0.09)
0.70
(001)
1.66
(0.06)
1.17
(0.02)
0.56
(0.01)
0.60
(0.01 )
Log(P) squared
Elasticities
Ib
Permanent income
Transitory Income
la Age and time dummies not separately identified in fixed-effects model
Ib Evaluated at giving-weighted means;
Table A.1: Estimates from First Step of Estimation
(standard errors in parentheses)
Regressors
Intercept
Dependent variable
Log modified income (Y)
Log tax price (P)
(2)
(1 )
(3)
(4)
2.7
(0.04)
1.3
(0.01 )
2.5
(0.01 )
3.0
(0.01 )
Age
8.5E-03
(1.1 E-03)
3.4E-03
(3.1 E-04)
-5.9E-03
(3.7E-04)
-3.1E-03
(2.BE-04)
Age 112
-9.2E-05
(1.0E-05)
-4.8E-05
(2.9E-06)
3.7E-05
(3.4E-06)
1.9E-05
(2.6E-06)
Married
0.082
(0.008)
0.027
(0.002)
0.022
(0.003)
0.032
(0.002)
Exemptions
0.0043
(0.002)
0.0066
(0.0005)
0.0034
(0.0006)
0.0040
(0.0005)
Dummy, 1980
-0.14
(O.OOB)
-0.15
(0.002)
-0.044
(0.003)
-0.039
(0.002)
Dummy, 1983
-1.6
(0.05)
-0.53
(0.01 )
-1.5
(0.01 )
-1.9
(0.01 )
Dummy, 1984
-1.6
(0.05)
-0.52
(0.01)
-1.4
(0.01 )
-1.9
(0.01 )
Dummy, 1985
-1.6
(0.05)
-0.50
(0.01 )
-1.4
(0.01 )
-1.9
(0.01 )
Dummy, 1988
-2.6
(0.06)
-1.2
(0.02)
-2.4
(0.02)
-3.0
(0.02)
Log(mean y)
0.72
(0.003)
0.86
(0.001 )
-0.25
(0.001)
-0.31
(0.001)
0.13
0.18
Log(mean y)
x period 2
(0.004)
0.038
(0.001)
0.14
(0.001)
(0.001 )
Log(mean y)
x period 3
0.23
(0.005)
0.10
(0.001 )
0.23
(0.002)
0.28
(0.001)
Log(y I mean y)
0.82
(0.002)
-0.30
(0.002)
Log(y I mean y)
x period 2
0.058
(0.003)
0.15
(0.002)
Log(y I mean y)
x period 3
0.13
(0.003)
0.25
(0.003)
Observations
R-square (Adj.)
53,703
53,703
53,703
53,703
0.84
0.99
0.76
0.86
Table A.2: Share Equation Estimates from the Second Step
(nominal standard errors in parentheses) fa
Variable
Intercept
Coefficient
-0.092
(0.01)
Variable
Coefficient
Log(Y*)
0.017
(0.0007)
Age
-0.0013
(0.0002)
Log(Y/y*)
-0.036
(0.001 )
Age squared
2.4E-05
( 1.6E-06)
Log(P*)
0.20
(0.01 )
Married
-00059
(0.0011 )
Log(PfP*)
-0.010
(0.005)
Exemptions
0.0015
(0.0003)
Log(PfP*) "2
0.16
(0.009)
Log(P) Log(P*)
0.093
(0005)
Var(delta) fb
0.0035
Var(epsilon)
0.0029
Total error variance
0.0064
Var(dependent variable)
0.0071
Observations
53,703
Dummy, 1980
0.0068
(0001 )
Dummy, 1983
0.011
(0.001 )
Dummy, 1984
0.008
(0.002)
Dummy, 1985
0.007
(0.002)
Dummy, 1988
-0.017
(0.002)
Notes:
la Estimates from two-stage least squares; Standard errors uncorrected fo
error-term correlations caused by individual-specific random effects.
Ib Variance of individual-specific random effect
Figure 1. Age Pattern of Giving as a
Fraction of Modified Income (PglY)
0.12
'a,
0.1
a..
~0.08
III
.~ 0.06
c:
~ 0.04 l-~-~-~-~-~-~-~-~-;;-~-~-;;;-;;-;;;ii-~-';-"'---~-~-~-==--=---='- ---------- --- ---------- -arO.02
o
25
30
35
40
45
50
55
60
65
70
75
80
85
90
Age
-
From estimates in Table 2
~
Alternative model with age brackets
DO REPATRIATION TAXES MAliER?
EVIDENCE FROM THE
TAX RETURNS OF U.S. MULTINATIONALS-
by
Rosanne Altshuler
T. Scott Newlon
WUliam C. Randolph"
OTA Paper 70
Aupst 1994
OTA Papers and Briefs are circulated so that the preliminary findings of tax research conducted
by staff members and others associated with the Office of Tax Analysis may reach a wider
audience. The views expressed are those of the authors, and do not reflect Treasury policy.
Comments are invited, but OTA Papers and Briefs should not be quoted without permission from
the authors. Additional copies of this publication may be purchased from the National Technical
Information Service, 5285 Port Royal Road, Springfield, VA 22161
Office of Tax Analysis
U.S. Treasury Department
Washington, DC 20220
• Prepared Cor the 1994 NBER Conference on International Taxation. We are very
grateful to Gordon Wilson for his assistance in using the Treasury tax data. We thank Bill
Gentry and other conference participants for valuable comments. We also thank seminar
Participants at the University of Pennsylvania, the University of Toronto, and the 1993
NBER Summer Institute for helpful comments.
"Rosanne Altshuler, Rutgers University and National Bureau of Economic Research.
T. Scott Newlon, Office of Tax Analysis, U.S. Treasury Department. William C.
Randolph, COJl&RSSionai Budget Office, U.S. Congress.
DO REPATRIATION TAXFS MATIER? EVIDENCE FROM TIlE TAX RETURNS OF U.S.
MULTINATIONALS
ABSTRACT
An open question in the literature on the taxation of multinational corporations is whether
repatriation taxes influence whether the profits of foreign subsidiaries are repatriated or reinvested abroad.
Theoretical models suggest that dividend remittances should not be influenced by repatriation taxes. The
results of recent empirical work indicate that dividend remittances are sensitive to repatriation taxes. This
paper investigates whether the empirical evidence can be reconciled with the theoretical results by
recognizing that repatriation taxes on dividends may vary over time and provide firms with an incentive
to time repatriations so that they occur in years when repatriation tax rates are relatively low.
We use
information about cross-country differences in tax rates to separately estimate the influence of permanent
tax changes, as would occur due to changes in statutory tax rates, and transitory tax changes on dividend
repatriations. Our data contains U.S. tax return information for a large sample of U.S. corporations and
their foreign suhsidiaries. Wf! find that the permanent tax price effect is significantly different from the
transitory price effect and is not significantly different from zero, while the transitory tax price effect is
negative and significant. This suggests that repatriation taxes do affect dividend repatriation behavior but
only to the extent that they vary over time. Previous empirical work has apparently measured the effect
of timing behavior.
JEL QassijicaJion: H32. H25. H87.
An open question in the literature on the taxation of multinational corporations is whether taxes
due on repatriation of foreign source income influence whether the profits of foreign subsidiaries are
repatriated or reinvested abroad.
Theoretical arguments by Hartman (1985) suggest that dividend
payments by foreign subsidiaries should not be influenced by such repatriation taxes. Under this view,
which is analogous to the "new view" of dividend taxation applied to domestic firms, taxes due upon
repatriation are unavoidable costs for "mature" foreign subsidiaries that finance investment out of retained
earnings.· As a result. investment and dividend payment decisions are unaffected by those taxes. The
results of recent empirical work that used cross-sectional data on U.S. multinationals seem to contradict
Hartman's theoretical result. These studies indicate that dividend remittances are sensitive to repatriation
taxes. This presents a puzzle.
Hanman's analysis (and the ·new view· of dividend taxation) is based on the assumption that
taxes on dividends are constant over time. This paper investigates whether the empirical evidence can
be reconciled with the theoretical results by recognizing that repatriation taxes on dividends may vary
over time. This variability may provide firms with an incentive to repatriate relatively more profits from
a subsidiary when the tax cost of doing so is temporarily relatively lower than normal, and to retain more
profits when the tax cost of repatriation is higher than normal.: Such timing behavior could be revealed
in cross-sectional data by a relationship between dividend payout levels and the current level of the tax
cost of dividend payments, when the actual relationship is between dividend payout levels and the current
level of the tax cost rt!iatiw lU il\ normal level. If timing upponunities are important to dividend payout
decisions, then it becomes difficult to interpret the tax effa:ts estimated in previous papers. In particular,
these estimates will tend to confuse the
in statutory
taxpayer.
tax
eff~1S
rates, with the eff~1S of
of permanent tax changes, as would occur due to changes
w. changes due to transitory changes in the situation of the
It is imponant to distinguish whether cross-sectional differences between subsidiaries in dividend
payout behavior are due to the current level of me tax cost of paying dividends or the difference between
the current and the normal, or expected furure, tax cost. Making this distinction will help us evaluate
the effects of tax policy on the location of investment, the form of finance, and tax revenues. More
specificall y, it has implications for the evaluation of policies such as the reduction of withholding tax rates
in bilateral tax treaties and the repeal of the deferred taxation that foreign profits generally enjoy in the
United States. The policy implications of this work are discussed in more detail in the final section of
the paper.
Micro data can be used to distinguish the effects of transitory variation in tax costs from the
effects of permanent differences in tax costs. This paper uses a recently created data set containing U.S.
tax return information for a large sample of U.S. corporations and their foreign subsidiaries. For some
of our empirical work. we link the subsidiary-specific data across time to create a p.anei data set. To our
knowledge. this is the largest panel data sel in existence that contains tax information on multinationals.
It is also the only panel data set that has detailed tax infurmation on both the parent corporations and their
foreign subsidiaries.
differen~c:s
in tax rates to estimate separate effects for
the permanent and transitory components of the
tax pri~e
of dividend repatriation. The idea is that
variations across countries in nerige repatriatiun
tu
We use information a!ltlut cross-country
with the permanent component of Ul
rrices or in statutory tax rates will be correlated
pri~c: VMI~lun. hUI un~rrc:lated
with transitory variations. Using
these measures to construct instrumcnul VMI~Ie\ fur the: tax price allows us to separately identify
permanent and transitory tax price
eff~1.S.
Our
~urTwlun
..,
strategy is similar to that of Burman and
· Randolph (1993), who used state tax rates as instruments to separate permanent from transitory effects
of taxes on capital gains realizations.
To preview our results, we find that the permanent tax price effect is Significantly different from
the transitory price effect and is not significantly different from zero, while the transitory tax price effect
is negative and significant. This suggests that previous cross-sectional analysis has measured the effect
of timing behavior, either through tax planning that affects both the tax price and dividend payments or
through companies timing their repatriations to take advantage of exogenous transitory variations in tax
prices.
The remainder of the paper is organized as follows. Section I briefly reviews Hartman's analysis,
the related empirical literature. and some more recent theoretical work in this area. Section II derives
the tax price of a dividend repatriation, Section III presents the empirical model. and Section IV describes
the data. Results are presented in Section V. followed by concluding remarks.
I.
The Hartman Analysis and Subsequent Studies
The United States system for taxing the income earned by the foreign subsidiaries of U.S.
corporations defers taxation of foreign income until it is hrought back to the United States and provides
a credit for foreign taxes paid. ~
Under this credit and deferral system. the two main forms of
repatriation tax that a finn incurs on income remined from a foreign subsidiary are the residual home
country tax liability (if any) not offset by the foreign tax credit, and any withholding tax imposed by the
source country. Hanman (1985) argued that. under a credit and deferral tax system, the repatriation tax
on foreign source income is irrelevant to th~ inv«=stment and dividend payment decisions of foreign
subsidiaries that are financed through retaineIJ earnings ("mature" subsidiaries). Hartman's insight was
3
that, since the repatriation tax is unavoidable, it reduces the opponunity cost of investment and the return
to
investment by the same amount. As a result, the tax does not affect a mature subsidiary's choice
between reinvesting its foreign earnings and repatriating funds to its parent.· His analysis is essentially
an application of the "new view" or
"tax
capitalization view" of dividend taxation put forward by King
(1977). Auerbach (1979), and Bradford (1981), The "new view" holds that taxes on dividends (if
constant over time) have no distortionary effects on the real decisions of domestic corporations. Although
Harunan's analysis pertains to the residual U.S. tax on foreign income, it applies equally well to
withholding taxes.
Several empirical studies using cross-sections of tax return data appear to
theoretical result. Multi (J 981) used U.S.
laX
co~tradict
Hanman's
return data from 1972 to estimate the effect of tax costs
on the choice of income remittance channels. He found significant tax effects in estimates of the
parameters of a dividend equation. Goodspeed and Frisch (1989) and Hines and Hubbard (1990) both
used 1984
tax
rerum data of large samples of U.S. corporations and their foreign subsidiaries to
investigate
tax
effects on foreign income remittances. Goodspeed and Frisch matched data on parent
corporations with
country-s~itic
information on th(ir foreign subsidiaries in an attempt to quantify
income repatriation incentives created by the U.S.
tax
system. By further disaggregating the 1984 tax
return data. Hines and Hubbard were able to study income: repatriation behavior using a data set that
matched subsidiary-specific infurmation to parent corporation data.
Both studies found significant
evidence of tax effects on income repatriation. Altshuler and Newlon (1993) used
u.s. tax return data
from 1986 to investigate tax eff~1S on dividend n:mittan&.:~ fwm foreign subsidiaries to their U.S. parent
corporations. This paper improved upon previous work hy providing a more accurate specification of
the tax incentives facing firms. Results frum estimal~ of dividend equations indicated a somewhat larger
and more significant
tax
effect than had betn previously ~timatc=d.
4
Recognizing that Hanman's.theoretical analysis did not allow repatriation taxes to vary over time
may help to reconcile it with the empirical results from the above studies. There are at least two different
ways in which the repatriation
the
tax
taX
may vary. First, it may vary over time due to differences between
base definitions of the United States and the host country of the foreign subsidiary. The U.S.
foreign tax credit is based on the average foreign
tax
calculated with respect to the U.S. definition of the
tax
rate of the subsidiary, where the average is
base. Differences in
tax
vary over time, e.g., if capital cost allowances differ, causing the average foreign
the United States to vary. This variation in the average foreign
tax
base definitions may
tax
rate as defined by
rate causes the foreign
tax
credit
allowed for a given dividend payment to vary over time as well. Such variations in the average foreign
tax
rate may be planned. For example, to the extent that the timing of deductions and credits is
discretionary. a foreign subsidiary may shift them from years in which it is remitting income to years in
which it is not remitting income, thereby maximizing the foreign tax credit. This device is known as the
"rhythm method" in the
tax
planning jargon.'
The second cause of variation in the repatriation tax is movement by the parent company between
being in "excess credit." i.e .• having more foreign tax credits available than are needed to offset potential
U.S. tu: liability on foreign source income. and being in "excess limitation." the opposite condition.
Since the U.S. foreign tax credit operates. to some extent. on an overall basis, excess foreign tax credits
generated from one source of foreign income can he used to offset potential V.S.
of foreign income that generates insufficient foreign
credit. there is no additional V.S.
tax
tax
tax
on another source
credits. If the parent corporation is in excess
cost to repatriating foreign income. If the parent is in excess
limitation, then the V.S. taX cost of repatriating income from a subsidiary may be positive or negative,
depending on the average foreign tax rate of tht suhsidiary.
5
Several recent thecretical contributions have incorporated a repatriation tax that may vary over
time and that may be endogenous to the investment and financial decisions of subsidiaries and parent
corporations. Hines (1989) shows that U.S. tax payments on foreign source income are affected by
differences in the way the U.S. and host countries determine taxable income.
In his model. the
repatriation tax is a function of the ratio of U.S. defined income to foreign defined income. He points
out that this ratio may vary over time and may be affected by investment decisions. As a result,
investment incentives may be influenced by the repatriation tax. Leechor and Mintz (1993) make a
similar argument. In their model, the repatriation tax is also endogenous and the Hanman result obtains
only when host and home country tax bases, adjusted for inflation, are proponional to each other.
Altshuler and Fulghieri (1990) offer a model in which parent corporations may switch into and
out of the excess credit position. This model shows that the Hartman result obtains onl y when the excess
credit position is stationary. The insight here is that switching between credit states breaks down the
equivalence between the impact of repatriation taxes on the opportunity cost of capital and on the returns
to investment.
In one sense, none of these recent theoretical contributions has depaned from the Hanman result:
the level of the repatriation tax does nUl by itself affect the incentive to repatriate income rather than
reinvest it. Instead, it is the variation over timl: in thl: level of the repatriation tax that affects the
incentive to repatriate incoml:. bc:cause this variation provides parent corporations with the opponunity
to time remitwlces so that they occur in years when repatriation
tax
rates are relatively low. If these
theoretical predictions are corra.1. men failure III distinguish between the effects of permanent and
transilOry variation in the tax price when estimating tax effe..1S on repatriation of foreign income could
6
lead to incorrect results. The effect of permanent variation in the tax price might be overstated, since
the estimates would confound the effects of permanent and transitory variation in the tax price.
II.
The Tax Price or Dividend Repatriations
In this section we specify a measure of the tax price of repatriating foreign income in the form
of dividends and we briefly discuss the factors that may cause that tax price
to
vary over time. 6 To
understand.how these tax prices are derived, some background information on the foreign tax credit is
useful. The discussion here borrows heavily from Altshuler and Newlon (1993).
The foreign tax credit has two components. The first, called the direct credit, is a credit for
foreign taxes paid directly on income as it is received by a U.S. taxpayer. Foreign taxes eligible for the
direct credit include withholding taxes on remittances to the U.S. taxpayer such as dividends, interest,
and royalties. and also
incom~
taXes on foreign branch operations. The second component, called the
deemed-paid or indirect credit. is a credit for foreign income taxes paid on the income out of which a
dividend distribution is made to the U.S. taxpayer. The deemed paid credit is generally a credit for
foreign corporate income taX&:S.
The deemed paid credit for a dividend remittance from a foreign subsidiary is calculated by
grossing up the dividend to ref1~1 the foreign tax deemed paid on that dividend income.' To illustrate,
suppose subsidiary i makes a dividend payment. 0" ttl its parent corporation. The grossed up dividend
is
D. + T,D,I(Y,·T,)
(1)
where Tj denotes the total foreign income tax paid ny sUMidiary i and Yi denotes the subsidiary's pre-tax
income from th~ U.S. perspective. which l\ the ~uMidlarl' ~ hook earnings and profits. Equation (I) can
7
be rewrinen as DJ(l-rJ. where
1,
represents the average subsidiary tax rate, T/Y" on foreign earnings
from the U.S. perspective. The U.S.
UX
on the dividend before credits is 10/(1-1.). where 1 denotes
the U.S. rate of tax. The United States considers that creditable foreign tax was paid on the dividend in
the amount of 1;O;l(1-1,}. The U.S. tax liability on the dividend payment after the deemed-paid credit
is therefore 0;{1-1,}/(1-1,}.
The amount of foreign tax credit that can actUally be used is limited. however, to the amount of
U.S. tax payable on foreign income. Therefore, jf the foreign tax rate, r i , exceeds the U.S.
tax
rate,
1.
excess credits are created in the amount OfO;(1;-1)/(I-r). If the foreign tax rate is less than the U.S. tax
rate, then a U.S. tax liability of 0,( r-T )/(I-TJ accrues and the remitted foreign income is said to be
creating excess limitation.
As noted above, the limitation on the foreign tax credit operates to some extent on an overall
basis. This means that excess credits accruing from one source of foreign income can often be used to
offset U.S. tax (excess limitatiun) on foreign
incom~
from another source. This is called cross-crediting
or averaging of foreign income. The ability tLl cross-crelJil means that the effect of repatriating foreign
income from a panicular soun:e may be positi\'c. negati\'c or zero.'
TIu DtriWllion of TIU Prim
We define the tax price of i dividend r~inan,e as the additional global tax liability arising from
an incrementa! dollar's worth of dividend repmliuons. Tn derive the tax price we must take into ac~unt
both the incremental U.S. and soun:e CHuntr)
generated by dividend payments
creditable against U.S.
tax
~fur~
W~
un
the: h.re:lgn lu
~
dullar of dividends. The U.S.
~r~il
equals 10J(I-1J.
liahiJily Me: d«maj·paiJ W~ plus withholding taxes, or
8
tax
liability
The foreign taXes
(2)
where Wi denotes the withholding tat rate in the host country. If the parent is in excess credit, any U.S.
taX
liability on a dollar of dividends is offset by the foreign tax credit. If the parent is in excess
limitation, the U. S.
tax
liability equals
(3)
To compute the global
tax
price of a dollar of dividends we add the source country effect to the
U.S. tax effect. Under a classical corporate income tax system9 the total source country tax liability on
subsidiary i equals
T· = TY·
I
As a result, the onJy host country
tax
I.
+ (&/·0·
I
(4)
I'
consequences of a dividend remittance are the associated
withholding taxes. If the parent is in excess credits there is no U.S.
tax
consequence and therefore the
global tax price is W,. If the parent is in excess limitation the global tax price, p, is
p == (T-TJ/(I-rJ.
(5)
The withholding tax has no net effect on global taxes because the extra withholding tax paid on the
dividend reminance is offset by a reduction of U.S. tax of an equal amount. Due to cross-crediting, the
global tax price may be negative and dividend payments may reduce the finn's global tax Iiability.lo
Expression (5) shows that. if the parent corporation is in excess limitation, then the tax price of
a dividend remittance is inversely related to th( subsidiary's average
to the extent that these variations in
1,
tax
rate,
Ti .
As noted previously,
are endogenous, (.g. because the timing of deductions and credits
is elective. they can become a pan of tax planning strategies for repatriating foreign source income. Even
if a subsidiary's average
tax
rate is relativ(ly constant, the tax price of remittances will fluctuate
significantly when the subsidiary's parent swit~h.:s cr«in ru~ition. Consider a subsidiary with an average
9
tax rate above the U.S. corporate rate. When the parent is in excess limitation, the tax price of a
dividend remittance is negative [(1-1,)/(1-1 J < 0). When the parent is in excess credit, the tax price
equals the withholding tax rate. As a result, tax prices for some subsidiaries can be negative in some
years and positive in others. These changes in tax prices may also be endogenous if parents can control
their foreign tax credit positions through careful structuring of remittances from foreign subsidiaries. The
next section presents an estimation strategy
to
separate the effect of these transitory components of tax
prices from the effect of changes in the permanent component.
III. An Empirical Model or Dividend Repatriations
Previous work by Hines and Hubbard (1990) and Altshuler and Newlon (1993) has estimated a
simple empirical model of dividend repatriations. For subsidiaries paying a dividend the model takes the
fol1owing basic form:
(6)
d=ao+a.P+br+XA+f,
where d is the dividend payout. expressed as the ratio of subsidiary dividends to assets, P is the current
tax price of dividend repatriatiun". r is the after-tax rate of return for the subsidiary, and X is a vector
of
chara~1eristics
of subsidiary and parent.
Equation (6) is not derived explicitly from the firm's
optimization probJem, but can be considered a reducoo furm suitable for testing the general implications
of theoretical models such as Hartman's. It is similar
[0
the empirical models used
to
expJain dividend
payments in a purely domestil.: wntext.
In these previous papc:rs. P was
CXpc:..1c:d
to have: a n~galive coefficient since higher tax pril.:cs
were expected to reduce the attractiveness of repatriation. The after-tax rate of return, r, may have an
ambiguous effect on the dividend payout. On the one hand, if dividend payments are a residual, then
higher earnings. which would increase the ma.\ured rale of return. could be expected ceteris paribus. to
10
increase the dividend payout. On the other hand, a higher after-tax rate of return would increase desired
investment. having the effect of increasing retained earnings and reducing the dividend payout. Other
relevant variables are included in X. the most important of which is perhaps the age of the subsidiary.
Some theoretical literature (such as Newlon (1987) and Sinn (1990» suggests that older subsidiaries
should have higher dividend payout ratios. This prediction is a direct consequence of the value of
deferral when there is a repatriation tax, i.e., if there is deferral. then dividend payouts will on average
be an increasing function of age. other things constant.
As noted already, by using the current tax price, P, the above model may confound the potentially
different effects of permanent and transitory components of the tax price. It is beyon~ the scope of this
paper to derive a theoretical model that explicitly incorporates intenemporal variation in repatriation tax
prices. Instead, we use a reduced form empirical model to test the general implications that could be
expected from any such model. In particular. a transitory decrease (increase) in the tax price reduces the
current tax price relative to future tax prices, and thus enables the firm to increase the value of its foreign
source income by accelerating (delaying) dividend repatriations. But a permanent change in the tax price
does not change the relative prices of current and future repatriation. Therefore. one would expect
dividend repatriations to be
aff~'ted
more by transitory than by permanent changes in tax prices. And
Hanman's (1985) work would indicate that permanent changes in tax prices should have no effect at all
on dividend repatriations.
Based on these considerations, our empirkal mudt:! generalizes equation (6) to allow for
differences in transitory and permanent
tax
price efftl.1S:
d=ao+a,(P-P·)+~p· +br+ XA+f.
II
(7)
where p. is the permanent component of the tax price and hence (p-p) is the transitory component. We
estimate this in a slightly different form:
d=20+a,P+(~-a,)P· +br+ XA +f.
(8)
One difficulty in estimating equation (8) is that the permanent component of the tax price, p., is
unobservable. To capture the effect of p. we use an instrumental variables approach in which we
instrument the tax price on a variable, pi. that we expect to be correlated with the permanent component
of the tax price but uncorrelated with its transitory component. This essentially involves replacing p. in
equation (8) with its predicted value,
where the coefficients are derived from the regression
p.= bo+b,Pi +~r+ XB+ ~.
We experiment with two alternative instruments for the permanent component of the tax price, the
country average tax price and the country statutory withholding tax rate. These instruments reflect crosscountry variation in tales that should also he reflected in the permanent component of the tax price but
not in the purely transitory component.
For estimation of (8). we use a Tobit procedure hel!ause dividend payments are censored at zero.
On the surface. this may appear uMecessary since al.:tuaJ dividend payments are. by definition, nonnegative. However. the desired level of dividend payments could be negative. This result would obtain
if. as suggested by the theorecicaJ work in this area. foreign retained earnings were the preferred source
of finance for foreign invesunenl but foreign inv.:stment exceeded foreign earnings. Our use of a Tobit
procedure implicitly assumes that we have modell.:d d.:sir~ dividends, but only observe actual dividends.
12
IV.
The Data
Our data set contains information from three sets of tax and information forms filed by a large
sample of non-financial U.S. multinational corporations. Subsidiary data are obtained from information
returns, called 5471 forms, filed for each foreign subsidiary of a U.S. taxpayer. The form 5471 includes
balance sheet and income statement variables along with detailed information on remittances to U.S.
parent corporations. For the purposes of this study, we needed to append information on the taxable
income and foreign tax credit position of parent corporations to the subsidiary specific data from the form
5471s.
We obtained income data from corporate income
corporations. We calculated foreign
foreign
tax
tax
tax
returns filed by the U.S. parent
credit positions using data from the forms filed in support of
credit claims. Detailed data from foreign
tax
credit forms and data from 5471 forms is ()nJy
compiled in even years and were available to us only for the years 1980, 1982, 1984, and 1986.
Calculating subsidiary-specific
tax
prices for dividend remittances for each sample year also
requires knowledge of the host country withholding tal rates, the appropriate foreign corporate tax rates,
and details of host country
tax
systems. To develop a list of country specific withholding tax rates for
each sample year. we used the Price Waterhouse guidc:s and
tax
treaties. These guides also provided the
appropriate statutory tax rates for the countric:s in our sample with non-classical (for example, split rate
and imputation) corporate
tax
systems. Finally. in each year of the sample we used the subsidiary's
average foreign tax rate to measure the corpurate tax rate: T, at which dividends are grossed-up and foreign
tax
credits are calculated. To
c~kulate
this rate we dividc:d fore:ign tax payments by before-tax earnings
and profits. both obtained from the 5471 furm dau,
In some situations. calculiling average tu rates in this manner may lead to an unsatisfactory
approximation of T,. In panicular. pruhlem(' Mise ""hen suhsidiaries report negative earnings and profits,
13
receive
tax
refunds from host countries, repatriate dividends in excess of current earnings and profits.
and receive dividends from subsidiaries of their own. Where feasible. adjustments were made in these
cases to arrive at a more satisfactory measure of T;.12 Various screens were also applied to the data
[0
eliminate observations for which the data were suspect. After these deductions the total number of
observations in the sample was 22,906.
Some of the estimation required linking subsidiaries in two consecutive sample years to form a
panel. This was done largely through an algorithm that matched subsidiaries based on their U.S. parent
corporation, company name, date of incorporation and country of residence. Many subsidiaries could
not be matched on this basis and they therefore could not be included in the panel. The total number of
observations in the panel was 7,118.
Table 1 presents for each country
deviation of the
tax
repr~c:nted
in the sample the mean
tax
price, the standard
price. tht statutory withholding w rate and the mean dividend asset ratio for me
subsidiaries located in that country for 1984. This table provides information that may be valuable in
evaluating the usefulness of ~untry man w
pri'~
and statutory withholding
tax
rates as instruments
for the permanent component of the tax price. First nott that there is substantial variation in country
mean tax prices and in StalUlnry withholding w rales. Mean country
tax
prices range from -0.21 for
Germany to 0.38 for Greece. SWUtory withholLiing tal rates range from zero for a number of tax haven
countries to 55 percent for MClicu. This dqr(e of variation across countries means that these variables
may be useful instruments.
si~e
thc
cross~()Unlry
variation is presumably correlated with variation in
the permanent component of the ax pri,c.
14
Note also that within each country the standard deviation of the tax price is relatively large, in
no case less than 0.14. This demonstrates that there is a substantial ponion of variation in tax prices not
explained by differences in country statutory dividend withholding and corporate income tax rates.
Finally, note that no clear relationship between country mean dividend payout ratios and country mean
tax
prices or statutory withholding rates emerges from inspection of Table 1. This presages the results
presented in the next section.
V. Results
Table 2 presents the estimation results. Column 1 of the table presents the results of estimating
the simple dividend model presented in equation (6) that incorporates only the current tax price of
repatriation. These estimates use the full sample of 22.906 observations. They are presented to check
that the results with our sample are essentially the same as found by Hines and Hubbard and Altshuler
and Newlon.
The results presented in column
(I)
are
ind~
similar to those found in previous work. The
coefficient on the tax price is negative and statistically significant and of similar magnitude to the
estimates in previous papers. To gauge the economic significance of this coefficient, note that it implies
that a reduction in tax price of one standard deviation (0.34) implies an increase in the overall dividend
payout ratio (including those that pay dividends and those that do not) of about 0.004, which is equal to
about 11 percent of the mean dividend payout ratiu uf 0.036. Thus, moving the tax price from one
standard deviation above the mean to one: standard deviation below the mean implies an increase in the
dividend payout ratio equal to about 22 percent of the mean dividend payout ratio.
IS
The coefficient on the after-tax rate of rerum is positive, significant and less than one. This is
plausible, since it implies that an increase in earnings increases dividend payments.
Because it is
significantly less than 1, the coefficient also suggests that an increase in the after-tax rate of return
increases retained earnings. Also as expected, the coefficient on subsidiary age is positive and significant.
Column (2) and the remaining columns of the table present the results of estimating the model
in equation (8) that distinguishes between permanent and transitory tax price effects. To interpret the tax
price coefficient estimates in these columns recall that in equation (8) the effect of the transitory
component of the
taX
price is captured by the coefficient on the current tax price, while the coefficient
on the permanent tax price equals the difference between the permanent and transitory tax price effects.
Thus. the coefficient estimates in the first row of the table represent transitory tax price effects, the
second row coefficient estimates represent the difference between the permanent and transitory tax price
effects, and the coefficient estimates in the third row. which are sums of the coefficients in the first two
rows, represent permanent
Column
(2)
country mean tax
tax
of Tabl~
pric~
is
price effects.
2
us~
shows estimates. using
th~
full sample, of the basic model in which the
as an instrument for the permanent component of the
taX
price. The
estimated effect of the transitory component of the tax pri,e (in the first row) is negative and statistically
significant. Funhermore, it is larger in absolute magnitude than the estimated effect from the model
excluding the permanent tax prke eff~1. u This r~ull implies that transitory variation in the tax price
has a large effect on the incentive 10 rq>atriatt
in~.ume.
The estimated differen,e hetw~n the ~rmanent and transitory tax price effects presented in the
second row of column (2) is positive and slatlsti.:ally significant. This implies that the permanent
16
· component of the tax price is not only significantly different from the transitory
tax
price effect. but,
since the coefficient is positive, cannot have as large a negative impact on dividend repatriations. In fact,
the estimated permanent tax price effect presented in the third row is not significantly different from zero.
These results provide support for the hypothesis that the dividend repatriation incentive is affected by
transitory but not permanent changes in the tax price of repatriation, a result that is consistent with
Hartman's analysis.
One potential problem with the results from the basic model in column (2) arises because the tax
incentive to retain earnings abroad should depend on the expected foreign after-tax rate of return, but we
use the actual rate for the current year in our estimates. This may bias the coefficient on the after-tax
rate of return toward zero. More importantly, the difference between the current and expected after-tax
rates of return will be part of the error term. Consequently. the current tax price and the country mean
tax price will both be correlated with the error term because both depend on current foreign taxes and
income. This may bias the coefficients on
th~
current and permanent tax prices.
To explore whether this is a significant problem we used the two year lead after-tax. rate of return
as an instrument for the exp~1c=d after-tax
rat~
of return. The motivation for this approach is that, under
rational expectations, the difference between the future actual and expected after-tax rates of return (the
forecast error) should be independent of the current after-tax rate of return, which reflects only current
information.
This approach reduces the sample size in twu ways. First. use of the two-year lead means that
only the first three years of the data can be u~c::U. Se~ur~. only observations for which matches could
)7
be found in the following year of the sample could be used. As mentioned above, these restrictions
reduced the sample size to 7,118.
There is some risk that the selection of subsidiaries dropped from the sample by these
requirements was not random. For example, current income repatriation might depend on whether there
are plans to sell a subsidiary in the future, and subsidiaries sold within two years would be excluded from
the sample. Subsidiaries that are being shut down might also be more or less likely to pay dividends,
and a subsidiary shut down within two years would be excluded from the sample. If for these or other
reasons the selection was significantly non-random, selection bias might be induced.
To investigate whether there is any potential selection bias, column (3) of the table presents the
results of estimating the basic model of column (2) using the restricted sample. Note that a higher
percentage of the subsidiaries in the restricted sample pay dividends to their U.S. parent corporation.
This is cOnsistent. for example. with dividend paymtnts being lower before a subsidiary is sold or shut
down. But note that based on Hausman tests on tht individual coefficients of interest the regression
results do nOl differ significantly from thOSt obtained using the full sample. Thus, there are no signs of
selection bias in the restricted sample.
Column (4) of the table prc=sents the r~ults of th~ rc:gression using the two-year lead after-tax rate
of return as an instrument for the: expected afte:r-tax ratt of rc:tum. The coefficient on the after-tax rate
of return increases. and the difference is signjfi~t hasc:d on a Hausman test. This coefficient implies
that a higher expected after-tax rate of rc:tum is assodatL'll with greater retention of earnings, but not by
as much as measured in the previous regrc:ssiuns. The: tax pri~e coeffiCients are not significantly different
18
from those in column (2).·' These. results therefore provide no evidence that the permanent tax price
coefficients are biased by using the current instead of the expected future foreign after-tax rate of return.
A second potential problem arises because even after controlling for differences in country
average tax prices and the other regression variables using the instrumental variables approach the current
tax price may still be correlated with the permanent tax price. This is because the permanent tax price
may depend not only on cross-country differences in taxes, but also on the portfolio of subsidiaries held
by the U.S. parent corporation, on the parent's U.S. operations, and on expectations about the future.
This problem also could bias the
coefficient toward the permanent
tax
tax
price coefficients. It would tend to bias the transitory tax price
price coefficient and bias the permanent tax price coefficient (i.e.,
the estimated difference between the permanent and transitory tax price effects) toward zero.
To determine whether this is a serious problem we estimated the model using the change in
price hetween the current year and the twu-ye.ar
l~
tax
as an instrument for the transitory tax price. This
approach was adopted hecause the change in the tax price is likely to be less correlated than the current
tax price with the permanent
tax
price. The rc=sults of this c=stimation are presented in column (5) of the
table. There is no significant change in any of the coefficients. they are simply estimated with somewhat
less precision. Thus. there is no evidence that the
tax
price coefficients are biased from a correlation
hetween the current and permanent tax pricc=s.
A third problem may eltist he.=ause mudt of the variation in the country mean tax. price comes
from variations in effective cOl'pur~e
corporate
tax
tax UI~ a~rus~
cuuntries. hut variations in foreign effective
rates may also aff~1 foreign after-tax rat~ of return. As a result it may be difficult to
separately identify the effects of variation., in fureign df~1i\'e tax rates as they affect repatriation through
19
their effect on the
tax
price of repatriation and as they affect repatriation through their effects on the
foreign after-tax rate of return.
For example, a higher foreign corporate tax rate will decrease the tax.
price of repatriation for the subsidiary of a U.S. corporation that is in excess limitation, but it will also,
ceteris paribus, decrease the foreign after-tax rate of return, thereby decreasing the incentive to defer
repatriation of foreign income. Although the models we estimate attempt to avoid this problem by
controlling separately for the foreign afteNax rate of return, the measure we use is imperfect and hence
there is some possibility of misspecification biasing the tax price results.
Our first approach to testing whether this is a significant problem is to use the country statutory
dividend withholding tax rate in place of the country mean tax price as an instrument for the permanent
component of the tax price. The statutory withholding tax rate is related to the tax price, but has no
direct relation to the corporate tax rate. Column (6) of the table presents the results of this estimation,
using the full sample again. Note that the permanent
basic model estimate in column
test This provides some
The approach used
10
fix for the potential problem.
price coefficient changes very little from the
The differenc.:e is not statistically significant based on a Hausman
(2).
eviden~e
tax
that there is no seriuus misspecification problem.
generate the results present~ in column (6) may not provide a conclusive
~c:
corporate tax rates. To addrc:.\.\
thi~
country stannury withholding tax rates are correlated with country
additional possibh=
diffi~uhy
we remove the correlation from the
withholding rate instrument. Tll do lhis we regrc:.\.\ the withholding rate on the country mean average
corporate tax rate and the
COUntry
sututof}
Ul rale:
instrument for the permanent compunent uf th.:
and use lhe residual from this regression as an
Ul rfl~(
In other words, we use as an instrument the
pan of the withholding tax rate thallS HrthtlgUn.tl11l the ~uunlry mean tax rate and the statutory corporate
laX
rate. The results of thili pn~~ur( M~ rr~c:nIQj In ~ulumn (7) of the table.
~o
Here again the
coefficient on the permanent component of the tax price is not significantly different, based on a Hausman
test, from the coefficient obtained in the estimates of the basic model presented in column (2).
VI.
Conclusion
The tax price effects on dividend repatriations found in previous studies using the simple model
of dividend repatriations apparently measure largely the effect of the timing of dividend repatriations to
take advantage of intertemporal variation in tax prices. These timing opportunities may arise either
endogenously, through tax planning that affects both tax prices and dividend payments, or through
exogenously caused variations in tax prices. Therefore, although repatriation taxes seem to affect
dividend repatriation behavior. this is apparently only because tax prices vary over time. This result is
consistent with the prediction of Hartman's model.
The results presented here should not be construed to imply that the "permanent" levels of host
and home country taxation do not affect dividend repatriation by foreign subsidiaries. Host and home
country corporate taxation will of course aff~1 the earnings reinvestment decision, and hence the dividend
repatriation decision, through their
imp~'tS
on host and home country after-tax rates of return. The
evidence from our estimates merely implies that host and home country taxation do not affect repatriation
through the permanent component of the repatriation tax.
Our results may have policy implications. The most obvious implications relate to policies on
dividend withholding tax rates.
For example. many capital-importing countries consider lowering
withholding taxes, either unilaterally or in the
~:ontext
uf bilateral tax treaty negotiations, to try to attract
new equity investment. But some countries may bc= inhihited hy the fear that such a measure would lead
to increased flight of the accumulated multinational eQuit) -trappe,r by existing high withholding taxes.
21
Our results suggest that, as long as the reduction in the withholding tax rate is viewed as permanent, such
fears are unfounded. Permanent changes in dividend withholding tax rates appear likely mainly to attract
new equity investment and not to encourage repatriation of equity accumulated from past earnings. I~
To the extent that these results support the Hartman model, they have implications regarding the
incentive effects of the credit and deferral system that the United SUtes uses to tax most foreign income
of U.S. multinationals. In particular, if the repatriation
tax
is irrelevant for the dividend repatriation
decision, then, at least as regards reuined earnings, the incentives for foreign investment are the same
as they would be under a system that exempts foreign income from taxation.
22
REFERENCES
Altshuler, Rosanne and Paolo Fulghieri. 1990.
"Incentive Effects of Foreign Tax Credits on
Multinationals, - Columbia University Working Paper #478.
_ _ _ _ _ _ and T. Scott Newlon. 1993.
-The Effects of U.S. Tax Policy on the Income
Repatriation Patterns of U.S. Multinational Corporations: in A. Giovannini, G. Hubbard, and
J. Slemrod, Studies in /memarioTUJl TlWllion. Chicago: University of Chicago Press, pp 77-115.
Auerbach, Alan J. 1979.
"Wealth Maximization and the Cost of Capital," Quanerly Journal of
Economics, 93.
Bradford, David. 1981. "The Incidence and Allocation Effects of a Tax on Corporate Distributions,"
Journal of Public Economics, XV.
Burman, Leonard and William Randolph. 1993. "Distinguishing Permanent from Transitory Effects of
Capital Gains Tax Changes: New Evidence from Micro Data, " forthcoming. American Economic
Rm~.
Goodspeed, Timothy and Daniel J. Frisch. 1989. ·U.S. Tax Policy and the Overseas Activities of U.S.
Multinational Corporations: A Quantitative Assessment: manuscript, U.S. Treasury Office of
Tax Analysis.
Hanman. David. 1985. "Tax Policy and Foreign Direct Investment," Journal of Public Economics, 26.
Hines. James R. 1989.
·Credit and Deferral as International Investment Incentives." manuscript,
Princeton University, August.
_ _ _ _ _ and R. GleM Hubbard. 1990. ·Coming Home to America: Dividend Repatriations by
U.S. Multinationals." in A. Ruin and J. Slemrod. OOs .• Taxarion in lhe Global Economy.
Chicago: University of Chicago Press. rp. 161-198.
King. Mervyn. 1977. Public Policy and 1M Corporation. London: Chapman and Hall.
23
Leechor, Chad and Jack Mintz. 1993. "On the Taxation of Multinational Corporate Investment when
the Deferral Method is used by the Capital Exporting Country," Journal of Public Economics,
51.
Muni, John. 1981. "Tax Incentives and Repatriation Decisions of U.S. Multinational Corporations,·
Nazionai Tax Journal, 34.
Newlon, T. Scan. 1987. "Tax Policy and the Multinational Firm's Financial Policy and Investment
Decisions," Ph.D. Dissenation. Princeton University.
Price Waterhouse. 1980, 1982, 1984, and 1986. Corporaze Taxes: A Worldwide Summary. New York.
Sinn, Hans Werner. 1990. "Taxation and the Birth of Foreign Subsidiaries: NBER Working Paper
#3519.
24
ENDNOTES
1.
See King (1977), Auerbach (1979) and Bradford (1981).
2.
The term "normal" is used here to imply that there is some permanent, or long-run average,
repatriation tax cost that the multinational faces. By "normal" tax cost we really mean expected future
tax cost.
3.
The Subpan F provisions of the tax code provide for accrual basis taxation on cenain foreign
income.
4.
Note that this result does not imply that home and host country taxes have no effect on the
repatriatiori decision. They do have an impact due to their effect on home and host country after-tax rates
of return, but not through the tax on repatriation.
5.
The rhythm method was a more useful tax planning device for U.S. multinationals prior to the
Tax Reform Act of 1986. when the foreign tax credit was calculated year by year. The 1986 Act
switched to a system in which the foreign tax credit is calculated based on the pool of previously
unremitted foreign earnings and uncredited taxes. and. therefore, shifting the year in·which tax credits
and deductions are taken has much less effect on the foreign tax rate for U.S. foreign tax credit purposes.
6.
Although we focus on dividend payments. income may be remitted to parent companies in the
form of interest. rents and royahy payments. Previous work by Altshuler and Newlon (1993) suggests
that dividend payments are the most imporunt channel for income remittances, making up over 60
percent of the total foreign in~ome derived hy U.S. parents from their foreign subsidiaries in 1986.
7.
As mentionc=d above. for tax years hegiMing in 1987. the amount of foreign tax credit associated
with a divide.nd payment is has~ on the a~,umulat~ value of earnings and profits. Although this
changes the gross-up formula in the tellt. it is not relevant for our analysis since our data is taken from
y~s prior to 1986.
8.
Congress has restri~1c:d cross-cr~itinG hy crtating baskets of different types of foreign income
to each of which a separate fmeign tax cr~it limitation applies. Before the 1986 Act. the period which
our study covers. there were five separate haskc:ts: (I) one for investment interest income, (2) one for
Domestic International Sal~ Corporation dividend incume, (3) one for the foreign trade income of a
For~ign Sales Corporation. (4) anoth~r fur disrritluti(1n.~ from a Foreign Sales Corporation. and (5) one
for all other foreign source in~)me. whiclt we will ~l general limitation income. The 1986 Act
decreased the potential for cruss-ac=diling funher hy in,rea.,ing the numb~r of separate limitation baskets
to nine.
9.
For simplicity we f~1l5 our dis,u.\.\ltln In this s~'tiun on the derivation of the tax price of a
dividend remittance from a foreign sutlsidlMY uperating in a country that uses a classical corporate tax
system. In our empirical work we also take deuits uf hust ,nuntry tax systems into account since our
sample includes subsidiaries that operate an ,"untfl~ with split-rate and imputation systems. The
derivation of the tax prices for th~e t)~ lit tu s~·slc~m~ are discussed in detail in Altshuler and Newlon
(1993).
10.
We neglect here the cases. in which the parent corporation has tax losses, since, as in earlier
papers by Hines and Hubbard (1990) and Altshuler and Newlon (1993), we include in our sample only
those U.S. corporations with positive worldwide taxable income. They are excluded here for simplicity's
salc:e, since the carryover rules for tax losses and foreign tax credits can interact in ways that may
complicate the incentives for income repatriation of these firms.
11.
Altshuler and Newlon (1993) also use a measure of the "expected" tax price that attempts to take
into account the fact that excess foreign tax credits can be carried back to several prior years or forward
to several future years to offset taxes in those years.
12.
See Altshuler and Newlon (1993) for a description of the methodology.
13.
A Hausman test shows that this difference is statistically significant.
The coefficient on the current tax price is just barely significantly different (T=2.0), but the
significance is probably overstated since we have not adjusted the standard errors yet to- account for
instrumental variables estimation.
14.
15.
If a reduction in withholding tax rates is perceived by multinational investors as a Signal of more
favorable and stable policies towards multinational investment it may in fact increase reinvestment of
earnings.
Table 1: Country Averages, 1984
Country
Mean,
dividends
/ assets
W. Germany·
Japan·
Norway·
U. KingdomAustria
Sweden
France
Finland
Italy
Denmark
Luxembourg
Malaysia
Peru
Canada
Belgium
Singapore
Costa Rica
Netherlands
New Zealand
Colombia
Australia
SouthAfrica
I Guatemala
Thailand
Brazil
Neth. Antilles
Bahamas
Ireland
.Portugal
HongKong
Philippines
Bermuda
Spain
Venezuela
Cayman Is.
Mexico
Chile
Argentina
Panama
Taiwan
Liberia
Greece
All subsidiaries
.
Non -clasSical COtlntriCS
3.9%
2.7%
1.6%
2.2%
4.2%
0.7%
2.2%
4.2%
2.4%
1.8%
1.0%
2.6%
3.4%
3.7%
2.3%
5.1%
4.8%
2.7%
2.3%
4.9%
2.2%
3.9%
3.9%
4.7%
4.0%
1.0%
3.4%
3.6%
0.9%
4.9%
1.7%
3.5%
1.9%
2.0%
2.8%
2.6%
5.1%
2.8%
4.6%
3.4%
1.2%
2.0%
2.9%
Mean,
price
tax
-0.21
-0.15
-0.11
-0.10
0.02
0.03
0.03
0.03
0.07
0.07
0.08
0.08
0.08
0.08
0.13
0.13
0.13
0.14
0.14
0.15
0.16
0.16
0.17
0.18
0.19
0.19
0.19
0.20
0.20
0.2]
0.22
0.23
0.23
0.24
0.24
0.25
0.25
0.25
0.26
0.27
O.ZS
0.38
0.08
Stand.
dev.,
tax price
0.38
0.48
0.19
0.38
0.41
0.34
0.34
0.47
0.26
0.22
0.49
0.29
0.79
0.26
0.35
0.29
0.37
0.20
0.22
0.23
0.24
0.20
0.27
0.18
0.51
0.23
0.25
0.25
0.22
0.21
0.14
0.23
0.14
0.18
0.23
0.43
0.20
0.29
0.23
0.35
0.15
0.28
0.34
Withholding
tax rate
15%
10
15
5
6
5
·5
5
6
6
6
0
40
5
15
0
15
5
15
20
15
15
13
20
25
0
0
0
25
0
20
0
18
20
0
55
30
18
10
35
15
47
11
Table 2: Tobit Model Estimation Results
(dependent variable: subsidiary dividends over assets; standard errors in parentheses)
Partial sample matched
with 2-year leads
(3) I (4) I (5)
Full sample
(1) I (2)
RHS variables,
estimation details
Fu1l sample
(6) 1 (7)
-0.046
(.0057)
-0.059
(.0062)
-0.066
(.0109)
-0.078
(.0114)
-0.070
(.020)
-0.047
(.0057)
-0.049
(.0058)
Permanent
tax pricea
...
0.087
(.016)
0.092
(.0263)
0.089
(.0265)
0.080
(.031)
0.080
(.076)
0.13
(.038)
Sum of tax price
coefficientsb
...
0.027
(.015)
0.027
(.024)
0.010
(.024)
0.010
(.024)
0.033
(.076)
0.078
(.038)
Subsidiary
earnings I assets
0.58
(.016)
0.55
(.016)
0.49
(.027)
0.80
(.055)
0.80
(.055)
0.55
(.032)
0.53
(.021)
Subsidiary
age 1100
0.37
(.017)
0.38
(.017)
0.33
(.028)
0.33
(.028)
0.33
(.028)
0.38
(.022)
0.39
(.018)
x
x
x
x
x
.;
-0.29
Current (global)
tax price (tp)
Permanent IV
(1) country mean tp
(2) withholding rate
Income IV
2-year forward
x
Transito[} IV
2-year change in tp
Intercept (1980)
x
x
-0.29
(.0059)
-0.29
(.0060)
-0.24
(.0093)
-0.28
(.012)
-0.28
(.012)
-0.26
(.0051)
(.0064)
1982 Dummy
0.026
(.0051)
0.026
(.0051)
0.038
(.0071)
0.039
(.0073)
0.039
(.0073)
0.030
(.0054)
0.026
(.0051)
1984 Dummy
-0.029
(.0053)
-0.030 -0.0037 0.00075 0.00098
(.0053) (.0085) (.0088) (.0088)
-0.030
(.0053)
-0.031
(.0054)
1986 Dummy
-0.012
(.0065)
-0.012
(.0065)
...
22.906
22,906
7.118
7,118
28%
28%
37%
37%
I
Observations
Paying dividends
. ..
. .. -0.012 -0.013
(.0066)
(.0066)
7,118
22,906
22,906
37%
28%
28%
Notes:
a Measures the difference bel~en effects of wn~ ill permanent and transitory tax prices.
(transitory tax pnce current Ial pnce - pcrmanenl til pnce)
=
b MeASUres Ihe effect of pennanenl tax price wn~. holding the transitory lax price constant.
C Uses pan of wilhholding rale onho~nallo the ror~lgn sat~lory and country mean average lax rates.
THE DISTRIBUTION AND DIVISION OF BEQUESTS:
EVIDENCE FROM THE COLLATION STUDY
by
David Joulfaian·
U.S. Department of the Treasury
OTA Paper 71
August 1994
OTA Papers and Briefs are circulated so that the preliminary findings of tax research conducted
by staff members and others associated with the Office of Tax Analysis may reach a wider
audience. The views expressed are those of the authors, and do not reflect Treasury policy.
Comments are invited, but OTA Papers and Briefs should not be quoted without permission from
the authors. Additional copies of this publication may be purchased from the National Technical
Information Service, 5285 Port Royal Road, Springfield, VA 22161
Office of Tax Analysis
U.S. Treasury Department
Washington, DC 20220
* Financial Economist~ Office of Tax Analysis. Lowell Dworin, Bill Gale, Dan Feenberg,
Barry Johnson, James Poterba, and participants at OTA seminar, ASSA 1992 meetings in
New Orleans, and the Tax Economist Forum in Washington, DC, provided valuable
comments.
THE DISTRIBUTION AND DIVISION OF BEQUESTS:
EVIDENCE FROM THE COLLATION STUDY
Abstract
This paper describes the pattern of the distribution and division of bequests in
the US. Employing a national sample of federal estate tax records for decedents in
1982 with gross estates in excess of $300,000, along with the matched income tax
records of the heirs, it provides a snapshot of the composition of terminal wealth, its
disposition, and the characteristics of the heirs.
The results show that (1) charitable bequests, estate taxes, and other expenses
account for 22 percent of net worth, or 34.6 percent of net worth less spousal transfers,
(2) spousal transfers account for one-half the distributable estate (net worth less
charitable bequests, taxes, and other expenses), and transfers to children for 24 percent,
(3) children receive equal inheritances in 63 percent of the estates, (4) the average
inheritance is about 3 times the income of the child heir, and (5) that wealthy parents
are more likely to have children with high income. About 35 percent of the children
of the wealthiest decedents reported income in excess of $200,000 compared to less
than 0.8 percent of those of the least wealthy.
THE DISTRIBUTION AND DMSION OF BEQUESTS:
EVIDENCE FROM THE COLLATION STUDY
1. Introduction
The pattern of intergenerational transfers and its motivation have attracted
considerable attention in recent years. Much of this is due to the recognition of the
potential effects of the flow of bequests on the transmission of inequality in the
distribution of income and wealth as well as its impact on wealth accumulation and
savings. 1 With over one hundred billion dollars in annual transfers, these flows may
have significant implications for public policies related to income and wealth
redistribution, national savings, and the role of transfer taxes.
Despite several studies in recent years,2 little is known about the pattern of
bequests in the U.S.
The purpose of this paper is to provide estimates on the
distribution of terminal wealth and the division of bequests for top wealth holders in the
U.S. To accomplish this, the paper uses data prepared by the Statistics of Income
Division (SOl) of the Internal Revenue Service for the Collation Study (CS). The data
consist of a national sample of estate tax. records of decedents in 1982 along with their
income tax returns for the years 1980 through 1982. The data also contain income tax
records for the heirs for the years 1980 through 1982, as well as for 1985.
The paper is organized as follows. Section II describes the samples of estate
and income tax records in the collation study (CS). It provides summary statistics on
the asset holdings, estate expenses, age and marital status for some 8,500 decedents.
It also notes the number of income tax. returns filed for decedents (about 8,000) and
non-spouse heirs (16,500) disaggregated by the size of the decedent's gross estate.
1
See Gale and Scholz (1992), and Kotlikoff and Summers (1981),
2
See Menchik (1980, 1988) and Tomes (1988).
-2Section III describes the population of estate tax decedents.
It provides
information similar to that reported in Section II but weighted to the decedent
population. The results show that death taxes represent about 13 percent of net worth.
When measured relative to intergenerational transfers, however, the effective tax rate
is about 24 percent, and ranges from 6 percent for the least wealthy to about 57 percent
for estates in excess of $10 million. Overall, estate taxes, charitable bequests, and
other expenses represent about 22 percent of net worth.
Section N provides statistics on the size of bequests by type of relationship
between the heir and the decedent. The section reports the number of heirs and the
amount of inheritance for each of eleven categories of beneficiaries. The results show
that spousal bequests account for 38 percent of wealth (net worth), children for 18.7
percent, trusts for 9 percent, siblings for 3 percent, nieces and nephews for 3.2 percent,
2.5 percent for grandchildren, with the remaining 3.6 percent distributed to parents,
aunts and uncles, among others.
Section V provides statistics on the relative frequency of unequal division of
bequests to children. The number of estates and the amount of bequests, are reported
by the size of the coefficient of variation on bequests and by the size of gross estate of
the parent. Overall, the results for multi-child families show that about 63 percent of
the estates divide bequests equally. 3 The section also reports mixed results on the
division of bequests when the number of children vary. About 67 percent of the estates
with two-children report equal divisions, 63 percent for three children, 56 percent for
four children, and 65 percent for five children.
Section VI provides statistics on the pre-inheritance income of children and
inheritance received. The results show that the average inheritance is about three times
as large as the income of the child recipient. This multiple of income ranges from 21
for heirs with positive income under $10,000, to 0.75 for those with income of at least
3
Equal division is defined as having a CV of under 0.001 percent.
-3$200,000. The results also show that wealthy parents are more likely to have children
with high income.
About 35 percent of the children of the wealthiest decedents
reported income in excess of $200,000 compared to less than 0.8 percent of those of
the least wealthy. A concluding comment is provided in section VII.
n.
The Collation Data
The data in the collation study (CS) is drawn from the Internal Revenue Service
estate tax records for decedents in 1982. Decedents whose estates are required to me
estate tax returns represent about 3 percent of all decedents in 1982. Nevertheless,
using the estate multiplier technique, the net worth of these decedents is representative
of individuals who control about one third of the total U.S. net worth. 4 As such,
although the collation data consists of only a small percentage of individuals, it provides
information representative of a large percentage of wealth holdings.
The CS data set is based on a 1 % random sample of estate tax returns filed
during 1982 and 1983 for decedents in 1982. Returns with total assets over $1 million
were selected at a sampling rate of 100 percent. Tables lA and IB provide a detailed
profile of the wealth holdings of individuals in the sample. The tables show the number
of individuals and the amounts held in each of 13 asset categories by size of gross
estate. The sample consists of some 8,500 estates with assets of $300,000 or more. 5
The mean age of the decedents is 75 years. In total, their estates hold $21.28 billion
in assets, have a net worth of $19.87 billion, and are subject to estate taxes of $3.5
billion ($2.97 federal).
Charitable bequests account for $1.96 billion and spousal
bequests account for $7.76 billion.
4
See Schwartz (1988).
5
The filing threshold was $225,000 in 1982. The $300,000 limit is the sampling
threshold used by SOL
-4In addition to estate tax records, the CS data also contain income tax records for
decedents as well as heirs.
Table
Ie
reports the number of income tax returns
successfully matched against the estate tax returns of decedents.
The number of
matched returns are 7,871, 8,015, and 7,651 for the years 1980 through 1982,
respectively. Unsuccessful matches resulted in an average loss of about 8 percent of
the original sample. This can be attributable to late filing of income tax returns as well
as the ever-present technical difficulties of matching a sample of this size against the
records of over 100 million individuals.
As for heirs, the number of matched income tax returns is 16,534, 16,585, and
16,063 for each of the years 1980 through 1982, respectively, and 15,444 for 1985, the
post-inheritance year. 6 These matches are far less than the 35,128 heirs reported in
the sample of estate
tax
returns (see Section Ill). The gap can be attributed to several
factors in addition to those noted for the decedents' returns. First, many estates did not
provide social security numbers for some or all of the heirs. Some heirs are minors or
aliens and did not have social security numbers. Some tax preparers provided partial
listing of social security numbers or none at all. Second, beneficiaries reported on
estate tax records represent individuals and not family units. A married couple filing
a joint tax return, for instance, may show-up as two heirs on the estate tax return.
m.
The Population of Estate Tax Decedents:
Tables 2A and 2B provide information similar to that in tables 1A and 1B but
weighted to the population of estate tax filers. Table 2A shows that about 32,500
decedents have gross estates between $300,000 and $500,000 and 218 decedents have
gross estates over $10 million. Cash is held by over 82 percent, followed by real estate
Several hundred returns, filed late, are also available for the years 1978, 1979,
1983, and 1984.
6
-5(70 percent) and corporate stock (66 percent). Fewer than 60 percent of the decedents
held life insurance policies. The average decedent was 74 years old, with the wealthiest
group slightly older with a mean age of 76. About half of the decedents (29,822) were
married. Twenty percent (9,334) of the returns reported charitable bequests, with about
half of the wealthiest compared to 13 percent of the least wealthy giving.
Table 2B shows that estate tax decedents in 1982 had total gross estates of $48.6
billion and net worth of $45.9 billion. The largest asset holding is corporate stock
($11.9 billion) followed closely by real estate ($10.5 billion). Estate expenses, such
as those for funeral, attorney, and others, are about $1.5 billion. They account for 3.3
percent of net worth, and range from 3.7 percent for the least wealthy to 2.7 percent
for the wealthiest. Total charitable bequests were $2.7 billion, 5.9 percent of net
worth, with the wealthiest giving about 21.9 percent of their wealth and the least
wealthy 2 percent.
The federal and state estate or inheritance tax liability was $5.9 billion. 7 Taxes
represent about 12.9 percent of net worth, and range from 5.7 percent for the least
wealthy to a high of 16.4 percent. The tax liability as percent of net worth less estate
expenses, charitable and spousal bequests, essentially the effective tax rate on
intergenerational transfers, is about 23.6 percent and ranges from a low of 9.4 percent
to 56.8 percent for the wealthiest estates. 8 Differences in these effective tax rates
The federal estate tax liability was $5.1 billion. An additional $0.8 billion in
taxes were paid to the states which were fully offset by a federal tax credit.
7
8
The marginal tax rates are:
Net Worth
($000)
300- 500
500- 1,000
1,000- 2,500
2,500-10,000
10,000 or over
Tax Rate
(return-weighted)
29.2
37.9
42.4
56.1
62.2
-6reflect the tax treatment of spousal transfers. Such transfers are accorded an unlimited
deduction but become fully taxable in the estate of the surviving spouse.
Charitable bequests, taxes, and estate expenses accounted for about 22 percent
of net worth. These expenses range from a low of 11.6 percent for those with gross
estates between $300,000 and $500,000 to a high of 41 percent for those with gross
estates over $10 million. Such expenses account for 34.6 percent of terminal wealth
net of spousal transfers, and range from 17.3 percent for the least wealthy to 76 percent
for the wealthiest estates.
IV. Division of Bequest by Type of Relationship:
For each heir, the amount of inheritance and the relationship to the decedent is
reported on the estate
tax
return (Form 706, page 3). The CS data classifies heirs
along eleven categories of relationships. These are: (1) spouse, (2) son, (3) daughter,
(4) grandchild, (5) sibling, (6) niece or nephew, (7) aunt or uncle, (8) parent, (9) other,
(10) estate or trust, and (11) not ascertainable.
Category 9 includes sons-and
daughters-in-law, great grandchildren, cousins, as well as unrelated individuals. Estates
or trusts (category 10) includes bequests not immediately distributed to heirs. Spousal
trusts are classified under spousal bequests regardless of the relationship of the
remaindennan to the decedent.
Tables 3A and 3B provide a breakdown of bequests and number of heirs by type
of relationship to and size of the estate of the decedent. The number of beneficiaries
reported on the estate tax returns in the sample is 44,230, or 35,128 if spouses and trust
beneficiaries are excluded.
These include 9,481 children (4,674 sons and 4,807
These tax rates are computed for widowed and single decedents only. The estates of
married decedents are excluded as their assets will pass through the estates of their
surviving spouses (widows and widowers).
-7daughters), 5,547 grandchildren, 1,794 siblings, 5,428 nieces and nephews, 137
parents, aunts, and uncles, and 12,741 others. Interestingly, children represent less
than 30 percent of the 35,128 beneficiaries in the sample.
When weighed to the estate tax filing population, and as shown in Tables 3C and
3D, the total number of beneficiaries is estimated to be 237,064, with $34.2 billion in
total bequests. 9 The results for the estate tax filing population show that, after payment
of estate taxes and charitable bequests,10 about one-half of the distributable estate, or
$16.7 billion, is bequeathed to surviving spouses, 24 percent to children, 11.5 percent
to trusts, 3.8 percent to siblings, 4.1 percent to nieces and nephews, 3.2 percent to
grandchildren, with the remaining 4.6 percent distributed to parents, aunts and uncles,
among others. 11
Table 3E shows that, on average, a child received an average inheritance equal
to 22 percent of that received by the surviving spouse, or about $122,000 ($113,910
for sons and $130,242 for daughters). There are 33,010 sons and 34,020 daughters
with total inheritances of $3.76 billion and $4.43 billion respectively. Grandchildren,
32,478 of them with $1.08 billion in inheritances, received much smaller inheritances
or about 25 % of the average child inheritance.
Siblings, with 14,012 heirs, inherited $1.28 billion, with an average inheritance
of $91,649 or about 75% of the average child. Nieces and nephews, with 29,576
Bequests are about $35.7 billion when constructed from estate tax information.
The difference is in part due to differences in asset valuation.
9
10 Estate taxes, charitable bequests, and other expenses are $5.9 billion ($5.1
federal), $2.7 billion, and $1.5 billion, respectively. Combined, they account for about
22 percent of terminal wealth.
As a share of terminal wealth, spousal bequests account for 38.1 percent of
wealth, children 18.7 percent, trusts 9.0 percent, siblings 3.0 percent, nieces and
nephews 3.2 percent, grandchildren 2.5 percent, and parents, aunts, among others,
account for the remaining 3.6 percent.
11
~
8-
beneficiaries, inherited $1.4 billion or an average of $46,982. Bequests to the older
generation seldom occurred. Only 42 aunts and uncles were reported with an average
inheritance of $62,138. Parents, with 885 beneficiaries, inherited much more. The
average inheritance is $127,581 slightly higher than that of the average child.
Other relations include 41,500 individuals with $1.3 billion inheritance or an
average of $31,290. These include great grandchildren, in-laws, and friends, among
others. Bequests to trusts and estates -- 16,499 of them -- are about $3.49 billion for
an average transfer of $239,242. Note that these transfers exclude the surviving
spouse's share. As stated earlier, spousal trusts are reported as bequests to spouse.
V. The Bequest division among children:
Evidence on the bequest division is reported on Tables 4A through lOB. As was
stated earlier, the estate tax return provides information on the heirs and the size of
inheritance. As such, information on disinherited children are not reported on estate
tax records. Given that "disinherited" children are not captured in the CS data, one can
measure the degree of unequal division of bequests for the heirs only. Consequently,
measures of unequal division measured from the CS data should be viewed as providing
an upper (lower) bound on the frequency of equal (unequal) division of bequests. 12
Of the 60,000 estate tax returns filed for the 1982 decedents, some 20,000
reported multi-child heirs. Tables 4A and 4B summarize the extent of equal division
among children. The table divides estates into 9 classes of within family coefficients
of variation (CVs), ranging from equal division to cases with CV's over 50 percent.
These tables shows the number of estates, total and average bequests broken down by
size of estate and CV.
One estate, for instance, reported a single heir to the entire estate. The will,
however, showed that the decedent had 6 children with a single heir.
12
-9The top panel of Table 4A shows that of a total of 20,178 estates, 12,614, or
63 percent of the total as shown in the top panel of Table 4B, reported equal bequest
divisionsY In contrast, 21 percent reported CV's in excess of 20 percent. With the
exception of estates under $500,000, the relative frequency of equal division declines
with the size of the estate.
It is a possible that the above reported results could be misleading to the extent
that some children have a portion, if not all, of their inheritances held in trust, rather
than received a direct transfers. Since transfers to trusts are reported as such and the
relationship to the heir is not reported, the findings on the division of bequests can be
misleading. To evaluate the extent of bias that the presence of trusts introduces, Tables
4A-B were re-estimated by excluding all estates reporting any trust transfers and the
results reported in Tables 5A and 5B. Comparing the division of bequest in tables 4AB and 5A-B suggests that the presence of trusts does not necessarily yield biased
aggregate estimates for the division of bequests. The results show that less than twothirds of estates divide equally. Of course, we still remain ignorant of the true division
of bequests when trusts are present.
In addition to trusts, a second concern involves estates with spousal transfers.
Surviving spouses receive the bulk of the terminal wealth for some estates.
Consequently, it is possible that equal division of the estate may have to be postponed
until the death of the surviving parent. To test for this potential bias, estates with
spousal transfers, in addition to those with trusts, were excluded. Tables 6A and 6B
provides information on the bequest division for the estates of widowed decedents with
no trust beneficiaries. Again, the results are consistent with those in Tables 4A-B and
SA-B. About 63 percent of the estates provide for equal divisions of bequests.
Tables 4A-B through 6A-B show the probability of unequal division to rise with
the size of gross estate.
13
Estates with assets under $500,000 are the exception.
Note that equal division is defined as having CV's under 0.001 percent.
- 10 However, if equal division were to be defined as having a CV of under 1 percent, then
the size of the estate would seem to have a lesser effect on the pattern of bequest
division. In addition, if one were interested in the distributions of bequests (dollars)
than the relative frequency of estates by CV, than a slightly different picture emerges
with the disparities becoming much smaller.
Another interesting question is whether the bequest division varies with the
number of children.
Tables 7A-B replicate Tables 4A-B for two-child parents.!4
Tables 8A-B through lOA-B also provide similar statistics for three to five child estates.
The results, reported in tables SA through lOB, show that 67 percent of the two-child
estates divide equally, 63 percent for the three child, 56 for the four-child, and,
interestingly, 65 percent for five-child estate.
The above results are subject to several caveats. First, and as noted earlier,
they do not account for disinherited children. Second, the estate division may not
necessarily reflect the parent's will as much as the heirs' choice.
One will, for
instance, provided for equal division but deferred to the children on alternative ways
of dividing personal property which they did. This is likely to lead to an overstatement
of the frequency of unequal division, especially among the less wealthy. Third, the
inheritances of the son-and-daughter-in-laws, as well as grandchildren, are not added
to the children's inheritances.
VI.
Heir's Income and the Size of Inheritance:
Using the matched beneficiary income tax records and parents estate tax returns,
this section provides estimates of the distribution of inheritance received by size of the
pre-inheritance income of the children. Tables llA through lID provide summary
14
Recall that these do not include disinherited children.
- 11 statistics on the adjusted gross income (AGI) in 1981 of the children along with the
inheritance received.
Tables 1IA and lIB provide sample summary statistics. The top panel of Table
11A shows the number of children by the size of their AGI and the parents gross estate.
The number of matched returns in the sample is 7,830 although 8,499 heirs are
reported on the estate tax return. The difference, as discussed earlier, can be attributed
to the fact that many heirs need not file an income tax return, as well as other factors.
The 7,830 individuals have combined AGI of about $672 million, and inheritances of
about $1.94 billion.
Tables 11 C and lID provide summary statistics weighted to the estate tax filing
populationY
The results in Table llC show that 54,000 children received
inheritances from estate tax decedents in 1982. Their total AGI in 1981 was about
$2.57 billion and the inheritance received is $8.29 billion, or three times their income.
The top panel shows that wealthy parents are more likely to have high income children.
Less than one percent (0.0077) of the children of the least wealthy, or 220 out of 28483
individuals, have incomes in excess of $200,000. In contrast, 34.9 percent of the
children of the wealthiest parents, or 84 out of 241 observations, have incomes in
excess of $200,000. The reverse pattern is observed for children with positive income
under $10,000. About 12 percent (3,409 out of 28,483) of the children of the least
wealthy compared to 5 percent of those of the wealthiest fall in this income group.
The top two panels of Table lID report mean values for AGI and inheritance
received.
The average AGI is $47,433, and ranges from a positive AGI mean of
$5,376 to a high of $352,427. In addition, the average income of children rises with
the wealth of the parent. The average income of children of the least wealthy group
is $34,960 compared to $271,254 for the wealthiest group. This pattern is probably
IS
To account for attrition, the matched sample was post-stratified and new weights
were computed.
- 12 due to greater human capital transfers to children of the wealthiest group, with little
should be attributed to inter-vivos gift.16
In contrast to AGI, the mean inheritance seems to be invariant to the size of
income of the heirs. The average inheritance ranges from about $115,000 in the lowest
positive AGI class to $265,000 in the top AGI class, and from $131,000 for the heirs
of the least wealthy to about $630,000 for the heirs of the wealthiest. On average, the
inheritance received is about three fold the average income. This multiple ranges from
a high of 21 in the lowest positive AGI class to a low of 0.75 times the average income
in the top bracket, partially reflecting income mobility. 17
Since the pattern of bequests, as well as the size of terminal wealth, is likely to
vary by the marital status of the decedent (married or surviving spouse), Tables 11 C-D
are replicated in Tables 11E-F for widowed or widowered decedents and Tables I1G-H
for married decedents. The top panel of Table I1F for widowed (and widowered)
decedents shows that the average child AGI is $48,410, slightly higher than the average
of $47,433 for all children reported in Table UD. In contrast, the average inheritance
of $173,985, shown in the middle panel of Table 11F, is considerable higher than the
average of $152,909 reported in Table llD. The average inheritance is about 3.6 times
the average income of a child, where the multiple ranges from a high of 29.2 fold for
the lowest income heirs to 0.88 for the highest income heirs.
In contrast to the results in Table 1IF, the top panel of Table IIH for the
children of married decedents shows an average AGI of $46,570, slightly lower than
the average of $47,433 for all children reported in Table lID. In addition, the average
inheritance of $133,747 shown in the middle panel of Table llH, is considerable lower
Tables 2A and 2B show $294 million in post-1977 cumulative taxable gifts
compared to tenninal net worth of $45.9 billion in 1982.
16
Note these statistics do not account for age differences nor do they control for
between/within group (siblings) variations.
17
- 13 than the average of $152,909 reported in Table lID. The average inheritance is 2.87
times the average income is 2.87, and this multiple ranges from a high of 13.9 to 0.63.
vn.
Conclusion:
Using the 1982 Collation Study data, this paper provided detailed evidence on
the pattern of distribution and division of bequests for top wealth holders in the U. S.
The CS data is unique in that it contains information from estate tax returns for
decedents, along with their income tax returns and the returns of the heirs.
The paper described the composition of terminal wealth and its disposition. The
data show that estate taxes, charitable bequests, and other death expenses represent
about 22 percent of net worth. Second, it provided information on the relative size of
inheritance for eleven categories of beneficiaries.
After payment of estate taxes,
charitable bequests, and other death expenses, about one-half of the distributable estate,
or $16.7 billion, is bequeathed to surviving spouses, 24 percent to children, 11.5
percent to trusts, 3.8 percent to siblings, 4.1 percent to nieces and nephews, 3.2 percent
to grandchildren, with the remaining 4.6 percent distributed to parents, aunts and
uncles, among others.
Third, it provided evidence on the relative frequency of equal division of
bequest for multi-child estates.
The evidence shows that 63 percent of the estates
divide bequests equally. Fourth, it compared inheritance received to the pre-inheritance
income of the children. The results show that the average inheritance is about three
times the size of the average AGI. The results also show that wealthy parents are more
likely to have children with high income. About 35 percent of the children of the
wealthiest decedents reported income in excess of $200,000 compared to less than 0.8
percent of those of the least wealthy.
- 14 References
Gale, W. and K. Scholz, "Intergenerational Transfers and the Accumulation of
Wealth," mimeo, 1992.
Kotlikoff, L. and L. Summers, "The Role of Intergenerational Transfers in Aggregate
Capital Accumulation," Journal of Political EcoMmy 89, 1981, 706-32.
Menchik, Paul L. (1988). "Unequal Estate Division: Is it Altruism, Reverse Bequests,
or Simply Noise?" in Kessler, D. and A. Masson (eds.) , Modeling the
Accumulation and Distribution of Wealth, Oxford: Clarendon Press, pp. 105116.
Menchik, Paul L. (1980). "Primogeniture, Equal Sharing, and the U.S. Distribution of
Wealth," Quarterly Journal of Economics, March, pp. 299-316.
Shwartz, Marvin (1988). "Estimates of Personal Wealth, 1982: A Second Look," SOl
Bulletin, Volume 7, Number 4, Spring, pp. 31-46.
Tomes, Nigel (1988). "Inheritance and Inequality within the Family: Equal Division
among Unequals, or do the Poor Get More?", in Kessler, D. and A. Masson
(eds.), Modeling the Accumulation and Distribution of Wealth, Oxford:
Clarendon Press, pp. 79-104.
- 15 TABLE 1A
NUMBER OF ESTATES BY SIZE OF ESTATE -- SAMPLE
GROSS ESTATE
REAL---ESTATE--
--------
STATE--LOCAL--BONDS---
FEDERALSAVINGSBONDS---
OTHER--FEDERALBONDS---
--------
170.
129.
5151.
1436.
164.
40.
51.
2644.
866.
114.
40.
36.
940.
202.
24.
39.
3l.
1642.
496.
65.
CORPORAT
BONDS---
CORPORAT
STOCKS--
CASH----
--------
POLICY-LOANS---
NOTES--MORTGAGE
LIFE---INSURANC
--------
--------
-------14.
13.
697.
24117.
--------
--------
35.
3l.
1731.
487.
62.
153.
129.
5291.
1469.
176.
211.
147.
6064.
1646.
187.
73.
57.
2822.
871116.
166.
93.
3493.
943.
100.
-----------------------------------------------------------------------------------------------------------------------300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
GROSS ESTATE
--------- --------- --------- --------- --------- --------- --------- --------- --------7050.
3715.
1242.
2273.
2346.
7218.
8255.
3939.
4795.
---------
NONCORPO
ASSETS--
ANNUITIE
PENSIONS
OTHER--ASSETS--
LIFETIME
GIFTS---
GROSS--ESTATE--
FUNERALEXPENSES
EXECUTOR
COMMISSI
ATTORNEY
FEES----
OTHER--EXPENSES
DEBTS---
5139.
2161.
700.
99.
19.
21.
903.
234.
26.
188.
143.
5810.
1607.
184.
25.
23.
1468.
538.
8l.
298.
155.
6194.
1671.
191.
271.
144.
5890.
1598.
181.
73.
54.
2587.
818.
107.
156.
99.
3918.
1125.
134.
175.
110.
4583.
1289.
154.
238.
137.
5661.
1570.
18l.
3050.
1203.
7932.
2135.
8509.
8084.
3639.
5432.
6311.
7787.
CHARI TAB
BEQUESTS
SPOUSALBEQUEST-
--------
ESTATE-TAX----FEDERAL
OTHER--TAXES---
NOT INCI NSURANC
--------
JOINTLYHELD---ASSETS--
COMMUNIT
PROPERTY
NET----WORTH---
TAXABLEGIFTS---
--------
145.
76.
3395.
956.
114.
157.
105.
4230.
1263.
168.
156.
108.
4490.
1315.
169.
II.
12.
1011.
362.
5l.
168.
74.
3244.
799.
86.
23.
22.
678.
213.
26.
298.
155.
6194.
167119I.
8.
13.
676.
364.
76.
o.
o.
1447.
4371.
962.
8509.
1137.
o.
982.
--------
-------- -------- -------- -------- -------- -------- -------- -------- -------- ------------------------------------------------------------------------------------------------------------------------------300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
GROSS ESTATE
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
--------
--------
--------
--------
--------
---------------
-----------------------------------------------------------------------------------------------------------------------300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
36.
25.
1519.
570.
96.
--------- --------- --------- --------2246.
4686.
5923.
6238.
O.
O.
O.
--------- --------- --------- --------- --------- ---------
- 16 TABLE IB
SAMPLE MEANS FOR WEALTH VARIABLES BY SIZE OF ESTATE
-----------------------------------------------------------------------------------------------------------------------GROSS ESTATE
REAL---ESTATE--
STATE--LOCAL--BONDS---
FEDERALSAVINGSBONDS---
OTHER--FEDERALBONDS---
155716.
211507.
415154.
895341.
3046377.
35249.
97356.
187482.
569676.
3232344.
29094.
37734.
49919.
94226.
169048.
70806.
119671.
190761.
483604.
2648385.
564189.
367134.
58403.
321916.
NONCORPO
ASSETS--
ANNUITIE
PENSIONS
OTHER--ASSETS--
LIFETIME
GIFTS---
CORPORAT
BONDS---
CORPORAT
STOCKS--
CASH----
NOTES--MORTGAGE
LIFE---INSURANC
POLICY-LOANS---
------------------------------------------------------------------------------------------------------------------------
300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
GROSS ESTATE
--------- ---------
--------
--------
84729.
22318.
176302.
21505.
491424.
48302.
1564324.
97955.
439124. 11458691.
85723.
123637.
150878.
270926.
1168214.
61253.
69668.
133911.
285954.
1037907.
30383.
55502.
93823.
136723.
233750.
12473.
19339.
27593.
48282.
85415.
68196.
962947.
195710.
191877.
102239.
33347.
GROSS--ESTATE--
FUNERALEXPENSES
EXECUTOR
COMMISSI
ATTORNEY
FEES----
OTHER--EXPENSES
DEBTS---
--------- --------- --------- --------- --------- --------- --------- ---------
--------
--------
--------
--------
--------
--------
--------
---------------
-----------------------------------------------------------------------------------------------------------------------300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
43095.
92535.
159970.
483188.
3010794.
51353.
61198.
93974.
159902.
91928.
12740.
26873.
65153.
223216.
2943847.
323870.
105508.
162021.
210582.
380399.
397507.
681697.
710729.
1474295.
1870791.
4151279.
8627056. 26125366.
5979.
4010.
4664.
5794.
8103.
9043.
17084.
33432.
89709.
482635.
7663.
13006.
26257.
65333.
270481.
3321.
4272.
12051.
41899.
261951.
22281.
36401.
104143.
348999.
1414864.
1294161.
4997.
58559.
39599.
23868.
180283.
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------2500592.
------------------------------------------------------------------------------------------------------------------------
--------
ESTATE-TAX----FEDERAL-
OTHER--TAXES---
245724.
-$ 500000.
64744.
447516.
85190.
-$1000000.
905999.
264737.
-$2500000.
2521954.
908227.
-$10000000
-$******** 10805171. 19299988.
34644.
94017.
278584.
909738.
3743062.
4936.
11677 •
38058.
153877 •
868710.
84463.
128831.
169217.
337970.
686538.
123931.
632427.
362603.
143086. 1049387.
649523.
180644.
2108027.
1379181.
230191.
5118727.
3823373.
642013. 18996178. 24784586.
48586.
72600.
77526.
136532.
288982.
74.
74.
75.
75.
76.
1655292.
501698.
83692.
228689.
195963.
110290.
75.
GROSS ESTATE
CHARI TAB
BEQUESTS
--------
SPOUSALBEQUEST-
--------
NOT INCINSURANC
--------
JOINTLYHELD---ASSETS--
COMMUNIT
PROPERTY
--------
NET----WORTH---
--------
TAXABLEGIFTS---
DECEDENT
AGE-----
-------- --------
------------------------------------------------------------------------------------------------------------------------
300000.
500000.
1000000.
2500000.
10000000
TOTAL
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------873367.
3171584.
2335655.
- 17 TABLE lC
NUMBER OF INCOME TAX RETURNS BY SIZE OF ESTATE -- SAMPLE
----------------------~------------------------------- ------------------------------------------------------------------
GROSS ESTATE
300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
GROSS ESTATE
DECEDENT
1980----
DECEDENT
1981----
DECEDENT
1982----
276.
146.
5716.
1552.
181.
274.
145.
5831.
1582.
183.
245.
136.
5566.
1526.
178.
BENEFIC1980----
BENEFIC1981----
BENEFIC1982----
BENEFIC1985----
442.
223.
11542.
3713.
614.
443.
225.
11561.
3740.
616.
442.
215.
11219.
3596.
59!.
429.
214.
10724.
3537.
540.
16534.
16585.
16063.
15444.
------------------------8015.
7871.
7651.
-----------------------------------------------------------300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
--------- --------- --------- ---------
- 18 TABLE 2A
NUMBER OF ESTATES BY SIZE OF ESTATE -- WEIGHTED
-----------------------------------------------------------------------------------------------------------------------REAL---- STATE--- FEDERAL- OTHER--- CORPORAT CORPORAT CASH--NOTES &- LIFE---- POLICY--
GROSS ESTATE
ESTATE--
BONDS---
--------
MORTGAGE
INSURANC
LOANS---
--------
LOCAL--BONDS---
SAVINGSBONDS---
FEDERALBONDS---
15318.
5686.
1634.
187.
6056.
2918.
985.
130.
4275.
1038.
230.
27.
3681.
1812.
564.
74.
3681.
1911.
554.
71.
15318.
5840.
1671.
201.
17455.
6694.
1873.
213.
6768.
3115.
991.
132.
11043.
3856.
1073.
114.
1544.
769.
274.
19.
41386.
14457.
9937.
10390.
10038.
39736.
49273.
18977 •
34211.
4135.
STOCKS--
-------- -------- -------- -------- -------- --------
-----------------------------------------------------------------------------------------------------------------------300000. -$ 500000
1529.
18125.
18562.
23039.
7971.
4368.
4368.
3822.
16706.
4258.
500000.
1000000.
2500000.
10000000
-$1000000
-$2500000
-$10000000
-$********
TOTAL
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-----------------------------------------------------------------------------------------------------------------------NONCORPO ANNUITIE OTHER--- LIFETIME GROSS--- FUNERAL- EXECUTOR ATTORNEY OTHER--- DEBTS--GROSS ESTATE
PENSIONS ASSETS-- TRANSFER ESTATE-- EXPENSES COMMISSI FEES---- EXPENSES --------------- -------- -------- -------- -------- -------- -------- -------- -------- --------
ASSETS--
-----------------------------------------------------------------------------------------------------------------------300000. - $500000.
5569.
2075.
20527.
2730.
32538.
29590.
7971.
17033.
19108.
25987.
500000.
1000000.
2500000.
10000000
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
GROSS ESTATE
4631.
2385.
796.
113.
2494.
997.
266.
30.
16980.
6413.
1828.
210.
2731.
1620.
612.
92.
18405.
6837.
1901.
218.
17099.
6501.
1818.
207.
6412.
2856.
931122.
11755.
4325.
1280.
153.
13062.
5059.
1466.
176.
16268.
6249.
1786.
207.
CHARI TAB
BEQUESTS
SPOUSALBEQUEST-
ESTATE-TAX----FEDERAL-
OTHER--TAXES---
NOT INCI NSURANC
JOINTLYHELD---ASSETS--
COMMUNIT
PROPERTY
NET----WORTH---
TAXABLEGIFTS---
--------
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------13494.
45959.
7786.
5861.
59899.
55215.
18291.
34546.
38870.
50496.
-------- --------
-------- --------
--------------- -------- -------- --------
-----------------------------------------------------------------------------------------------------------------------15832.
17143.
17033.
1201.
18344.
3931.
2511.
300000. - $500000.
32538.
874.
O.
500000.
1000000.
2500000.
10000000
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
2969.
1677.
648.
110.
9024.
3747.
1088.
130.
12468.
4669.
1437.
192.
12824.
4957.
1496.
193.
1425.
1116.
412.
58.
8787.
3581.
909.
98.
2612.
748.
242.
30.
18405.
6837.
1901.
218.
1544.
746.
414.
87.
O.
9334
29822.
35908.
36504.
4212.
31718.
6144.
59899.
3664.
O.
O.
O.
O.
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
- 19 TABLE 2B
TOTALS FOR WEALTH VARIABLES BY SIZE ESTATE (in $millions except for age) -- WEIGHTED
GROSS ESTATE
REAL---ESTATE--
LIFE---INSURANC
POLICY-LOANS---
FEDERALSAVINGSBONDS---
OTHER--FEDERALBONDS---
CORPORAT
BONDS---
3240.
2360.
1463.
570.
590.
547.
56l.
42l.
16152.
22.
5.
441346.
273.
196.
79.
92.
54.
31-
27012870.
2614.
2302.
2158.
1010.
507.
249.
472.
417.
283.
137.
613.
362.
147.
27.
30.
2113.
2.
NONCORPO
ASSETS--
ANNUl TIE
PENSIONS
OTHER--ASSETS--
LIFETIME
TRANSFER
GROSS--ESTATE--
FUNERAL
EXPENSES
EXECUTOR
COMMISSI
ATTORNEY
FEES----
OTHER--EXPENSES
DEBTS---
CORPORAT
STOCKS--
CASH----
NOTES &MORTGAGE
STATE--LOCAL--BONDS---
----------------------------------------------------------------------------------------------------------------------300000. - $500000.
19.
2890.
B5.
1975.
488.
551154.
127.
302.
1415.
500000.
1000000.
2500000.
10000000
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
GROSS ESTATE
-------- -------- -------- -------- -------- -------- -------- -------- -------- -------10524.
366.
1798.
1699.
85.
2273.
1557.
342.
11902.
5900.
-------- -------- -------- -------- -------- --------
--------
--------------- -------- --------
-----------------------------------------------------------------------------------------------------------------------262.
575.
12377.
177.
72.
300000. - $500000.
240.
107.
131579.
63.
500000.
1000000.
2500000.
10000000
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
429.
382.
385.
340.
153.
94.
43.
3.
456.
418.
408.
618.
1086.
1152.
1145.
798.
12547.
10080.
7892.
5695.
69.
30.
112.
110.
95.
83.
59.
153.
114.
84.
41-
56.
6l.
6l.
46.
-------- -------- -------- -------- --------------- -------- --------------4755.
398.
2162.
4859l.
288.
1775.
420.
522.
288.
592.
65l.
623.
292.
-------2738.
-----------------------------------------------------------------------------------------------------------------------CHARI TAB SPOUSAL- ESTATE-- OTHER--- NOT INC- JOINTLY- COMMUNIT NET----- TAXABLE- DECEDENT
BEQUESTS BEQUEST- TAX----- TAXES--- I NSURANC HELD---- PROPERTY WORTH--- GIFTS--- AGE----GROSS ESTATE
-------- -------- FEDERAL -------- -------- ASSETS-- -------- -------- -------- ------------------------------------------------------------------------------------------------------------------------------594.
84.
10l.
3890.
2273.
1588.
254.
11798.
42.
300000. - $500000.
74.
500000.
1000000.
2500000.
10000000
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
253.
444.
589.
1184.
-------2724.
4039.
3395.
2743.
2511.
1172.
13011307.
718.
150.
189.
230.
168.
184.
189.
139.
40.
1257.
647.
209.
63.
274l.
1578.
1240.
564.
11954.
9429.
7268.
5403.
112.
58.
57.
25.
74.
75.
75.
76.
653.
4450.
771l.
45854.
294.
74.
-------- -------- -------- -------- -------- -------- -------- -------- -------5092.
820.
16578.
- 20 TABLE 3A
NUMBER OF HEIRS BY TYPE OF RELATION AND SIZE OF ESTATE -- SAMPLE
-----------------------------------------------------------------------------------------------------------------------GROSS ESTATE
BEQUEST
SPOUSECOUNT--
BEQUEST
SON---COUNT--
BEQUEST
DAUGHTE
COUNT--
BEQUEST
GRANDCH
COUNT--
BEQUEST
SIBLING
COUNT--
BEQUEST
NIECE&N
COUNT--
BEQUEST
AUNT&UN
COUNT--
BEQUEST
PARENTCOUNT--
BEQUEST
OTHER-COUNT--
BEQUEST
TRUST&E
COUNT--
------------------------------------------------------------------------------------------------------------------------
300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
GROSS ESTATE
300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
146.
77.
3405.
956.
114.
167.
83.
3346.
952.
126.
4698.
4674.
--------- --------BEQUEST
NA----COUNT--
BEQUEST
TOTAL-COUNT--
26.
10.
650.
155.
53.
1063.
620.
30506.
10334.
1707.
894.
44230.
--------- ---------
163.
94.
3423.
1009.
118.
116.
117.
3750.
1347.
217.
72.
36.
1257.
400.
29.
171.
43.
3934.
1145.
135.
4807.
5547.
1794.
5428.
29.
B.
1.
5.
2.
79.
10.
3.
154.
99.
7775.
3117.
702.
43.
59.
2858.
1235.
209.
38.
99.
11847.
4404.
O.
O.
--------- --------- --------- --------- --------- --------- --------- ---------
- 21 TABLE 3B
AVERAGE INHERITANCE BY TYPE OF RELATION AND SIZE OF ESTATE -- SAMPLE
GROSS ESTATE
300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
246281.
-$1000000.
450623.
-$2500000.
906096.
-$10000000 2524250.
-$******** 19299988.
TOTAL
GROSS ESTATE
300000.
500000.
1000000.
2500000.
10000000
BEQUEST
SPOUSEAMOUNT-
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
BEQUEST
SON--AMOUNT-
BEQUEST
DAUGHTE
AMOUNT-
BEQUEST
GRANDCH
AMOUNT-
BEQUEST
SIBLING
AMOUNT-
BEQUEST
NIECE&N
AMOUNT-
83861.
101003.
200951.
363965.
690073.
97487.
130943.
202023.
334979.
641803.
25523.
25497.
4855l.
101588.
204910.
74964.
109528.
113688.
139675.
161279.
3175!.
69158.
67395.
108377.
63436.
241380.
235791-
66579.
118614.
74832.
BEQUEST
AUNT&UN
AMOUNT-
o.
BEQUEST
PARENTAMOUNT-
BEQUEST
OTHER-AMOUNT-
BEQUEST
TRUST&E
AMOUNT-
74738.
19342.
50000.
58006.
324521.
146331368505.
552699.
21437.
35571.
35523.
43300.
76757.
165667.
184618.
302735.
488242.
985343.
62425.
180226.
39830.
384230.
O.
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------1653745.
BEQUEST
NA----AMOUNT-
BEQUEST
TOTAL-AMOUNT-
3246B.
18334.
41556.
49803.
30385.
85794.
129897.
203940.
402939.
1572188.
41799.
299363.
--------- ---------
- 22 TABLE 3C
NUMBER OF HEIRS BY TYPE OF RELATION AND SIZE OF ESTATE -- WEIGHTED
-----------------------------------------------------------------------------------------------------------------------GROSS ESTATE
BEQUEST
SPOUSECOUNT--
BEQUEST
SON---COUNT--
BEQUEST
DAUGHTE
COUNT--
BEQUEST
GRANDCH
COUNT--
BEQUEST
SIBLING
CQUNT--
BEQUEST
NIECE&N
COUNT--
BEQUEST
AUNT&UN
COUNT--
BEQUEST
PARENTCOUNT--
BEQUEST
OTHER-COUNT--
BEQUEST
TRUST&E
COUNT--
------------------------------------------------------------------------------------------------------------ -----------4695.
546.
16815.
300000. -$ 500000.
12666.
o.
18234.
17798.
18671.
15941.
7862.
500000.
1000000.
2500000.
10000000
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
GROSS ESTATE
300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
9143.
3758.
1088.
130.
9856.
3693.
1083.
144.
11162.
3778.
1148.
135.
3006l.
33010.
34020.
--------- --------- --------BEQUEST
NA----COUNT--
BEQUEST
TOTAL-COUNT--
2839.
1187.
717.
176.
60.
116067.
73620.
33673.
11756.
1948.
4981.
237064.
--------- ---------
O.
13893.
4139.
1532.
248.
4275.
1387.
455.
33.
5106.
4342.
1303.
154.
32.
9.
1.
32478.
14012.
29576.
42.
3.
11755.
8582.
3546.
80l.
7006.
3155.
1405.
239.
885.
41500.
16499.
237.
87.
Il.
--------- --------- --------- --------- --------- --------- ---------
- 23 TABLE 3D
AMOUNT OF INHERITANCE BY TYPE OF RELATION AND SIZE OF ESTATE -- WEIGHTED
GROSS ESTATE
BEQUEST
SPOUSE($000)-
BEQUEST
SON--($000)-
BEQUEST
DAUGHTE
($000)-
BEQUEST
GRANDCH
(SOOO)-
3926071.
4120104.
3405539.
2745338.
2511222.
1529153.
995438.
742180.
394187.
99240.
1735046.
1461548.
763310.
384516.
86438.
323263.
354223.
200969.
155674.
50751.
3760200.
4430857.
1084880.
BEQUEST
SIBLING
($000)-
BEQUEST
NIECE&N
($000)-
BEQUEST
AUNT&UN
($OOO)-
BEQUEST
PARENT($000)-
BEQUEST
OTHER-(SOOO)-
BEQUEST
TRUST&E
($000)-
-----------------------------------------------------------------------------------------------------------------------300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
GROSS ESTATE
300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
--------16708274.
BEQUEST
NA----($000)92173.
21770.
29815.
8782.
1838.
--------- --------- --------BEQUEST
TOTAL-($000)9957835.
9563011.
6867253.
4737113.
3063100.
154379. 34188313.
589332.
468199.
157741.
63560.
5338.
592828.
353115.
292655.
141172 .
9774.
O.
O.
2392.
176.
57.
31668.
77069.
12760.
4192.
1892.
1284169.
1389544.
2625.
127581.
--------- --------- --------- ---------
360467.
418150.
304867.
153543.
61501.
--------1298527.
777818.
1293393.
955033.
685974.
235048.
--------3947266.
- 24 TABLE 3E
AVERAGE INHERITANCE BY TYPE OF RELATION AND SIZE OF ESTATE -
WEIGHTED
-----------------------------------------------------------------------------------------------------------------------GROSS ESTATE
BEQUEST
SPOUSEAMOUNT-
BEQUEST
SON--AMOUNT-
BEQUEST
DAUGHTE
AMOUNT-
BEQUEST
GRANDCH
AMOUNT-
BEQUEST
SIBLING
AMOUNT-
BEQUEST
NIECE&N
AMOUNT-
BEQUEST
AUNT&UN
AMOUNT-
BEQUEST
PARENTAMOUNT-
BEQUEST
OTHER-AMOUNT-
BEQUEST
TRUST&E
AMOUNT-
------------------------------------------------------------------------------------------------------------------------
300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
246281.
-$1000000.
450623.
-$2500000.
906096.
-$10000000 2524249.
-$******** 19299988.
TOTAL
GROSS ESTATE
83861.
101003.
200951.
363965.
690073.
97487.
130943.
202022.
334979.
641803.
113910.
130242.
--------- --------- --------555817.
BEQUEST
NA----AMOUNT-
BEQUEST
TOTAL-AMOUNT-
25523.
25497.
48551.
101588.
204910.
74964.
109528.
113688.
139675.
161279.
----------------91649.
33404.
31751.
69158.
67395.
108377.
63436.
46982.
74738.
19342.
50000.
5B006.
324521.
146331.
368505.
552699.
21437.
3557135523.
43300.
76757.
165667.
184618.
302734.
488242.
985342.
62138.
144090.
31290.
239242.
O.
O.
--------- --------- --------- --------- ---------
------------------------------------------------------------------------------------------------------------------------
300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
32468.
18334.
41556.
49803.
30385.
85794.
129897.
203940.
402939.
1572188.
30996.
144215.
--------- ---------
- 25 TABLE 4A
NUMBER OF ESTATES BY C.V. AND SIZE OF ESTATE -- WEIGHTED
-----------------------------------------------------------------------------------------------------------------------GROSS ESTATE
- ZEROCOUNT--
- 0-1%COUNT--
- 1-2%COUNT--
- 2-3%COUNT--
- 3-5%COUNT--
- 5-10%
COUNT--
-10-20%
COUNT--
-20-50%
COUNT--
- 50%-COUNT--
- ALL-COUNT
-----------------------------------------------------------------------------------------------------------------------300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
O.
218.
237.
62.
17.
1.
437.
O.
78.
36.
7.
1310.
475.
148.
44.
8.
1529.
356.
184.
73.
8.
10810.
6293.
2301.
693.
8l.
385.
536.
558.
1985.
2150.
20178.
6333.
4275.
1535.
43140.
437.
712.
21l.
59.
16.
218.
O.
30.
13.
1.
109.
119.
18.
7.
218.
119.
35.
O.
12614.
1435.
262.
252.
13.
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
AMOUNT OF BEQUEST BY C.V. AND SIZE OF ESTATE -- WEIGHTED
GROSS ESTATE
- ZERO($000)-
- 0-1%($000)-
- 1-2%($000)-
- 2-3%(SOOO)-
- 3-5%(SOOO)-
- 5-10%
($000)-
-10-20%
($000)-
-20-50%
($000)-
- 50%-($000)-
- ALL-($000)-
-----------------------------------------------------------------------------------------------------------------------32456.
30947.
67582.
118088.
78327.
255043.
248676.
2405849.
300000. -$ 500000.
1489534.
85197.
o.
22460.
34130.
75174.
1201863.
212516.
O.
195469.
136852. 1878464.
500000. -$1000000.
1000000. -$2500000.
2500000. -$10000000
10000000 -$********
TOTAL
746177.
359829.
80994.
108787.
53080.
28728.
18036.
11087.
348.
9153.
8287.
O.
14809.
15979.
O.
32622.
17694.
318.
43608.
33262.
15044.
69390.
34118.
12480.
74298.
63416.
8303.
1116881.
596754.
146215.
3878397.
521199.
61927.
70847.
132500.
204135.
177112.
566500.
531546.
6144163.
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
- 26 TABLE 4B
PERCENT OF ESTATES BY C.V. AND SIZE OF ESTATE -- WEIGHTED
------------------------------------------------------------------------------------------------------------------------ ALL-GROSS ESTATE
- ZEROPERCENT
-
0-1%-
PERCENT
- 1-2%PERCENT
- 2-3%PERCENT
- 3-5%PERCENT
- 5-10%
PERCENT
-10-20%
PERCENT
-20-50%
PERCENT
- 50%-PERCENT
PERCENT
------------------------------------------------------------------------------------------------------------------------
300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
59.
68.
67.
62.
49.
--------63.
I.
1.
2.
1.
2.
l.
2.
2.
2.
2.
I.
O.
O.
2.
4.
3.
2.
1.
I.
1.
2.
3.
4.
II.
9.
9.
20.
2.
O.
7.
14.
B.
12.
8.
6.
6.
10.
10.
100.
100.
100.
100.
100.
3.
10.
II.
100.
4.
O.
3.
5.
6.
B.
II.
--------- --------- --------- --------- --------- --------- --------- --------- ---------
PERCENT OF BEQUESTS BY C.V. AND SIZE OF ESTATE -- WEIGHTED
GROSS ESTATE
- ZEROPERCENT
-
0-1%-
PERCENT
- 1-2%PERCENT
- 2-3%PERCENT
- 3-5%PERCENT
- 5-10%
PERCENT
-10-20%
PERCENT
-20-50%
PERCENT
- 50%-PERCENT
- ALL-PERCENT
------------------------------------------------------------------------------------------------------------------------
300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
62.
64.
67.
60.
55.
--------63.
5.
I.
II.
10.
9.
20.
O.
2.
2.
O.
B.
I.
1.
I.
1.
I.
O.
--------- --------- --------1.
3.
2.
I.
3.
O.
3.
4.
3.
3.
O.
--------- --------2.
3.
4.
O.
4.
6.
10.
II.
10.
6.
10.
7.
7.
6.
II.
9.
6.
9.
9.
--------- --------- --------3.
100.
100.
100.
100.
100.
--------100.
- 27 TABLE SA
NUMBER OF ESTATES BY C.V. AND SIZE OF ESTATE -- WEIGHTED
(Excludes Estates with Trust beneficiaries)
GROSS ESTATE
- ZEROCOUNT--
- 0-1%COUNT--
- 1-2%-
- 2-3%-
- 3-5%-
- 5-10%
-10-20%
-20-50%
- 50%--
COUNT--
COUNT--
COUNT--
COUNT--
COUNT--
COUNT--
COUNT--
- ALL-COUNT
-----------------------------------------------------------------------------------------------------------------------300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
6005.
3562.
1231.
306.
27.
437.
712.
180.
42.
13.
109.
O.
23.
10.
O.
109.
119.
13.
6.
O.
11132.
1384.
143.
247.
--------- --------- --------- ---------
o.
218.
237.
52.
II.
O.
328.
O.
63.
24.
5.
1092.
356.
118.
25.
3.
1419.
237.
116.
43.
2.
9936.
5343.
1827.
479.
50.
379.
519.
419.
1595.
1818.
17635.
218.
119.
3l.
II.
--------- --------- --------- --------- --------- ---------
AMOUNT OF BEQUEST BY C.V. AND SIZE OF ESTATE -- WEIGHTED
(Excludes Estates with Trust beneficiaries)
-
- 0-1%($000)-
- 1-2%($000)-
- 2-3%($000)-
- 3-5%($000)-
- 5-10%
(SOOO)-
-10-20%
($000)-
GROSS ESTATE
ZERO($000)-
300000.
500000.
1000000.
2500000.
10000000
1428855.
995134.
672120.
288447.
72922.
118088.
212516.
103144.
40325.
26693.
26887.
O.
1567l.
7552.
O.
30947.
22460.
7902.
8160.
O.
67582.
34130.
13277.
14558.
O.
78327.
75174.
31900.
16798.
O.
83450.
3457479.
500766.
50110.
69469.
129547.
202199.
-20-50%
($000)-
- 50%-($000)-
- ALL--
($000)-
------------------------------------------------------------------------------------------------------------------------$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
39007.
26742.
13339.
225342.
168771.
60854.
24615.
10349.
223728.
105148.
56482.
48093.
1072.
2283205.
1613333.
1000357.
475291.
124376.
162538.
489932.
434523.
5496562.
O.
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
- 28 TABLE 5B
PERCENT OF ESTATES BY C.V. AND SIZE OF ESTATE -- WEIGHTED
(Excludes Estates with Trust beneficiaries)
-----------------------------------------------------------------------------------------------------------------------GROSS ESTATE
- ZEROPERCENT
- O-HPERCENT
- 1-2%PERCENT
- 2-3%PERCENT
- 3-5%PERCENT
- 5-10%
PERCENT
-10-20%
PERCENT
-20-50%
PERCENT
- 50%-PERCENT
- ALL-PERCENT
------------------------------------------------------------------------------------------------------------------------
300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
60.
67.
67.
64.
55.
4.
13.
10.
9.
25.
63.
B.
1-
1.
O.
2.
1.
2.
O.
1.
O.
1.
1.
1.
2.
2.
2.
2.
2.
4.
3.
2.
O.
O.
2.
3.
9.
6.
5.
7.
14.
4.
6.
9.
5.
100.
100.
100.
100.
100.
2.
9.
10.
100.
3.
11.
O.
7.
3.
5.
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
PERCENT OF BEQUESTS BY C.V. AND SIZE OF ESTATE -- WEIGHTED
(Excludes Estates with Trust beneficiaries)
GROSS ESTATE
- ZEROPERCENT
-
0-1%-
PERCENT
- 1-2%PERCENT
- 2-3%PERCENT
- 3-5%PERCENT
- 5-10%
PERCENT
-10-20%
PERCENT
-20-50%
PERCENT
- 50%-PERCENT
- ALL-PERCENT
------------------------------------------------------------------------------------------------------------------------
300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
5.
13.
10.
63.
62.
67.
6159.
21.
63.
9.
8.
--------- ---------
1-
O.
2.
2.
1.
1.
1.
2.
O.
O.
--------- --------1.
1.
3.
2.
3.
5.
10.
10.
O.
6.
11-
B.
10.
7.
6.
10.
1-
4.
3.
9.
B.
1.
3.
3.
4.
O.
2.
4.
O.
4.
6.
5.
100.
100.
100.
100.
100.
100.
--------- --------- --------- --------- --------- ---------
- 29 TABLE 6A
NUMBER OF ESTATES BY C.V. AND SIZE OF ESTATE -- WEIGHTED
(Excludes Estates with Trust or Spouse Beneficiaries )
GROSS ESTATE
- ZEROCOUNT--
- 0-1%COUNT--
- 1-2%COUNT--
- 2-3%COUNT--
- 3-5%COUNT--
- 5-10%
COUNT--
-10-20%
COUNT--
-20-50%
COUNT--
- 50%-COUNT--
- ALL-COUNT
-----------------------------------------------------------------------------------------------------------------------300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
3494.
1662.
527.
10l.
8.
218.
119.
75.
13.
2.
109.
5792.
427.
109.
O.
o.
109.
O.
8.
1.
O.
125.
118.
125.
O.
12.
3.
II.
5.
o.
--------- --------- --------- --------- ---------
218.
119.
29.
7.
109.
O.
o.
36.
8.
2.
373.
156.
--------- ---------
655.
356.
66.
16.
2.
546.
237.
6l.
23.
I.
5569.
2494.
825.
176.
16.
1096.
868.
9079.
--------- --------- ---------
AMOUNT OF BEQUEST BY C.V. AND SIZE OF ESTATE -- WEIGHTED
(Excludes Estates with Trust or Spouse Beneficiaries )
GROSS ESTATE
- ZERO($000)-
- 0-1%($000)-
- 1-2%($000)-
- 2-3%($000)-
- 3-5%($000)-
- 5-10%
($000)-
-10-20%
($000)-
-20-50%
($000)-
- 50%-($000)-
- ALL-($000)-
-----------------------------------------------------------------------------------------------------------------------26887.
30947.
64086.
40499.
300000. -$ 500000.
1039776.
78327.
36437.
168350.
117134. 1602442.
o.
o.
54930.
O.
636336.
42615.
o. 168771.
500000. -$1000000.
105148.
1007800.
1000000. -$2500000.
2500000. -$10000000
10000000 -$********
TOTAL
416138.
157669.
39950.
6007l.
21103.
6154.
10223.
4788.
5727.
1794.
6721.
7052.
22252.
11111.
28394.
12834.
9723.
46390.
20769.
7391.
37427.
30537.
63.
633344.
267657.
6328l.
2289869.
206344.
41898.
38468.
54271.
154306.
87388.
411672.
290308.
3574524.
o.
O.
O.
O.
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
- 30 TABLE 6B
PERCENT OF ESTATES BY C.V. AND SIZE OF ESTATE -- WEIGHTED
(Excludes Estates with Trust or spouse Beneficiaries )
-----------------------------------------------------------------------------------------------------------------------GROSS ESTATE
- ZEROPERCENT
-
0-1%-
PERCENT
- 1-2%PERCENT
- 2-3%PERCENT
- 3-5%PERCENT
- 5-10%
PERCENT
-10-20%
PERCENT
-20-50%
PERCENT
- 50%-PERCENT
- ALL-PERCENT
------------------------------------------------------------------------------------------------------------------------
300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
63.
67.
64.
57.
50.
4.
5.
9.
7.
14.
64.
5.
O.
4.
5.
14.
12.
14.
B.
9.
14.
10.
10.
7.
13.
7.
100.
100.
100.
100.
100.
4.
2.
12.
10.
100.
2.
2.
2.
O.
O.
O.
I.
2.
I.
I.
13.
4.
5.
3.
4.
O.
O.
O.
I.
I.
I.
2.
O.
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
PERCENT OF BEQUESTS BY C.V. AND SIZE OF ESTATE -- WEIGHTED
(Excludes Estates with Trust or Spouse Beneficiaries )
GROSS ESTATE
- ZEROPERCENT
- 0-1%PERCENT
- 1-2%PERCENT
- 2-3%PERCENT
- 3-5%PERCENT
- 5-10%
PERCENT
-10-20%
PERCENT
-20-50%
PERCENT
- 50%-PERCENT
- ALL-PERCENT
------------------------------------------------------------------------------------------------------------------------
300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
65.
63.
66.
59.
63.
4.
5.
9.
8.
10.
o.
2.
3.
O.
O.
2.
2.
O.
I.
I.
1.
3.
O.
64.
6.
I.
I.
2.
5.
4.
2.
o.
II.
7.
10.
6.
11.
O.
100.
100.
100.
100.
100.
8.
100.
O.
4.
4.
O.
5.
15.
17.
7.
8.
12.
2.
4.
2.
12.
4.
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
- 31 Table 7A
NUMBER OF ESTATES BY C.V. AND SIZE OF ESTATE -- WEIGHTED
(Two-Child Estates only)
GROSS ESTATE
300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
- ZEROCOUNT-3822.
2375.
894.
253.
17.
- 0-1%-
- 1-2%-
- 2-3%-
- 3-5%-
- 5-10%
-10-20%
-20-50%
-
COUNT--
COUNT--
COUNT--
COUNT--
COUNT--
COUNT--
COUNT--
COUNT--
O.
237.
45.
10.
5.
218.
O.
20.
5.
109.
O.
O.
O.
9.
1.
109.
O.
20.
5.
O.
218.
237.
34.
10.
1.
O.
O.
39.
14.
3.
983.
119.
76.
23.
2.
50%-764.
237.
94.
30.
5.
- ALL-COUNT
6224.
3206.
1231.
349.
33.
--------------------------------------------------------------------------------7360.
243.
119.
56.
1203.
1130.
298.
134.
501.
11043.
AMOUNT OF BEQUEST BY C.V. AND SIZE OF ESTATE -- WEIGHTED
(Two-Child Estates only)
- ZERO-
GROSS ESTATE
($000)-
- 0-1%($000)-
- 1-2%($000)-
- 2-3%($000)-
- 3-5%-
-
(SOOO)-
(SOOO)-
5-10%
-10-20%
($000)-
-20-50%
($000)-
- 50%--
(SOOO)-
- ALL-(SOOO)-
-----------------------------------------------------------------------------------------------------------------------O.
32456.
30947.
40499.
906638.
78327.
O.
178457.
300000. -$ 500000.
149673.
1416996.
500000.
1000000.
2500000.
10000000
-$1000000.
-$2500000.
-$10000000
-S********
TOTAL
711960.
438778.
205485.
22538.
68989.
24011.
10039.
7469.
O.
9659.
2189.
O.
O.
3264.
256.
O.
O.
9234.
5598.
O.
75174.
17818.
9746.
318.
O.
22561.
10219.
8752.
26698.
32410.
14304.
6647.
80894.
32216.
24098.
4808.
963716.
589951281934.
50532.
--------------------------------------------------------------------------------44304.
34467.
55331.
181383.
2285399.
110508.
41532.
258516.
291688.
3303128.
- 32 Table 7B
PERCENT OF ESTATES BY C.V. AND SIZE OF ESTATE -- WEIGHTED
(Two-Child Estates only)
-----------------------------------------------------------------------------------------------------------------------GROSS ESTATE
- ZEROPERCENT
-
0-1%-
PERCENT
- 1-2%PERCENT
- 2-3%PERCENT
- 3-5%PERCENT
- 5-10%
PERCENT
-10-20%
PERCENT
-20-50%
PERCENT
- 50%-PERCENT
- ALL-PERCENT
------------------------------------------------------------------------------------------------------------------------
300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
61-
o.
4.
2.
2.
74.
73.
72.
52.
7.
4.
3.
14.
O.
O.
O.
2.
I.
O.
o.
I.
2.
67.
3.
2.
O.
I.
O.
4.
7.
3.
3.
3.
I.
1.
5.
o.
12.
7.
3.
4.
10.
16.
4.
6.
7.
7.
14.
100.
100.
100.
100.
100.
I.
1I.
10.
100.
O.
8.
8.
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
PERCENT OF BEQUESTS BY C.V. AND SIZE OF ESTATE -- WEIGHTED
(Two-Child Estates only)
GROSS ESTATE
- ZEROPERCENT
-
0-1%-
PERCENT
- 1-2%PERCENT
- 2-3%PERCENT
- 3-5%PERCENT
- 5-10%
PERCENT
-10-20%
PERCENT
-20-50%
PERCENT
- 50%-PERCENT
- ALL-PERCENT
-----------------------------------------------------------------------------------------------------------------------300000. -$ 500000.
o.
2.
o.
64.
2.
3.
6.
13.
100.
1I.
o.
74.
7.
O.
O.
8.
o.
500000. -$1000000.
B.
3.
100.
1000000. -$2500000.
2500000. -$10000000
10000000 -$********
TOTAL
74.
73.
45.
4.
4.
15.
69.
3.
2.
I.
1.
O.
O.
O.
I.
l.
O.
3.
3.
1-
4.
4.
17.
5.
5.
13.
2.
5.
1-
8.
2.
2.
--------- --------- --------- --------- --------- --------- --------- ---------
5.
9.
10.
100.
100.
100.
9.
100.
--------- ---------
- 33 Table 8A
NUMBER OF ESTATES BY C.V. AND SIZE OF ESTATE -- WEIGHTED
(Three-Child Estates only)
GROSS ESTATE
- ZEROCOUNT--
- 0-1%COUNT--
- 1-2%COUNT--
- 2-3%COUNT--
- 3-5%COUNT--
- 5-10%
COUNT--
-10-20%
COUNT--
-20-50%
COUNT--
- 50%-COUNT--
- ALL-COUNT
-----------------------------------------------------------------------------------------------------------------------2075.
o.
o.
300000. -$ 500000.
218.
o.
109.
109.
328.
1310.
o.
500000.
1000000.
2500000.
10000000
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
o.
o.
o.
6.
8.
5.
13.
3.
25.
8.
1.
119.
34.
7.
1.
119.
47.
22.
2.
1662.
627.
19126.
1I.
12.
17.
144.
270.
518.
4581.
1069.
385.
107.
14.
356.
103.
30.
7.
o.
1.
o.
2885.
714.
II.
6.
5.
O.
6.
O.
o.
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
AMOUNT OF BEQUEST BY C.V. AND SIZE OF ESTATE -- WEIGHTED
(Three-Child Estates only)
GROSS ESTATE
- ZERO($000)-
- 0-1%($000)-
- 1-2%($000)-
- 2-3%($000)-
- 3-5%($000)-
- 5-10%
($000)-
-10-20%
($000)-
-20-50%
($000)-
- 50%-($000)-
- ALL-($000)-
-----------------------------------------------------------------------------------------------------------------------64174.
o.
o.
o.
303664.
o.
13730.
18059.
55939.
455567.
300000. -$ 500000.
o.
88597.
o.
o.
o.
286163.
o.
53258.
500000. -$1000000.
483976.
55958.
1000000. -$2500000.
2500000. -$10000000
10000000 -$********
TOTAL
185291.
96852.
38173.
52072 .
28003.
11896.
3778.
5574.
348.
3061.
8031.
2497.
4521.
7743.
1691-
O.
O.
910142.
244743.
9699.
11092.
7018.
O.
12209.
7182.
4587.
18066.
5096.
2354.
20558.
17370.
1864.
305275.
174319.
59222.
9435.
37709.
96833.
151688.
1478359.
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
- 34 Table 8B
PERCENT OF ESTATES BY C.V. AND SIZE OF ESTATE -- WEIGHTED
(Three-Child Estates only)
-----------------------------------------------------------------------------------------------------------------------GROSS ESTATE
- ZEROPERCENT
- 0-1%PERCENT
- 1-2%PERCENT
- 2-3%PERCENT
- 3-5%PERCENT
- 5-10%
PERCENT
-10-20%
PERCENT
-20-50%
PERCENT
- 50%-PERCENT
- ALL-PERCENT
------------------------------------------------------------------------------------------------------------------------
300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
63.
64.
61.
56.
52.
21.
16.
15.
26.
63.
16.
11.
--------- ---------
o.
o.
o.
o.
o.
o.
O.
o.
o.
1.
2.
4.
1.
3.
1.
2.
2.
2.
o.
o.
o.
o.
16.
7.
O.
4.
4.
4.
5.
7.
5.
4.
4.
ll.
9.
100.
100.
100.
100.
100.
o.
3.
6.
ll.
100.
5.
B.
--------- --------- --------- --------- --------- --------- --------- --------O.
PERCENT OF BEQUESTS BY C.V. AND SIZE OF ESTATE -- WEIGHTED
(Three-Child Estates only)
GROSS ESTATE
- ZEROPERCENT
-
0-1%-
PERCENT
- 1-2%PERCENT
- 2-3%PERCENT
- 3-5%PERCENT
- 5-10%
PERCENT
-10-20%
PERCENT
-20-50%
PERCENT
- 50%-PERCENT
- ALL-PERCENT
------------------------------------------------------------------------------------------------------------ -----------300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
67.
59.
61.
56.
64.
14.
18.
17.
16.
20.
62.
17.
o.
o.
o.
o.
o.
o.
3.
4.
1.
5.
1.
3.
3.
3.
1.
4.
4.
1I.
6.
3.
12.
12.
7.
10.
3.
100.
100.
100.
100.
100.
1.
1-
O.
1.
3.
7.
10.
100.
O.
o.
1-
o.
o.
o.
O.
18.
4.
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
- 35 Table 9A
NUMBER OF ESTATES BY C.V. AND SIZE OF ESTATE -- WEIGHTED
(Four-Child Estates only)
GROSS ESTATE
- ZEROCOUNT--
- 0-1%-
- 1-2%-
- 2-3%-
- 3-5%-
- 5-10%
-10-20%
-20-50%
- 50%--
COUNT--
COUNT--
COUNT--
COUNT--
COUNT--
COUNT--
COUNT--
COUNT--
- ALL-COUNT
-----------------------------------------------------------------------------------------------------------------------300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
o.
o.
O.
O.
3.
3.
O.
O.
O.
2.
O.
O.
119.
6.
2.
O.
O.
O.
8.
2.
O.
218.
O.
9.
10.
2.
218.
119.
18.
9.
3.
218.
O.
30.
11.
1.
1419.
594.
270.
109.
II.
39.
7.
2.
127.
10.
240.
367.
261.
2404.
764.
356.
17I.
56.
5.
O.
O.
24.
15.
1352.
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
AMOUNT OF BEQUEST BY C.V. AND SIZE OF ESTATE -- WEIGHTED
(Four-Child Estates only)
GROSS ESTATE
300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
ZERO($000)-
- 0-1%($000)-
188798.
83471.
78245.
44590.
9844.
O.
O.
12633.
12696.
404947.
- 1-2%($000)-
- 2-3%($000)-
O.
O.
O.
O.
o.
3519.
3324.
O.
25329.
6843.
- 3-5%($000)-
- 5-10%
($000)-
2249.
O.
O.
O.
34130.
1642.
3597.
O.
O.
O.
4211.
4096.
O.
2249.
39369.
8307.
-10-20%
($000)69719.
O.
5023.
11058.
1705.
--------- --------- --------- --------- --------- --------- --------87506.
-20-50%
($000)58526.
60684.
7249.
8328.
3369.
--------138156.
- 50%-($000)-
- ALL--
($000)-
19044.
O.
14521.
10026.
1631.
336087.
178285.
129293.
97715.
16549.
45222.
757929.
--------- ---------
- 36 Table 98
PERCENT OF ESTATES BY C.V. AND SIZE OF ESTATE -- WEIGHTED
(FOUr-Child Estates only)
------------------------------------------------------------------------------------------------------------------------ ALL--20-50%
- 50%--10-20%
- 0-1%- 3-5%- 5-10%
- ZERO- 2-3%- 1-2%-
GROSS ESTATE
PERCENT
PERCENT
PERCENT
PERCENT
PERCENT
PERCENT
PERCENT
PERCENT
PERCENT
PERCENT
-----------------------------------------------------------------------------------------------------------------------100.
15.
15.
300000. -$ 500000.
O.
O.
15.
54.
O.
O.
O.
500000.
1000000.
2500000.
10000000
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
O.
60.
63.
51.
40.
9.
14.
O.
O.
1.
O.
3.
O.
O.
O.
1.
20.
2.
2.
O.
O.
20.
O.
3.
2.
3.
7.
9.
O.
O.
20.
8.
30.
11.
10.
10.
100.
100.
100.
100.
--------------------------------------------------------------------------------100.
O.
10.
56.
2.
O.
O.
5.
15.
11.
PERCENT OF BEQUESTS BY C.V. AND SIZE OF ESTATE -- WEIGHTED
(Four-Child Estates only)
GROSS ESTATE
- ZEROPERCENT
-
0-1%-
- 1-2%-
- 2-3%-
- 3-5%-
-
5-10%
-10-20%
-20-50%
-
PERCENT
PERCENT
PERCENT
PERCENT
PERCENT
PERCENT
PERCENT
PERCENT
50%--
- ALL-PERCENT
-----------------------------------------------------------------------------------------------------------------------300000. -$ 500000.
56.
O.
O.
o.
O.
O.
21.
17.
6.
100.
500000.
1000000.
2500000.
10000000
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
47.
O.
61.
46.
59.
10.
13.
O.
----------------53.
3.
O.
3.
3.
O.
--------1.
O.
2.
O.
O.
19.
1.
4.
O.
O.
3.
O.
4.
34.
O.
6.
4.
O.
11.
10.
9.
20.
11.
10.
10.
100.
100.
100.
100.
--------------------------------------------------------O.
5.
1.
12.
18.
6.
100.
- 37 Table lOA
NUMBER OF ESTATES BY C.V. AND SIZE OF ESTATE -- WEIGHTED
(Five-Child Estates only)
GROSS ESTATE
- ZEROCOUNT--
- 0-1%COUNT--
- 1-2%COUNT--
- 2-3%COUNT--
- 3-5%COUNT--
- 5-10%
COUNT--
-10-20%
COUNT--
-20-50%
COUNT--
- 50%-COUNT--
- ALL-COUNT
-----------------------------------------------------------------------------------------------------------------------300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
218.
237.
54.
13.
2.
O.
119.
21.
3.
3.
O.
O.
1.
O.
O.
o.
o.
O.
O.
1.
O.
O.
525.
147.
l.
1.
1.
O.
O.
O.
6.
1.
1.
O.
O.
6.
6.
O.
328.
356.
95.
25.
7.
115.
8.
11.
811.
O.
109.
1.
2.
O.
O.
O.
O.
3.
2.
2.
o.
o.
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
AMOUNT OF BEQUEST BY C.V. SIZE OF ESTATE -- WEIGHTED
(Five-Child Estates only)
GROSS ESTATE
- ZERO($000)-
- 0-1%($000)-
- 1-2%($000)-
- 2-3%($000)-
- 3-5%($000)-
- 5-10%
($000)-
-10-20%
($000)-
-20-50%
($000)-
- 50%-($000)-
- ALL-($000)-
-----------------------------------------------------------------------------------------------------------------------300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
O.
O.
O.
O.
1747.
O.
O.
O.
723.
1271.
O.
579.
O.
O.
O.
O.
2119.
3156.
O.
3937.
998.
109.
1080.
579.
723.
1271.
7022.
5044.
O.
O.
22247.
63184.
29384.
11325.
7763.
O.
54930.
11350.
956.
6025.
1080.
133904.
73262.
O.
O.
O.
o.
O.
O.
O.
23994.
118114.
53064.
21961.
13898.
8145.
231030.
O.
2620.
5526.
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
- 38 Table lOB
PERCENT OF ESTATES BY C.V. AND SIZE OF ESTATE -- WEIGHTED
(Five-Child Estates only)
-----------------------------------------------------------------------------------------------------------------------GROSS ESTATE
- ZEROPERCENT
-
0-1%-
PERCENT
- 1-2%PERCENT
- 2-3%PERCENT
- 3-5%PERCENT
- 5-10%
PERCENT
-10-20%
PERCENT
-20-50%
PERCENT
- 50%-PERCENT
- ALL-PERCENT
------------------------------------------------------------------------------------------------------------------------
300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
67.
67.
57.
50.
33.
O.
33.
22.
14.
50.
O.
O.
O.
1O.
O.
O.
65.
18.
O.
o.
o.
1-
1-
O.
O.
O.
O.
O.
O.
--------- --------- --------- --------- ---------
O.
o.
2.
O.
O.
--------O.
O.
6.
5.
17.
O.
O.
6.
23.
O.
100.
100.
100.
100.
100.
14.
1-
l-
100.
33.
o.
3.
9.
O.
O.
--------- --------- --------- ---------
PERCENT OF BEQUESTS BY C.V. AND SIZE OF ESTATE -- WEIGHTED
(Five-Child Estates only)
GROSS ESTATE
- ZEROPERCENT
-
0-1%-
PERCENT
- 1-2%PERCENT
- 2-3%PERCENT
- 3-5%PERCENT
- 5-10%
PERCENT
-10-20%
PERCENT
-20-50%
PERCENT
- 50%-PERCENT
- ALL-PERCENT
-----------------------------------------------------------------------------------------------------------------------300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
93.
53.
55.
52.
56.
--------58.
O.
47.
21.
4.
43.
--------32.
O.
O.
2.
O.
O.
O.
O.
O.
1.
1.
O.
O.
O.
O.
O.
o.
O.
O.
2.
O.
O.
O.
O.
1.
7.
o.
4.
14.
O.
O.
7.
o.
5.
1.
3.
2.
O.
O.
100.
100.
100.
100.
100.
4.
100.
O.
5.
25.
--------- --------- --------- --------- --------- --------- --------- ---------
- 39 Table 11A
NUMBER OF CHILDREN BY PARENT'S GROSS ESTATE AND CHILD'S AGI -- SAMPLE
-----------------------------------------------------------------------------------------------------------------------GROSS ESTATE
--NO----AGI-------COUNT--
--$1--UNDER-$10000COUNT--
$10000UNDER-$20000COUNT--
$20000UNDER-$30000COUNT--
$30000UNDER-$50000COUNT--
$50000UNDER-$75000COUNT--
$75000UNDER-$100000
COUNT--
$100000
UNDER-$200000
COUNT--
$200000
UNDER--
TOTAL--
COUNT--
COUNT--
•••••••
-----------------------------------------------------------------------------------------------------------------------300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
10.
2.
161.
52.
6.
--------231.
31.
12.
519.
108.
10.
43.
17.
617.
140.
ll.
6l.
25.
689.
154.
9.
54.
4l.
1067.
256.
18.
34.
13.
788.
196.
15.
10.
9.
51l.
166.
21.
14.
14.
866.
307.
35.
2.
2.
364.
283.
67.
259.
135.
5582.
1662.
192.
680.
828.
938.
1436.
1046.
717.
1236.
718.
7830.
--------- --------- --------- --------- --------- --------- --------- --------- ---------
CHILDREN'S 1981 AGI BY PARENT'S GROSS ESTATE AND CHILD'S AGI -- SAMPLE
-----------------------------------------------------------------------------------------------------------------------GROSS ESTATE
--NO----AGI--
--$1--UNDER-$10000AMOUNT-
-------
AMOUNT-
$10000UNDER-$20000AMOUNT-
$20000UNDER-$30000AMOUNT-
$30000UNDER-$50000AMOUNT-
$50000UNDER-$75000AMOUNT-
$75000UNDER-$100000
AMOUNT-
$100000
UNDER-$200000
AMOUNT-
$200000
UNDER-*******
AMOUNT-
TOTAL--
-------
------AMOUNT-
------------------------------------------------------------------------------------------------------------------------
300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
-456.
-57.
-1127l.
-4560.
-391.
175.
57.
2807.
587.
60.
664.
24l.
9273.
2080.
158.
1493.
624.
17415.
3826.
222.
-16735.
3687.
12416.
23580.
--------- --------- --------- ---------
2060.
1543.
41736.
10140.
69l.
2073.
791.
48226.
12062.
886.
1762.
1832.
118480.
44302.
4985.
850.
789.
44268.
14583.
1823.
435.
528.
128505.
122160.
43646.
9055.
6348.
399440.
205180.
52081.
--------- --------- --------- --------- --------64037.
62313.
171361.
295275.
672103.
-----------------------------------------------------------------------------------------------------------------------TOTAL
--------56169.
INHERITANCE BY PARENT'S GROSS ESTATE AND CHILD'S AGI -- SAMPLE
-----------------------------------------------------------------------------------------------------------------------GROSS ESTATE
--NO----AGI--
-------
AMOUNT-
--$1--UNDER-$10000AMOUNT-
$10000UNDER-$20000AMOUNT-
$20000UNDER-$30000AMOUNT-
$30000UNDER-$50000AMOUNT-
$50000UNDER-$75000AMOUNT-
$75000UNDER-$100000
AMOUNT-
$100000
UNDER-$200000
AMOUNT-
$200000
UNDER-*******
AMOUNT-
TOTAL--
-------
------AMOUNT-
-----------------------------------------------------------------------------------------------------------------------300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
1117.
530.
32517.
13013.
1917.
3342.
1154.
83983.
27881.
3910.
3832.
1502.
116215.
41988.
6561.
6723.
3587.
12047142024.
3746.
10818.
5253.
219841.
85121.
8954.
--------- --------- --------- --------- --------49094.
120270.
170098.
176551-
329988.
4610.
3013.
193132.
72012.
9859.
939.
1085.
119770.
64751.
14116.
2361.
2097.
214256.
116709.
28157.
118.
380.
91454.
106812.
43688.
33862.
18601.
1191642.
570311.
120909.
282625.
200661.
363581.
242452.
1935324.
--------- --------- --------- --------- ---------
- 40 TABLE 11B
AVERAGE CHILD AGI IN 1981 BY PARENT'S GROSS ESTATE AND CHILD'S AGI -- SAMPLE
-----------------------------------------------------------------------------------------------------------------------TOTAL-$200000
$100000
$50000$75000--NO--$20000$30000--$1--$10000GROSS ESTATE
--AGI--
------AMOUNT-
UNDER-$10000AMOUNT-
UNDER-$20000AMOUNT-
UNDER-$30000AMOUNT-
UNDER-$50000AMOUNT-
UNDER-$75000AMOUNT-
UNDER-$100000
AMOUNT-
UNDER-$200000
AMOUNT-
UNDER-*******
AMOUNT-
-------
-------
AMOUNT-
-----------------------------------------------------------------------------------------------------------------------34960.
217729.
125825.
60956.
85015.
300000. -$ 500000.
24470.
38146.
-45637.
5650.
15436.
500000.
1000000.
2500000.
10000000
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
-28689.
-70005.
-87686.
-65111.
4731.
5409.
5438.
6042.
14203.
15029.
14856.
14347.
24948.
25276.
24847.
24657.
37623.
39115.
39608.
38374.
60849.
61200.
61539.
59088.
87677 •
86630.
87848.
86827.
130890.
136813.
144306.
142431.
263966.
353037.
431661.
651429.
47019.
71559.
123454.
271254.
--------------------------------------------------------------------------------85837.
411246.
138641.
61221.
86908.
-72445.
5422.
25139.
39115.
14995.
-----------------------------------------------------------------------------------------------------------------------AVERAGE INHERITANCE BY PARENT'S GROSS ESTATE AND CHILD'S AGI -- SAMPLE
-----------------------------------------------------------------------------------------------------------------------TOTAL-$100000
$200000
$50000--NO--$20000$30000$75000--$1--$10000GROSS ESTATE
--AGI-AMOUNT-
UNDER-$10000AMOUNT-
UNDER-$20000AMOUNT-
UNDER-$30000AMOUNT-
UNDER-$50000AMOUNT-
UNDER-$75000AMOUNT-
UNDER-$100000
AMOUNT-
UNDER-$200000
AMOUNT-
UNDER-*******
AMOUNT-
AMOUNT-
-----------------------------------------------------------------------------------------------------------------------130740.
300000. -$ 500000.
110213.
200340.
135600.
168651.
59161.
111699.
107809.
89126.
93892.
500000.
1000000.
2500000.
10000000
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
265069.
201971.
250241.
319576.
96157.
161817.
258156.
391045.
88381.
188355.
299913.
596416.
143471.
174849.
272883.
416220.
128132.
206037.
332505.
497441.
231743.
245091.
367407.
657237.
120558.
234384.
390066.
672188.
149785.
247409.
380160.
804496.
189965.
251247.
377427.
652065.
137787.
213479.
343147.
629732.
--------------------------------------------------------------------------------212530.
176868.
188221.
229797.
270196.
279862.
247168.
205433.
294159.
337677.
AVERAGE INHERITANCE AS PERCENT OF AVERAGE AGI BY PARENT'S GROSS ESTATE AND CHILD'S AGI -- WEIGHTED
-----------------------------------------------------------------------------------------------------------------------$50000--$1--$20000$30000$75000$100000
--NO--$10000$200000
TOTAL-GROSS ESTATE
--AGI--
-------
AMOUNT-
UNDER-$10000AMOUNT-
UNDER-$20000AMOUNT-
UNDER-$30000AMOUNT-
UNDER-$50000AMOUNT-
UNDER-$75000AMOUNT-
UNDER-$100000
AMOUNT-
UNDER-$200000
AMOUNT-
UNDER-*******
AMOUNT-
-------
------AMOUNT-
-----------------------------------------------------------------------------------------------------------------------450.
222.
1908.
577.
525.
110.
134.
-245.
27.
374.
300000. -$ 500000.
500000.
1000000.
2500000.
10000000
-$1000000.
-$2500000.
-$10000000
-$********
TOTJ>.L
-924.
-289.
-285.
-491-
2033.
2992.
4747.
6472.
622.
1253.
2019.
4157.
575.
692.
1098.
1688.
341.
527.
839.
1296.
38l.
400.
597.
1112.
--------- --------- --------- --------- --------- ---------293.
3262.
137O.
749.
587.
441.
138.
27l.
444.
774.
114.
18l.
263.
565.
----------------322.
212.
72 •
7187.
100.
--------82.
293.
298.
278.
232.
--------288.
- 41 -
TABLE 11C
NUMBER OF CHILDREN BY PARENT'S GROSS ESTATE AND CHILD'S AGI -- WEIGHTED
-----------------------------------------------------------------------------------------------------------------------TOTAL-$200000
$100000
--NO----$1--$10000$20000$30000$50000$75000GROSS ESTATE
--AGI-------COUNT--
UNDER-$10000COUNT--
UNDER-$20000COUNT--
UNDER-$30000COUNT--
UNDER-$50000CQUNT--
UNDER-$75000COUNT--
UNDER-$100000
COUNT--
UNDER-$200000
COUNT--
UNDER-*******
COUNT--
COUNT--
-----------------------------------------------------------------------------------------------------------------------300000. -$ 500000.
1540.
220.
28483.
1100.
1100.
3409.
4729.
6708.
5938.
3739.
500000.
1000000.
2500000.
10000000
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
25I.
191.
61.
8.
1506.
614.
127.
13.
2134.
731.
165.
14.
3138.
816.
18I.
1I.
5147.
1263.
302.
23.
1632.
933.
23119.
1757.
1025.
362.
44.
1130.
605.
196.
26.
251.
431.
333.
84.
16946.
6609.
1958.
241.
--------------------------------------------------------------------------------5670.
10855.
54237.
1610.
7772.
12673.
6554.
3056.
4728.
1320.
CHILDREN'S 1981 AGI BY PARENT'S GROSS ESTATE AND CHILD'S AGI -- WEIGHTED
GROSS ESTATE
--NO----AGI--
--$1--UNDER-$10000AMOUNT-
-------
AMOUNT-
$10000UNDER-$20000AMOUNT-
$20000UNDER-$30000AMOUNT-
$30000UNDER-$50000AMOUNT-
$50000UNDER-$75000AMOUNT-
$75000UNDER-$100000
AMOUNT-
$100000
UNDER-$200000
AMOUNT-
$200000
UNDER-*******
AMOUNT-
TOTAL--
-------
-------
AMOUNT-
-----------------------------------------------------------------------------------------------------------------------72992.
164152.
226528.
19260.
227916.
93492.
300000. -$ 500000.
-50187.
193720.
47888.
995760.
500000.
1000000.
2500000.
10000000
-$1000000.
-$2500000.
-$10000000
-$********
-7203.
-13345.
-5372.
-491.
7126.
3324.
692.
76.
30310.
10979.
2450.
198.
78292.
20620.
4508.
279.
193633.
49415.
11946.
867.
99298.
57099.
142111113.
99054.
52413.
17181.
2289.
230026.
140279.
52196.
6259.
66270.
152150.
143926.
54800.
796806.
472933.
241739.
65390.
--------------------------------------------------------------------------------116929.
267850.
482389.
30478.
399636.
264430.
622479.
-76597.
465034.
2572628.
-----------------------------------------------------------------------------------------------------------------------TOTAL
INHERITANCE BY PARENT'S GROSS ESTATE AND CHILD'S AGI -- WEIGHTED
-----------------------------------------------------------------------------------------------------------------------$20000$30000$50000$10000$75000--$1--$100000
--NO--$200000
TOTAL-UNDER-UNOER-UNDER-UNDER-UNOER-UNDER-UNDER---AGI-UNDER-GROSS ESTATE
------$30000$50000$20000$10000$75000$100000
$200000
*******
------- AMOUNT------AMOtJNTAMOUNTAMOUNTAMOUNTAMOUNTAMOUNTAMOUNTAMOUNTAMOUNT-
-----------------------------------------------------------------------------------------------------------------------739337. 1189707.
421454.
367531.
507011103254.
259654.
122837.
13012.
300000. -$ 500000.
3723794.
500000.
1000000.
2500000.
10000000
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
66547.
38500.
15331.
2407.
144845.
99436.
32849.
4910.
188604.
137598.
49469.
8237.
450243.
142637.
49512.
4703.
659454.
260291.
100288.
11242.
378175.
228667.
84843.
12378.
136201.
141807.
76288.
17123.
--------------------------------- --------- --------- --------805362. 1386432. 2220983. 1211074.
649571.
245623.
475274.
263232.
253678.
137504.
35353.
--------949421.
47692.
108281.
125844.
54853.
2334993.
1410889.
671929.
151807.
----------------349682. 8293413.
- 42 TABLE 110
AVERAGE CHILD AGI IN 1981 BY PARENT'S GROSS ESTATE AND CHILD'S AGI -- WEIGHTED
-----------------------------------------------------------------------------------------------------------------------TOTAL-$200000
$100000
$75000$50000--NO----$1--$10000$20000$30000GROSS ESTATE
--AGI-AMOUNT-
UNDER-$10000AMOUNT-
UNDER-$20000AMOUNT-
UNDER-$30000AMOUNT-
UNDER-$50000AMOUNT-
UNDER-$75000AMOUNT-
UNDER-S100000
AMOUNT-
UNDER-$200000
AMOUNT-
UNDER-*******
AMOUNT-
AMOUNT-
-----------------------------------------------------------------------------------------------------------------------34960.
217729.
125825.
85015.
60956.
300000. -$ 500000.
5650.
24470.
38146.
O.
15436.
500000.
1000000.
2500000.
10000000
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
O.
O.
O.
O.
47315409.
5438.
6042.
14203.
15029.
14856.
14347.
24948.
25276.
24847.
24657.
37623.
39115.
39608.
38374.
60849.
61199.
61539.
59088.
87677.
86629.
87848.
86827.
130890.
136811.
144305.
14243I.
263966.
353038.
431660.
651429.
47019.
71555.
123452.
271254.
--------------------------------------------------------------------------------47433.
131658.
352427.
60979.
86516.
5376.
O.
15045.
24675.
38065.
AVERAGE INHERITANCE BY PARENT'S GROSS ESTATE AND CHILD'S AGI -- WEIGHTED
-----------------------------------------------------------------------------------------------------------------------$50000$100000
$75000$200000
TOTAL---NO----$1--$10000$20000$30000GROSS ESTATE
--AGI--
-------
AMOUNT-
UNDER-$10000AMOUNT-
UNDER-$20000AMOUNT-
UNDER-$30000AMOUNT-
UNDER-$50000AMOUNT-
UNDER-$75000AMOUNT-
UNDER-$100000
AMOUNT-
UNDER-S200000
AMOUNT-
UNDER-*******
AMOUNT-
-------------
AMOUNT-
-----------------------------------------------------------------------------------------------------------------------135600.
300000. -$ 500000.
O.
107809.
110213.
200340.
93892.
168651.
89126.
59161.
130740.
500000.
1000000.
2500000.
10000000
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
O.
O.
O.
O.
96157.
161817.
258155.
391045.
88381.
188354.
299913.
596416.
143471.
174848.
272883.
416221-
128132.
206037.
332504.
497441.
231743.
245089.
367407.
657237.
120558.
234384.
390066.
672188.
149785.
247406.
380159.
804497.
189965.
251247.
377426.
652065.
137787.
213468.
343142.
629733.
--------------------------------------------------------------------------------114568.
103623.
127723.
175258.
184794.
155499.
O.
200809.
265007.
152909.
AVERAGE INHERITANCE AS PERCENT OF AVERAGE AGI BY PARENT'S GROSS ESTATE AND CHILD'S AGI -- WEIGHTED
-----------------------------------------------------------------------------------------------------------------------$20000$30000$50000--$1--$10000$75000$100000
--NO--$200000
TOTAL-GROSS ESTATE
--AGI--
------AMOUNT-
UNDER-$10000AMOUNT-
UNDER-$20000AMOUNT-
UNDER-$30000AMOUNT-
UNDER-$50000AMOUNT-
UNDER-$75000AMOUNT-
UNDER-$100000
AMOUNT-
UNDER-$200000
AMOUNT-
UNDER-*******
AMOUNT-
-------------
AMOUNT-
-----------------------------------------------------------------------------------------------------------------------450.
1908.
525.
222.
O.
577.
110.
134.
27.
374.
300000. -$ 500000.
500000.
1000000.
2500000.
10000000
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
O.
O.
O.
O.
2033.
2992.
4747.
6472.
----------------2131.
O.
622.
1253.
2019.
4157.
575.
692.
1098.
1688.
34I.
527.
839.
1296.
------------------------518.
689.
46O.
38l.
400.
597.
1112.
138.
27l.
444.
774.
114.
18I.
263.
565.
72.
7I.
87.
100.
293.
298.
278.
232.
--------------------------------- --------303.
18O.
153.
75.
322.
- 43 TABLE lIE
NUMBER OF CHILDREN BY (WIDOWED) PARENT'S GROSS ESTATE AND CHILD'S AGI -- WEIGHTED
-------------------------------------------------------------------------------------------------------------------------NO----AGI-COUNT--
--$1--UNDER-$10000COUNT--
$10000UNDER-$20000COUNT--
$20000UNDER-$30000COUNT--
$30000UNDER-$50000COUNT--
$50000UNDER-$75000COUNT--
$75000UNDER-$100000
COUNT--
$200000
UNDER-*******
COUNT--
$100000
UNDER-$200000
COUNT--
TOTAL-COUNT--
-----------------------------------------------------------------------------------------------------------------------300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
330.
251.
76.
14.
3.
1320.
879.
231.
28.
4.
2199.
1130.
311.
49.
O.
3849.
1632.
322.
55.
1.
3079.
2385.
571.
111.
4.
1540.
502.
442.
100.
8.
440.
377.
243.
94.
5.
1100.
879.
407.
156.
14.
110.
251.
167.
125.
38.
13966.
8285.
2769.
733.
75.
673.
2461.
3690.
5860.
6149.
2591.
1158.
2555.
691.
25829.
--------- --------- --------- --------- --------- --------- --------- --------- '--------- ---------
TOTAL
CHILDREN'S 1981 AGI BY (WIDOWED) PARENT'S GROSS ESTATE AND CHILD'S AGI -- WEIGHTED
--NO----AGI-AMOUNT300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
--$1--UNDER-$10000AMOUNT-
$10000UNDER-$20000AMOUNT-
$20000UNDER-$30000AMOUNT-
$30000UNDER-$50000AMOUNT-
O.
92986.
38879.
8157.
1371.
26.
118084.
89049.
22242.
4367.
149.
54417.
141419.
233890.
-11459.
-7203.
-3622.
-2219.
-214.
8251.
5148.
1219.
143.
30.
32902.
16091.
4690.
734.
-24717.
14792.
97214.
27624.
27100.
6215.
445.
$75000UNDER-$100000
AMOUNT37723.
31375.
20936.
8312.
426.
$100000
UNDER-$200000
AMOUNT139400.
125389.
55237.
22201.
1972.
$200000
UNDER-*******
AMOUNT22123.
66270.
58405.
52557.
29663.
TOTAL-AMOUNT537224.
392623.
194363.
93680.
32495.
--------- --------- --------- --------344198.
98771.
229018.
1250386.
-----------------------------------------------------------------------------------------------------------------------TOTAL
--------- --------- --------- --------- ---------
$50000UNDER-$75000AMOUNT-
--------158597.
INHERITANCE BY (WIDOWED) PARENT'S GROSS ESTATE AND CHILD'S AGI -- WEIGHTED
-------------------------------------------------------------------------------------------------------------------------NO----AGI--
AMOUNT-
--$1--UNDER-$10000AMOUNT-
$10000UNDER-S20000AMOUNT-
$20000UNDER-$30000AMOUNT-
$30000UNDER-S50000AMOUNT-
$50000UNDER-S75000AMOUNT-
$75000UNDER-S100000
AMOUNT-
S100000
UNDER-$200000
AMOUNT-
$200000
UNDER-*******
AMOUNT-
TOTAL-AMOUNT-
-----------------------------------------------------------------------------------------------------------------------300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
19707.
66547.
23311.
6685.
578.
233784.
125767.
57000.
13917.
1026.
--------- --------116829.
431495.
201598.
124664.
87350.
26023.
O.
503288.
323565.
78802.
25507.
63.
438889.
335157.
158886.
60455.
4427.
225455.
92074.
135286.
56122.
9997.
51337.
84738.
76656.
50102.
4523.
197758.
170426.
126349.
80323.
14810.
9590.
47692.
49420.
62363.
31818.
1881405.
1370630.
793058.
381497.
67242.
439634.
931225.
997814.
518935.
267354.
589665.
200882.
4493832.
--------- --------- --------- --------- --------- --------- --------- ---------
- 44 TABLE 11F
AVERAGE CHILD AGI IN 1981 BY (WIDOWED) PARENT'S GROSS ESTATE AND CHILD'S AGI -- WEIGHTED
-----------------------------------------------------------------------------------------------------------------------TOTAL-$200000
$100000
$50000$75000$20000$30000--NO--$10000--$1----AGI-AMOUNT-
UNDER-$10000AMOUNT-
UNDER-$20000AMOUNT-
UNDER-$30000AMOUNT-
UNDER-$50000AMOUNT-
UNDER-$75000AMOUNT-
UNDER-$100000
AMOUNT-
UNDER-$200000
AMOUNT-
UNDER-*****.*
AMOUNT-
AMOUNT-
-----------------------------------------------------------------------------------------------------------------------38466.
126760.
201170.
85756.
63142.
300000. -$ 500000.
24159.
38349.
6253.
14959.
O.
500000.
1000000.
2500000.
10000000
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
O.
O.
O.
O.
5859.
5280.
5072 .
7944.
14243.
15062.
14828.
O.
23825.
25328.
24753.
20931-
37336.
38973.
39433.
39444.
55016.
61363.
62057.
59038.
83314.
86255.
88187.
84736.
142698.
135619.
142753.
142758.
263966.
349850.
420832.
787514.
47390.
70183.
127834.
431354.
--------------------------------------------------------------------------------48410.
331658.
134713.
85260.
24135.
38034.
61210.
O.
6010.
14747.
AVERAGE INHERITANCE BY (WIDOWED) PARENT'S GROSS ESTATE AND CHILD'S AGI -- WEIGHTED
--NO----AGI-AMOUNT-
--Sl---
UNDER-$10000AMOUNT-
$10000UNDER-$20000AMOUNT-
S20000UNDER-$30000AMOUNT-
S30000UNDER-$50000AMOUNT-
S50000UNDER-$75000AMOUNT-
S75000UNDER-$100000
AMOUNT-
S100000
UNDER-$200000
AMOUNT-
S200000
UNOER-*******
AMOUNT-
TOTAL-AMOUNT-
-------------------------------------------~----------------------------------------------------------------------------
300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
O.
-$********
O.
TOTAL
O.
O.
O.
177156.
143129.
246884.
492181272362.
91660.
110346.
280516.
525883.
O.
130758.
198279.
244691.
460633.
50000.
142534.
140525.
278413.
545869.
1175190.
146438.
183372.
306333.
560407.
1327099.
116705.
225016.
315821.
531556.
900499.
179827.
193952.
310215.
516481.
1072348.
87200.
189965.
296026.
499357.
844719.
134710.
165437.
286365.
520582.
892590.
--------------------------------------------------------------------------------158925.
119140.
162261.
200282.
230783.
230785.
O.
175313.
173985.
290912.
AVERAGE INHERITANCE AS PERCENT OF AVERAGE AGI BY (WIDOWED) PARENT'S GROSS ESTATE AND CHILD'S AGI -- WEIGHTED
--NO----AGI-AMOUNT-
--$1--UNDER-$10000AMOUNT-
$10000UNDER-$20000AMOUNT-
$20000UNDER-$30000AMOUNT-
$30000UNDER-$50000AMOUNT-
$50000UNDER-$75000AMOUNT-
$75000UNDER-$100000
AMOUNT-
$100000
UNDER-$200000
AMOUNT-
$200000
UNDER-*.*****
AMOUNT-
TOTAL-AMOUNT-
-----------------------------------------------------------------------------------------------------------------------613.
2833.
541372.
O.
232.
136.
142.
43.
350.
300000. -$ 500000.
500000.
1000000.
2500000.
10000000
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
O.
O.
O.
O.
2443.
4675.
9703.
3429.
775.
1862.
3546.
O.
832.
966.
1861.
239.
808.
658.
376.
714.
1384.
2979.
333.
499.
903.
2246.
270.
366.
603.
1063.
136.
229.
362.
751-
72 .
85.
119.
107.
349.
408.
407.
207.
------------------------- --------- ------------------------------------------------427.
O.
2917.
327.
27l.
17188.
359.
- 45 TABLE 11G
NUMBER OF CHILDREN BY (MARRIED) PARENT'S GROSS ESTATE AND CHILD'S AGI -- WEIGHTED
-------------------------------------------------------------------------------------------------------------------------NO----AGI-COUNT--
--$1--UNDER-$10000COUNT--
$10000UNDER-$20000COUNT--
$20000UNDER-$30000COUNT--
$30000UNDER-$50000COUNT--
$50000UNDER-$75000COUNT--
$75000UNDER-$100000
COUNT--
$100000
UNDER-$200000
COUNT--
$200000
UNDER-*******
COUNT--
TOTAL--
COUNT--
-----------------------------------------------------------------------------------------------------------------------300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
115.
47.
5.
2089.
628.
384.
99.
9.
2529.
1004.
419.
115.
14.
2859.
1506.
494.
126.
10.
2859.
2762.
693.
191.
19.
2199.
1130.
491.
131.
11.
660.
753.
362.
101.
21.
440.
879.
618.
206.
30.
110.
O.
264.
209.
48.
14516.
866!.
3840.
1225.
167.
937.
3208.
4082.
4995.
6523.
3963.
1898.
2173.
630.
28410.
770.
O.
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
TOTAL
CHILDREN'S 1981 AGI BY (MARRIED) PARENT'S GROSS ESTATE AND CHILD'S AGI -- WEIGHTED
--NO----AGI-AMOUNT300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
--$1--UNDER-$10000AMOUNT-
$10000UNDER-$20000AMOUNT-
$20000UNDER-$30000AMOUNT-
$30000UNDER-$50000AMOUNT-
$50000UNDER-$75000AMOUNT-
$75000UNDER-S100000
AMOUNT-
$100000
UNDER-$200000
AMOUNT-
$200000
UNDER-*******
AMOUNT-
TOTAL-AMOUNT-
-38728.
O.
-9723.
-3153.
-276.
11009.
1978.
2104.
549.
46.
40090.
14219.
6289.
1717.
198.
71166.
39413.
12463.
3138.
252.
108444.
104584.
27173.
7579.
719.
130702.
71674.
29999.
7996.
668.
55770.
67679.
31477.
8869.
1864.
54320.
104637.
85043.
29995.
4287.
25765.
O.
93745.
91370.
25943.
458536.
404184.
278570.
148059.
33701.
-51880.
15686.
62512.
126431.
248499.
241039.
165659.
278282.
236822.
1323049.
-----------------------------------------------------------------------------------------------------------------------INHERITANCE BY (MARRIED) PARENT'S BY GROSS ESTATE AND CHILD'S AGI -- WEIGHTED
-------------------------------------------------------------------------------------------------------------------------NO----AGI-AMOUNT-
--$1--UNDER-$10000AMOUNT-
$10000UNDER-$20000AMOUNT-
$20000UNDER-$30000AMOUNT-
$30000UNDER-$50000AMOUNT-
$50000UNDER-$75000AMOUNT-
$75000UNDER-$100000
AMOUNT-
$100000
UNDER-$200000
AMOUNT-
$200000
UNDER-***"'**'"
AMOUNT-
TOTAL-AMOUNT-
-----------------------------------------------------------------------------------------------------------------------300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
15190.
8646.
1829.
133747.
19078.
42435.
18932.
3884.
219856.
63940.
50248.
23447.
8237.
236049.
126677.
63835.
24005.
4641.
750818.
324297.
101405.
39834.
6816.
281555.
286101.
93381.
28721.
2380.
51917.
51463.
65152.
26187.
13201.
61896.
92806.
127329.
5718120543.
3423.
O.
5886163480.
23173.
1842391.
964364.
617835.
290432.
84704.
128795.
218076.
365728.
455207.
1223169.
692139.
207919.
359756.
148937.
3799725.
103130.
O.
- 46 TABLE 11H
AVERAGE CHILD AGI IN 1981 BY (MARRIED) PARENT'S GROSS ESTATE AND CHILD'S AGI -- WEIGHTED
---------~-------------------------------------------- ------------------------------------------------------------------
--NO----AGI-AMOUNT-
--$1--UNDER-$10000AMOUNT-
$10000UNDER-$20000AMOUNT-
$20000UNDER-$30000AMOUNT-
$30000UNDER-$50000AMOUNT-
$50000UNDER-$75000AMOUNT-
$75000UNDER-$100000
AMOUNT-
$100000
UNDER-$200000
AMOUNT-
$200000
UNDER-*******
AMOUNT-
TOTAL--
AMOUNT-
-----------------------------------------------------------------------------------------------------------------------31588.
300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
O.
O.
O.
O.
O.
5269.
3152.
5486.
5543.
5227.
15850.
14159.
15004.
14868.
14347.
24890.
26165.
25242.
24888.
25123.
37927.
37870.
39232.
39710.
38160.
59426.
63442.
61053.
61142.
59122.
84522.
89859.
86880.
87532.
87319.
123487.
119082.
137599.
145476.
142281.
234288.
O.
355053.
438145.
543744.
46665.
72548.
120834.
201816.
O.
4889.
15314.
25309.
38095.
60828.
87282.
128066.
375759.
46570.
--------- --------- --------- --------- --------- --------- --------- --------- --------- --------AVERAGE INHERITANCE BY (MARRIED) PARENT'S GROSS ESTATE AND CHILD'S AGI -- WEIGHTED
--NO----AGI-AMOUNT-
300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
o.
O.
o.
o.
O.
--$1--UNDER-$10000AMOUNT64011.
30396.
110620.
191291.
441909.
$10000UNDER-$20000AMOUNT86922.
63671.
119886.
203069.
596416.
$20000UNDER-$30000AMOUNT82556.
84096.
129294.
190413.
461998.
$30000UNDER-$50000AMOUNT262592.
117430.
146404.
208700.
361891.
$50000UNDER-$75000AMOUNT128013.
253241.
190048.
219613.
210662.
$75000UNDER-$100000
AMOUNT78682.
68329.
179827.
258446.
618468.
$100000
UNDER-$200000
AMOUNT140710.
105618.
206019.
277335.
681731.
$200000
UNDER-*******
AMOUNT31122.
o.
222933.
304406.
485703.
TOTAL-AMOUNT126919.
111339.
160903.
237027.
507242.
o.
TOTAL
67969.
89596.
91125.
187510.
174667.
109548.
165562.
236314.
133747.
-----------------------------------------------------------------------------------------------------------------------AVERAGE INHERITANCE AS PERCENT OF AVERAGE AGI BY (MARRIED) PARENT'S GROSS ESTATE AND CHILD'S AGI -- WEIGHTED
-------------------------------------------------------------------------------------------------------------------------NO----AGI-------AMOUNT-
I
--$1--UNDER-$10000AMOUNT-
$10000UNDER-$20000AMOUNT-
$20000UNDER-$30000AMOUNT-
$30000UNDER-$50000AMOUNT-
$50000UNDER-$75000AMOUNT-
$75000UNDER-$100000
AMOUNT-
$100000
UNDER-$200000
AMOUNT-
$200000
UNDER-*******
AMOUNT-
TOTAL-------------AMOUNT-
------------------------------------------------------------------------------------------------------------------------
300000.
500000.
1000000.
2500000.
10000000
-$ 500000.
-$1000000.
-$2500000.
-$10000000
-$********
TOTAL
o.
o.
o.
o.
o.
1215.
964.
2016.
3451.
8454.
548.
450.
799.
1366.
4157.
----------------- --------585.
o.
1390.
332.
321.
512.
765.
1839.
--------360.
692.
310.
373.
526.
948.
215.
399.
311.
359.
356.
----------------492.
287.
93.
76.
207.
295.
708.
--------126.
114.
89.
150.
191.
479.
13.
O.
63.
69.
89.
222.
196.
251.
129.
63.
2B7.
---------
402.
239.
DEPARTMENT
OF
THE
TREASURY
NEW
S
................................
TREASURY (~.{]
.................................).~~~2/78~9~~.·
OFFICE OF PUBLIC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C. • 20220 • (202) 622-2960
FOR IMMEDIATE RELEASE
August 31, 1994
CONTACT: Scott Dykema
(202) 622-2960
U.S., FRANCE SIGN INCOME TAX TREATY
The Treasury Department announced that the United States and France signed
an income tax treaty Wednesday.
The treaty was signed today in Paris by U.S. Ambassador Pamela Harriman and
French Budget Minister Nicolas Sarkozy. It replaces one signed in 1967 and amended by
protocols signed in 1970, 1978, 1984 and 1988. The new treaty must be approved by the
U.S. Senate.
The treaty follows the existing one in most respects but is updated to reflect
current tax laws and tax treaty policies of the two countries. It clarifies the definition of
residents of the two countries and the scope of the tax exemption for copyright royalties_
It also includes more comprehensive limitations on treaty benefits to qualifying residents
while strengthening administrative cooperation between the tax authorities.
The treaty maintains the tax at source on dividends of not more than 15 percent
for portfolio holdings and of not more than 5 percent on direct investment dividends.
For portfolio dividends paid by French companies to U.S. shareholders, France provides
a tax credit for all or a portion of the French corporate tax paid on distributed profits;
those profits remain subject to dividend withholding taxes.
The branch tax remains at 5 percent of the portion of branch profits deemed
remitted to the home office. The treaty maintains the tax exemption at source for
interest and copyright royalties and a tax of not more than 5 percent on other royalties.
Special rules apply for dividends paid by regulated investment companies, real estate
investment trusts and to certain interest.
The treaty will enter into force when both governments have completed their
respective constitutional and statutory procedures and have notified each other to that
effect. The provisions with respect to taxes withheld on dividends, interest and royalties
and the U.S. excise tax on premiums paid to French insurers or reinsurers generally will
take effect for amounts paid or credited on or after the first day of the second month
following entry into force of the treaty. In some cases the French dividend tax credit will
be available for dividends paid on or after January 1, 1991. The provisions for royalties
LB-I047
-2-
will also apply for royalties paid on or after January 1, 1991. The other provisions of the
treaty take effect for taxable periods beginning, or taxable events occurring, on or after
January 1 of the year following the entry into force.
Copies of the new treaty may be obtained by writing the Office of Public Affairs,
u.s. Treasury Department, Room 2315, Washington, D.C., 20220, or calling (202) 6222960.
-30-
DEPARTMENT
OF
THE
1REASURY {fii'j)
\
~-t ~
~i
~
,"I
TREASURY
NEW S
~J7BL9~. . . . . . . . . . . . . . . . . . . ..
........................
OFFICE OF PUBLIC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
August 31, 1994
CONTACf: Scott Dykema
(202) 622-2960
U.S., CANADA SIGN PROTOCOL TO INCOME TAX TREATY
The Treasury Department announced the United States and Canada signed an
agreement Wednesday that would significantly change the current income tax treaty
between both nations.
The agreement, a protocol to the current treaty, was signed in Washington D.C.
The current treaty was signed in 1980 and amended by protocols signed in 1983 and
1984. The new protocol must be approved by the U.S. Senate.
'
The protocol makes significant reductions in tax withholding rates on cross-border
payments of dividends, interest and royalties. The withholding rate on direct investment
dividends will be reduced from 10 percent to 5 percent; the rate on interest will be
reduced from 15 percent to 10 percent; and the rate on most royalties will drop from 10
percent to zero. In addition, the protocol will reduce the branch tax rate from 10 percent
to 5 percent.
The protocol reflects changes in U.S. and Canadian tax treaty policy since 1984
and resolves several problems under the present treaty. The protocol adds a rule to
protect against treaty-shopping abuses. It also improves tax administration by expanding
information exchanges between the United States and Canada and by providing for assistance in the collection of taxes due.
The protocol also deals extensively with taxation at death in the two countries, to
better mesh the U.S. and Canadian systems for taxation at death. Canada's taxation at
death is limited to income tax on gains, while the United States imposes an estate tax.
The protocol includes a number of provisions designed to deal with these matters.
The protocol will enter into force when both governments have completed their
respective constitutional and statutory procedures and have exchanged instruments of
ratification. The provisions with respect to withholding taxes on dividends, interest and
royalties will take effect, for amounts paid or credited, on or after the first day of the
second month following entry into force of the treaty. For other taxes, the protocol will
LB-I048
-2take effect on
percent in the
percent in the
be reduced to
the first day of the year following its entry into force. The reduction to 5
withholding rate on direct investment dividends, and the reduction to 5
branch tax rate, will be phased in over a three-year period. The rate will
7 percent in 1995 and to 6 percent in 1996. The 5 percent rate will be
effective beginning in 1997.
Copies of the protocol may be obtained by writing the Office of Public Affairs,
U.S. Treasury Department, Room 2315, Washington, D.C. 20220, or calling (202) 622-
2960.
-30-
DEPARTMENT
OF
THE
/,,~
TREASURY
(0 ~:"" ...:: ~ \
A
Y
TRE SUR i~Jl NEW
!~=~l'
~.
<$-(.\
.
,;,\
;0\
S
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C.. 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
August 31, 1994
STATEMENT BY TREASURY SECRETARY LLOYD BENTSEN
Any time you can pull down trade barriers that's good for America and our
trading partners. Like the Uruguay Round and NAFTA trade agreements, this tax
accord with Canada -- and others like it -- does just that. It will help American firms
compete better by reducing the cost of doing business in world markets.
-30-
LB-I049
CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED STATES
OF AMERICA AND THE GOVERNMENT OF THE FRENCH REPUBLIC FOR THE
AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL
EVASION WITH RESPECT TO TAXES ON INCOME AND CAPITAL
The Government of the united States of America and the
Government of the French Republic, desiring to conclude a
new convention for the avoidance of double taxation and the
prevention of fiscal evasion with respect to taxes on income
and capital, have agreed as follows:
- 2 -
ARTICLE 1
Personal Scope
This Convention shall apply only to persons who are
residents of one or both of the Contracting states, except
as otherwise provided in the Convention.
ARTICLE 2
Taxes Covered
1.
The taxes which are the subject of this Convention
are:
(a)
in the case of the united states:
(i)
the Federal income taxes imposed by the
Internal Revenue Code (but excluding social
security taxes); and
(ii) the excise taxes imposed on insurance
premiums paid to foreign insurers and with respect
to private foundations
(hereinafter referred to as "United States tax").
The
Convention, however, shall apply to the excise taxes
imposed on insurance premiums paid to foreign insurers
only to the extent that the risks covered by such
premiums are not reinsured with a person not entitled
to exemption from such taxes under this or any other
income tax convention which applies to these taxes:
(b)
in the case of France, all taxes imposed on
behalf of the state, irrespective of the manner in
-
3 -
which they are levied, on total income, on total
capital, or on elements of income or of capital,
including taxes on gains from the alienation of movable
or immovable property, as well as taxes on capital
appreciation, in particular:
(i)
(ii)
the income tax (l'impot sur Ie revenu);
the company tax (l'impot sur les
societes) ;
(iii)
the tax on salaries (la taxe sur les
salaires) governed by the provisions of the
Convention applicable, as the case may be, to
business profits or to income from independent
personal services; and
(iv)
the wealth tax (l'impot de solidarite
sur la fortune)
(hereinafter referred to as "French tax") .
2.
The Convention shall apply also to any identical or
substantially similar taxes that are imposed after the date
of signature of the Convention in addition to, or in place
of, the existing taxes.
The competent authorities of the
Contracting states shall notify each other of any
significant changes which have been made in their respective
taxation laws and of any official published material
concerning the application of the Convention, including
explanations, regulations, rulings, or judicial decisions.
- 4 -
ARTICLE 3
General Definitions
1.
For the purposes of this Convention:
(a)
the term "Contracting State" means the United
states or France, as the context requires;
(b)
the term "united states" means the United
states of America, but does not include Puerto Rico,
the Virgin Islands, Guam, or any other united states
possession or territory.
When used in a geographical
sense, the term "United States" means the states
thereof and the District of Columbia and includes the
territorial sea adjacent to those states and any area
outside the territorial sea within which, in accordance
•
with international law, the united states has sovereign
rights for the purpose of exploring and exploiting the
natural resources of the seabed and its subsoil and the
superjacent waters;
(c)
the term "France" means the French Republic
and, when used in a geographical sense, means the
European and Overseas Departments of the French
Republic and includes the territorial sea and any area
outside the territorial sea within which, in accordance
with international law, the French Republic has
sovereign rights for the purpose of exploring and
exploiting the natural resources of the seabed and its
subsoil and the superjacent waters;
- 5 -
(d)
the term "person" includes, but is not
limited to, an individual and a company;
(e)
the term "company" means any body corporate
or any entity which is treated as a body corporate for
tax purposes;
(f)
the terms "enterprise of a Contracting state II
and "enterprise of the other Contracting state" mean,
respectively, an enterprise carried on by a resident of
a Contracting state and an enterprise carried on by a
resident of the other Contracting state;
(g)
the term "international traffic" means any
transport by a ship or aircraft, except when the ship
or aircraft is operated solely
b~tween
places in a
Contracting state;
(h)
the term "competent authority" means:
(i)
in the United States, the Secretary of
the Treasury or his delegate; and
(ii)
in France, the Minister in charge of the
budget or his authorized representative.
2.
As regards the application of the Convention by a
Contracting state, any term not defined herein shall, unless
the competent authorities agree to a common meaning pursuant
to the provisions of Article 26 (Mutual Agreement
Procedure), have the meaning which it has under the taxation
laws of that state.
- 6 -
ARTICLE 4
Resident
1.
For the purposes of this Convention, the term
"resident of a Contracting state" means any person who,
under the laws of that state, is liable to tax therein by
reason of his domicile, residence, place of management,
place of incorporation, or any other criterion of a similar
nature.
But this term does not include any person who is
liable to tax in that state in respect only of income from
sources in that state, or of capital situated therein.
2.
(a)
France shall consider a U.S. citizen or an
alien admitted to the United States for permanent
residence (a "green card" holder) to be a resident of
the United States for the purposes of paragraph 1 only
if such individual has a substantial presence in the
United States or would be a resident of the United
states and not of a third State under the principles of
subparagraphs (a) and (b) of paragraph 3.
(b)
The term "resident of a Contracting state"
includes:
(i)
that State, a political subdivision (in
the case of the United States) or local authority
thereof, and any agency or instrumentality of such
State, subdivision, or authority;
(ii)
a pension trust and any other
organization established in that State and
- 7 -
maintained exclusively to administer or provide
retirement or employee benefits that is
established or sponsored by a person that is a
resident of that state under the provisions of
this Article; and any not-for-profit organization
established and maintained in that state, provided
that the laws of such state or (in the case of the
United States) a political subdivision thereof
limit the use of the organization's assets, both
currently and upon the dissolution or liquidation
of such organization, to the
accomplis~ment
of the
purposes that serve as the basis for such
organization's exemption from income tax;
I
notwithstanding that all or part of the income of
such trust, other organization, or not-for-profit
organization may be exempt from income taxation in
that State;
(iii)
in the case of the United states, a
regulated investment company, a real estate
investment trust, and a real estate mortgage
investment conduit; in the case of France, a
"societe d'investissement
a
capital variable" and
a "fonds commun de placement"; and any similar
investment entities agreed upon by the competent
authorities of both Contracting states;
- 8 -
(iv)
a partnership or similar pass-through
entity, an estate, and a trust (other than one
referred to in subparagraph (ii) or (iii) above),
but only to the extent that the income derived by
such partnership, similar entity, estate, or trust
is subject to tax in the Contracting state as the
income of a resident, either in the hands of such
partnership, entity, estate, or trust or in the
hands of its partners, beneficiaries, or grantors,
it being understood that a "societe de personnes,"
a "groupement d'interet economique" (economic
interest group), or a "groupement europeen
d'interet economique" (European economic interest
group) that is constituted in France and has its
place of effective management in France and that
is not subject to company tax therein shall be
treated as a partnership for purposes of united
States tax benefits under this Convention.
3.
Where, by reason of the provisions of paragraphs 1
and 2, an individual is a resident of both Contracting
states, his status shall be determined as follows:
(a)
he shall be deemed to be a resident of the
State in which he has a permanent horne available to
him; if he has a permanent horne available to him in
both Contracting States, he shall be deemed to be a
resident of the State with which his personal and
- 9 -
economic relations are closer (center of vital
interests) ;
(b)
if the State in which he has his center of
vital interests cannot be determined, or if he does not
have a permanent home available to him in either State,
he shall be deemed to be a resident of the state in
which he has an habitual abode:
(c)
if he has an habitual abode in both states or
in neither of them, he shall be deemed to be a resident
of the State of which he is a national:
(d)
if he is a national of both states or of
neither of them, the competent authorities of the
Contracting States shall settle the question by mutual
agreement.
4.
Where, by reason of the provisions of paragraphs 1
and 2, a person other than an individual is a resident of
both Contracting states, the competent authorities shall
endeavor to settle the question by mutual agreement, having
regard to the person's place of effective management, the
place where it is incorporated or constituted, and any other
relevant factors.
In the absence of such agreement, such
person shall not be considered to be a resident of either
Contracting state for purposes of enjoying benefits under
this Convention.
- 10 -
ARTICLE 5
Permanent Establishment
1.
For the purposes of this Convention, the term
"permanent establishment" means a fixed place of business
through which the business of an enterprise is wholly or
partly carried on.
2.
The term "permanent establishment" includes
especially:
(a)
a place of management;
(b)
a branch;
(c)
an office;
(d)
a factory;
(e)
a workshop; and
(f)
a mine, an oil or gas well, a quarry, or any
other place of extraction of natural resources.
3.
The term "permanent establishment" shall also
include a building site or construction or installation
project, or an installation or drilling rig or ship used for
the exploration or to prepare for the extraction of natural
resources, but only if such site or project lasts, or such
rig or ship is used, for more than twelve months.
4.
Notwithstanding the preceding provisions of this
Article, the term "permanent establishment" shall be deemed
not to include:
-
(a)
11 -
the use of facilities solely for the purpose
of storage, display, or delivery of goods or
merchandise belonging to the enterprise;
(b)
the maintenance of a stock of goods or
merchandise belonging to the enterprise solely for the
purpose of storage, display, or delivery;
(c)
the maintenance of a stock of goods or
merchandise belonging to the enterprise solely for the
purpose of processing by another enterprise;
(d)
the maintenance of a fixed place of business
solely for the purpose of purchasing goods or
merchandise, or of collecting information, for the
enterprise;
(e)
the maintenance of a fixed place of business
solely for the purpose of carrying on, for the
enterprise, any other activity of a preparatory or
auxiliary character;
(f)
the maintenance of a fixed place of business
solely for any combination of the activities mentioned
in subparagraphs (a) to (e), provided that the overall
activity of the fixed place of business resulting from
this combination is of a preparatory or auxiliary
character.
5.
Notwithstanding the provisions of paragraphs 1 and
2, where a person - other than an agent of an independent
status to whom paragraph 6 applies - is acting on behalf of
- 12 -
an enterprise and has and habitually exercises in a
Contracting state an authority to conclude contracts ln the
name of the enterprise, that enterprise shall be deemed to
have a permanent establishment in that state in respect of
any activities which that person undertakes for the
enterprise, unless the activities of such person are limited
to those mentioned in paragraph 4 which, if exercised
through a fixed place of business, would not make this fixed
place of business a permanent establishment under the
provisions of that paragraph.
6.
An enterprise shall not be deemed to have a
permanent establishment in a Contracting state merely
because it carries on business in that state through a
broker, general commission agent, or any other agent of an
independent status, provided that such persons are acting in
the ordinary course of their business as such.
7.
The fact that a company which is a resident of a
Contracting state controls or is controlled by a company
which is a resident of the other Contracting State, or which
carries on business in that other state (whether through a
permanent
establishment or otherwise), shall not of itself
constitute either company a permanent establishment of the
other.
-
13 -
ARTICLE 6
Income From Real Property
1.
Income from real property (including income from
agriculture or forestry) situated in a Contracting State may
be taxed that State.
2.
The term "real property" shall have the meaning
which it has under the law of the Contracting state in which
the property in question is situated.
The term shall in any
case include options, promises to sell, and similar rights
relating to real property, property accessory to real
property, livestock and equipment used in agriculture and
forestry, rights to which the provisions of general law
respecting landed property apply, usufruct of real property
•
and rights to variable or fixed payn;ents as consideration
for the working of, or the right to work, mineral deposits,
sources and other natural resources.
Ships and aircraft
shall not be regarded as real property.
3.
The provisions of paragraph 1 shall apply to
income from the direct use, letting, or use in any other
form of real property.
4.
The provisions of paragraphs 1 and 3 shall also
apply to income from real property of an enterprise and to
income from real property used for the performance of
independent personal services.
5.
Where the ownership of shares or other rights in a
company entitles a resident of a Contracting state to the
- 14 -
enjoyment of real property situated in the other contracting
State and held by that company, the income derived by the
owner from the direct use, letting, or use in any other form
of this right of enjoyment may be taxed in that other State
to the extent that it would be taxed under the domestic law
of that other state if the owner were a resident of that
State.
The provisions of this paragraph shall apply,
notwithstanding the provisions of Articles 7 (Business
Profits) and 14 (Independent Personal Services).
6.
A resident of a Contracting state who is liable to
tax in the other Contracting state on income from real
property situated in the other Contracting State may elect
to be taxed on a net basis, if such treatment is not
•
provided under the domestic law of that other State.
ARTICLE 7
Business Profits
1.
The profits of an enterprise of a Contracting
state shall be taxable only in that State unless the
enterprise carries on business in the other Contracting
state through a permanent establishment situated therein.
If the enterprise carries on business as aforesaid, the
profits of the enterprise may be taxed in the other State
but only so much of them as is attributable to that
permanent establishment.
- 15 -
2.
Subject to the provisions of paragraph 3, where an
enterprise of a Contracting State carries on business in the
other Contracting State through a permanent establishment
situated therein, there shall in each Contracting State be
attributed to that permanent establishment the profits which
it might be expected to make if it were a distinct and
independent enterprise engaged in the same or similar
activities under the same or similar conditions.
3.
In determining the profits of a permanent.
establishment, there shall be allowed as deductions expenses
which are reasonably connected with such profits, including
executive and general administrative expenses, whether
incurred in the State in which the permanent establishment
•
is situated or elsewhere.
4.
A partner shall be considered to have realized
income or incurred deductions to the extent of his share of
the profits or losses of a partnership, as provided in the
partnership agreement (provided that any special allocations
of profits or losses have sUbstantial economic effect).
For
this purpose, the character (including source and
attribution to a permanent establishment) of any item of
income or deduction accruing to a partner shall be
determined as if it were realized or incurred by the partner
in the same manner as realized or incurred by the
partnership.
- 16 -
5.
No profits shall be attributed to a permanent
establishment by reason of the mere purchase by that
permanent establishment of goods or merchandise for the
enterprise.
6.
For the purposes of the preceding paragraphs of
this Article, the profits to be attributed to the permanent
establishment shall include only the profits or losses
derived from the assets or activities of the permanent
establishment and shall be determined by the same method
year by year unless there is good and sufficient reason to
the contrary.
7.
Any profit attributable to a permanent
establishment, according to the provisions of this Article,
during its existence may be taxed in the Contracting state
in which such permanent establishment is situated, even if
the payments are deferred until such permanent establishment
has ceased to exist.
8.
Where profits include items of income which are
dealt with separately in other Articles of this Convention,
then the provisions of those Articles shall not be affected
by the provisions of this Article.
- 17 -
ARTICLE 8
Shipping and Air Transport
1.
Profits of an enterprise of a Contracting state
from the operation of ships or aircraft in international
traffic shall be taxable only in that State.
2.
For the purposes of this Article, profits from the
operation of ships or aircraft in international traffic
include:
(a)
profits of the enterprise derived from the
rental on a full basis of ships or aircraft operated in
international t.raff ic, and profits of the enterprise
derived from the rental on a bareboat basis of ships or
aircraft if such ships or aircraft are operated in
international traffic by the lessee or such rental
profits are accessory to other profits described in
paragraph 1; and
(b)
profits of the enterprise from the use,
maintenance or rental of containers used in
international traffic (including trailers, barges, and
related equipment for the transport of such containers)
if such profits are accessory to other profits
described in paragraph 1.
3.
The provisions of paragraphs 1 and 2 shall also
apply to profits from participation in a pool, a joint
business, or an international operating agency.
- 18 -
ARTICLE 9
Associated Enterprises
1.
Where:
(a)
an enterprise of a Contracting state
participates directly or indirectly in the management,
control, or capital of an enterprise of the other
Contracting state; or
(b)
indirectly
the same persons participate directly or
~n
the management, control, or capital of an
enterprise of a Contracting State and an enterprise of
the other Contracting state,
and in either case conditions are made or imposed between
the two enterprises in their commercial or financial
•
relations which differ from those which would be made
between independent enterprises, then any profits which, but
for those conditions, would have accrued to one of the
enterprises, but by reason of those conditions have not so
accrued, may be included in the profits of that enterprise
and taxed accordingly.
2.
Where a Contracting state includes in the profits
of an enterprise of that State, and taxes accordingly,
profits on which an enterprise of the other Contracting
State has been charged to tax in that other state, and the
other Contracting State agrees that the profits so included
are profits that would have accrued to the enterprise of the
first-mentioned State if the conditions made between the two
- 19 -
enterprises had been those that would have been made between
independent enterprises, then that other State shall, in
accordance with the provisions of Article 26 (Mutual
Agreement Procedure), make an appropriate adjustment to the
amount of the tax charged therein on those profits.
In
determining such adjustment, due regard shall be paid to the
other provisions of this convention.
ARTICLE 10
Dividends
1.
Dividends paid by a company that is a resident of
a Contracting State to a resident of the other Contracting
.
state may be taxed in that other state .
2.
Such dividends may also be taxed in the
contracting state of which the company paying the dividends
is a resident, and according to the laws of that State, but
if the beneficial owner of the dividends is a resident of
the other Contracting State, the tax so charged shall not
exceed:
(a)
5 percent of the gross amount of the
dividends if the beneficial owner is a company that
owns:
(i)
directly, at least 10 percent of the
voting power in the company paying the dividends,
if such company is a resident of the united
States; or
-
(ii)
20 -
directly or indirectly, at least 10
percent of the capital of the company paying the
dividends, if such company is a resident of
France;
(b)
15 percent of the gross amount of the
dividends in other cases.
The provisions of subparagraph (a) shall not apply in the
case of dividends paid by a united states regulated
investment company or real estate investment trust or by a
French
"soci~t~
d'investissement
~
capital variable."
In
the case of dividends paid by a United States regulated
investment company or a French "societe d'investissement
a
capital variable," the provisions of subparagraph (b) shall
I
apply.
In the case of dividends paid by a United States
real estate investment trust, the provisions of sUbparagraph
(b) shall apply only if the dividend is beneficially owned
by an individual owning a less than 10 percent interest in
such real estate investment trust; otherwise, the rate of
withholding tax applicable under the domestic law of the
united states shall apply.
3.
The provisions of paragraph 2 shall not affect the
taxation of the company in respect of the profits out of
which the dividends are paid.
4.
(a)
A resident of the United States who derives
and is the beneficial owner of dividends paid by a
company that is a resident of France that, if received
- 21 -
by a resident of France, would entitle such a resident
to a tax credit ("avoir fiscal") shall be entitled to a
payment from the French Treasury equal to such tax
credit ("avoir fiscal"), subject to deduction of the
tax provided for in subparagraph (b) of paragraph 2.
(b)
The provisions of subparagraph (a) shall
apply only to a resident of the united states that
(i)
~s:
an individual or other person (other
than a company); or
(ii)
a company that is not a regulated
investment company and that does not own, directly
or indirectly, 10 percent or more of the capital
of the company paying the dividends; or
(iii)
a regulated investment company that does
not own, directly or indirectly, 10 percent or
more of the capital. of the company paying the
dividends, but only if less than 20 percent of its
shares is beneficially owned by persons who are
neither citizens nor residents of the united
states.
(c)
The provisions of subparagraph (a) shall
apply only if the beneficial owner of the dividends is
subject to United states income tax in respect of such
dividends and of the payment from the French Treasury.
(d)
Notwithstanding the provisions of
subparagraphs (b) and (c), the provisions of
- 22 subparagraph (a) shall also apply to a partnership or
trust described in sUbparagraph (b) (iv) of paragraph 2
of Article 4 (Resident)
I
but only to the extent that
the partners, beneficiaries, or grantors would qualify
under subparagraph (b) (i) or (b) (ii) and under
subparagraph (c) of this paragraph.
(e)
(i)
A resident of the United States
described in subparagraph (ii) that does not own,
directly or indirectly, 10 percent or more of the
capital of a company that is a resident of France,
and that derives and beneficially owns
~ividends
paid by such company that, if derived by a
resident of France, would entitle such resident to
•
a tax credit ("avoir fiscal"), shall be entitled
to a payment from the French Treasury equal to
30/85 of the amount of such tax credit (llavoir
fiscal "), subject to the deduction of the tax
provided for in subparagraph (b) of paragraph 2;
(ii) The provisions of subparagraph (i) shall
apply to:
(aa) a person described in subparagraph
(b) (i) of paragraph 2 of Article 4
(Resident), with respect to dividends derived
by such person from the investment of
retirement assets;
- 23 -
(bb) a pension trust and any other
organization described in subparagraph
(b) (ii) of paragraph 2 of Article 4
(Resident) i and
(cc) an individual, with respect to
dividends beneficially owned by such
individual and derived from investment in a
retirement arrangement under which the
contributions or the accumulated earnings
receive tax-favored treatment under u.s. law.
(f)
The gross amount of a payment made by the
French Treasury pursuant to subparagraph (a), (d), or
(e) shall be deemed to be a
div~dend
for the purposes
of this convention.
(g)
The provisions of subparagraphs (a), (d), and
(e) shall apply only if the beneficial owner of the
dividends shows, where required by the French tax
administration, that he is the beneficial owner of the
shareholding in respect of which the dividends are paid
and that such shareholding does not have as its
principal purpose or one of its principal purposes to
allow another person to take advantage of the
provisions of this paragraph, regardless of whether
that person is a resident of a Contracting State.
(h)
Where a resident of the United states that
derives and beneficially owns dividends paid by a
- 24 -
company that is a resident of France is not entitled to
the payment from the French Treasury referred to in
subparagraph (a), such resident may obtain a refund of
the prepayment (precompte) to the extent that it was
actually paid by the company in respect of such
dividends.
Where such a resident is entitled to the
payment from the French Treasury referred to in
subparagraph (e), such refund shall be reduced by the
amount of the payment from the French Treasury.
The
gross amount of the prepayment (precompte) refunded
shall be deemed to be a dividend for the purposes of
the Convention.
It shall be taxable in France
according to the provisions of paragraph 2.
(i)
The competent authorities may prescribe rules
to implement the provisions of this paragraph and
further define and determine the terms and conditions
under which the payments provided for in subparagraphs
(a), (d), and (e) shall be made.
5.
(a)
The term "dividends" means income from
shares, "jouissance" shares or "jouissance" rights,
mining shares, founders' shares or other rights, not
being debt-claims, participating 1n profits, as well as
income treated as a distribution by the taxation laws
of the State of which the company making the
distribution is a resident; and income from
arrangements, including debt obligations, that carry
- 25 -
the right to participate in, or are determined with
reference to, profits of the issuer or one of its
associated enterprises, as defined in subparagraph (a)
or (b) of paragraph 1 of Article 9 (Associated
Enterprises), to the extent that such income is
characterized as a dividend under the law of the
Contracting State in which the income arises.
The term
"dividend" shall not include income referred to in
Article 16 (Directors' Fees).
(b)
The provisions of this Article shall apply
where a beneficial owner of dividends holds, depository
receipts evidencing ownership of the shares in respect
of which the dividends are paid, ,in lieu of the shares
themselves.
6.
The provisions of paragraphs 1 through 4 shall not
apply if the beneficial owner of the dividends, being a
resident of a Contracting State, carries on business in the
other Contracting state of which the company paying the
dividends is a resident through a permanent establishment
situated therein, or performs in that other state
independent personal
serv~ces
from a fixed base situated
therein, and the dividends are attributable to such
permanent establishment or fixed base.
In such a case the
provisions of Article 7 (Business Profits) or Article 14
•
(Independent Personal Services), as the case may be, shall
apply.
-
7.
(a)
26 -
A company that is a resident of a Contracting
state and that has a permanent establishment in the
ather Contracting state or that is subject to tax an a
net basis in that other state an items of income that
may be taxed in that ather State under Article 6
(Income from Real Property) or under paragraph 1 of
Article 13 (capital Gains) may be subject in that ather
state to a tax in addition to the ather taxes allowable
under this Convention.
Such tax, however, may not
exceed 5 percent of that portion of the business
profits of the company attributable to the permanent
establishment, or of that portion of the income
referred to in the preceding sentence that is subject
to tax under Article 6 or paragraph 1 of Article 13,
that:
(i)
in the
ca~e
of the United States,
represents the "dividend equivalent amount" of
those profits or income, in accordance with the
provisions of the Internal Revenue Code, as it may
be amended from time to time without changing the
general principle thereof;
(ii)
in the case of France,
1S
included in
the base of the French withholding tax in
accordance with the provisions of Article 115
"quinquies" of the French tax code (code general
-
27 -
des impots) or with any similar provisions which
amend or replace the provisions of that Article.
(b)
The taxes referred to in subparagraph (a)
also shall apply to the portion of the business
profits, or of the income subject to tax under Article
6 (Real Property) or paragraph 1 of Article 13 (Capital
Gains) that is referred to in subparagraph (a), which
is attributable to a trade or business conducted in one
Contracting state through a partnership or other entity
treated as a pass-through entity or transparent entity
under the laws of that state by a company that is a
member of such partnership or entity and a resident of
the other Contracting state.
8.
Subject to the provisions of paragraph 7, where a
company that is a resident of a Contracting state derives
profits or income from the other contracting state, that
other state may not impose any tax on the dividends paid by
the company, except insofar as such dividends are paid to a
resident of that other state or insofar as the dividends are
attributable to a permanent establishment or fixed base
situated in that other state, nor subject the company's
undistributed profits to a tax on the company's
undistributed profits, even if the dividends paid or the
undistributed profits consist wholly or partly of profits or
income arising in such other state.
-
28 -
ARTICLE 11
Interest
1.
Interest arising in a Contracting state and
beneficially owned by a resident of the other contracting
state shall be taxable only in that other state.
2.
Notwithstanding the provisions of paragraph 1:
(a)
interest arising in a Contracting State that
is determined with reference to the profits of the
issuer or of one of its associated enterprises, as
defined in subparagraph (a) or (b) of paragraph 1 of
Article 9 (Associated Enterprises), and paid to a
resident of the other Contracting state may be taxed in
that other state;
(b)
however, such interest may also be taxed in
the contracting state in which it arises, and according
to the laws of that State, but if the beneficial owner
is a resident of the other Contracting State, the gross
amount of the interest may be taxed at a rate not
exceeding the rate prescribed in subparagraph (b) of
paragraph 2 of Article 10 (Dividends).
3.
The term lIinterest" means income from indebtedness
of every kind, whether or not secured by mortgage, and
whether or not carrying a right to participate in the
debtor's profits, and in particular, income from government
securities and income from bonds or debentures, including
premiums or prizes attaching to such securities, bonds, or
-
29 -
debentures, as well as other income that is treated as
income from money lent by the taxation law of the
Contracting state in which the income arises.
However, the
term "interest" does not include income dealt with in
Article 10 (Dividends).
Penalty charges for late payment
shall not be regarded as interest for the purposes of the
Convention.
4.
The provisions of paragraphs 1 and 2 shall not
apply if the beneficial owner of the interest, being a
resident of a Contracting state, carries on business in the
other Contracting state, in which the interest arises,
through a permanent establishment situated therein, or
performs in that other state independent personal services
I
from a fixed base situated therein, and the interest is
attributable to such permanent establishment or fixed base.
In such case the provisions of Article 7 (Business Profits)
or Article 14 (Independent Personal Services), as the case
may be, shall apply.
5.
Interest shall be deemed to arise in a Contracting
state when the payer is a resident of that state.
Where,
however, the person paying the interest, whether he is a
resident of a Contracting state or not, has in a Contracting
state a permanent establishment or a fixed base in
connection with which the indebtedness on which the interest
is paid was incurred, and such interest is borne by such
permanent establishment or fixed base, then such interest
-
30 -
shall be deemed to arise in the State in which the permanent
establishment or fixed base is situated.
6.
Where, by reason of a special relationship between
the payer and the beneficial owner or between both of them
and some other person, the amount of the interest, having
regard to the debt-claim for which it is paid, exceeds the
amount that would have been agreed upon by the payer and the
beneficial owner in the absence of such relationship, the
provisions of this Article shall apply only to the lastmentioned amount.
In such case the excess part of the
payments shall remain taxable according to the laws of each
Contracting state, due regard being had to the other
provisions of this Convention.
ARTICLE 12
Royalties
1.
Royalties arising in a Contracting state and paid
to a resident of the other Contracting State may be taxed in
that other State.
2.
Such royalties may also be taxed in the
Contracting State in which they arise and according to the
laws of that State, but if the beneficial owner is a
resident of the other Contracting State, the tax so charged
shall not exceed 5 percent of the gross amount of the
royalties.
- 31 -
3.
Notwithstanding the provisions of paragraph 2,
royalties described in subparagraph (a) of paragraph 4 that
arise in a Contracting state and are beneficially owned by a
resident of the other Contracting state shall be taxable
only in that other state.
4.
The term "royalties" means:
(a)
payments of any kind received as a
consideration for the use of, or the right to use, any
copyright of literary, artistic, or scientific work or
any neighboring right (including reproduction rights
and performing rights), any cinematographic film, any
sound or picture recording, or any software;
(b)
payments of any kind
r~ceived
as a
consideration for the use of, or the right to use, any
patent, trademark, design or model, plan, secret
formula or process, or other like right or property, or
for information concerning industrial, commercial, or
scientific experience; and
(c)
gains derived from the alienation of any such
right or property described in this paragraph that are
contingent on the productivity, use, or further
alienation thereof.
5.
The provisions of paragraphs 1, 2, and 3 shall not
apply if the beneficial owner of the royalties, being a
resident of a Contracting state, carries on business in the
other Contracting state, in which the royalties arise,
-
32 -
through a permanent establishment situated therein, or
performs in that other state independent personal services
from a fixed base situated therein, and the royalties are
attributable to such permanent establishment or fixed base.
In such case the provisions of Article 7 (Business Profits)
or Article 14 (Independent Personal Services), as the case
may be, shall apply.
6.
(a)
Royalties shall be deemed to arise in a
Contracting State when the payer is a resident of that
State.
(b)
Where, however, the person paying the
royal ties, whether he is a resident of a Contrac.ting
State or not, has in a Contracting State a permanent
establishment or a fixed base in connection with which
the liability to pay the royalties was incurred, and
such royalties are borne by such permanent
establishment or fixed base, then such royalties shall
be deemed to arise in the State in which the permanent
establishment or fixed base is situated.
(c)
Notwithstanding subparagraphs (a) and (b),
royalties paid for the use of, or the right to use,
property in a Contracting state shall be deemed to
arise therein.
(d)
Royalties shall be deemed to be paid to the
beneficial owner at the latest when they are taken into
- 33 account as expenses for tax purposes in the Contracting
state in which they arise.
7.
Where, by reason of a special relationship between
the payer and the beneficial owner or between both of them
and some other person, the amount of the royalties, having
regard to the use, right, or information for which they are
paid, exceeds the amount which would have been agreed upon
by the payer and the beneficial owner in the absence of such
relationship, the provisions of this Article shall apply
only to the last-mentioned amount.
In such case the excess
part of the payments shall remain taxable according to the
laws of each Contracting State, due regard being had to the
other provisions of this convention. .
ARTICLE 13
Capital Gains
1.
Gains from the alienation of real property
situated in a Contracting State may be taxed in that State.
2.
For purposes of paragraph 1, the term "real
property situated in a Contracting State" means:
(a)
where the united states is the Contracting
State, real property referred to in Article 6 (Real
Property) that is situated in the United States, a
United states real property interest (as defined in
section 897 of the Internal Revenue Code, as it may be
amended from time to time without changing the general
- 34 -
principle thereof), and an interest in a partnership,
trust, or estate, to the extent attributable to real
property situated in the United states: and
(b)
where France is the contracting State,
(i)
real property referred to in Article 6
(Real Property) that is situated in France; and
(ii)
shares or similar rights in a company
the assets of which consist at least 50 percent of
real property situated in France or derive at
least 50 percent of their value, directly or
indirectly, from real property situated in France:
(iii)
an interest in a partnership, a
de personnes", a "groupement d'interet
"soci~t~
~conomiquell
(economic interest group), or a "groupement
europeen d'interet economique" (European economic
interest group) (other than a partnership, a
"societe de personnes", a "groupement d'interet
economique" (economic interest group), or a
"groupement
europ~en
d'interet
~conomiquell
that is
taxed as a company under French domestic law), an
estate, or a trust, to the extent attributable to
real property situated in France.
3.
(a)
Gains from the alienation of movable property
forming part of the business property of a permanent
establishment or fixed base that an enterprise or
resident of a Contracting State has in the other
- 35 -
Contracting state, including such gains from the
alienation of such permanent establishment (alone or
with the whole enterprise) or of such fixed base, may
be taxed in that other State.
Where the removal of
such property from the other Contracting state is
deemed to constitute an alienation of such property,
the gain that has accrued as of the time that such
property is removed from that other State may be taxed
by that other state in accordance with its law, and the
gain accruing sUbsequent to that time of removal may be
taxed in the first-mentioned Contracting state in
accordance with its law.
(b)
Any gain attributable to a permanent
establishment or a fixed base according to the
provisions of subparagraph (a) during its existence may
be taxed in the Contracting state in which such
permanent establishment or fixed base is situated, even
if the payments are deferred until such permanent
establishment or fixed base has ceased to exist.
4.
Gains derived by an enterprise of a Contracting
State that operates ships or aircraft in international
traffic from the alienation of such ships or aircraft or
movable property pertaining to the operation of such ships
or aircraft shall be taxable only in that State.
- 36 -
5.
Gains described
~n
subparagraph (c) of paragraph 4
of Article 12 (Royalties) shall be taxable only in
accordance with the provisions of Article 12.
6.
Subject to the provisions of paragraph 5, gains
from the alienation of any property other than property
referred to in paragraphs 1 through 4 shall be taxable only
in the Contracting state of which the alienator is a
resident.
ARTICLE 14
Independent Personal Services
1.
Income derived by a resident of a contracting
State in respect of professional services or other
•
activities of an independent character shall be taxable only
in that State unless that resident performs activities in
the other contracting State ana has a fixed base regularly
available to him in that other state for the purpose of
performing his activities.
In such a case, the income may
be taxed in the other State, but only so much of it as is
attributable to that fixed base, and according to the
principles contained in Article 7 (Business Profits).
2.
Any income attributable to a fixed base during its
existence, according to the provisions of paragraph 1, may
be taxed in the contracting State in which such fixed base
is situated, even if the payments are deferred until such
fixed base has ceased to exist.
- 37 -
3.
The term "professional services" includes
especially independent scientific, literary, artistic,
educational, or teaching activities as well as the
independent activities of physicians, lawyers, engineers,
architects, dentists, and accountants.
4.
The provisions of paragraph 4 of Article 7
(Business Profits) shall apply by analogy.
In no event,
however, shall those provisions or the provisions of Article
4 (Resident) result in France exempting under Article 24
(Relief from Double Taxation) more than 50 percent of the
earned income from a partnership accruing to a resident of
France.
The amount of such a partner's income which is not
.
exempt under Article 24 (Relief from Double Taxation) solely
by reason of the preceding sentence shall reduce the amount
of partnership earned income from sources within France on
which France can tax partners who are not residents of
France.
ARTICLE 15
Dependent Personal Services
1.
Subject to the provisions of Articles 16
(Directors' Fees), 18 (Pensions), and 19 (Public
Remuneration), salaries, wages, and other similar
remuneration derived by a resident of a contracting state in
respect of an employment shall be taxable only in that State
unless the employment is exercised in the other Contracting
- 38 State.
If the employment is so exercised, such remuneration
as is derived therefrom may be taxed in that other State.
2.
Notwithstanding the provisions of paragraph 1,
remuneration derived by a resident of a Contracting State in
respect of an employment exercised in the other Contracting
State shall be taxable only in the first-mentioned State if:
(a)
the recipient is present in the other State
for a period or periods not exceeding in the aggregate
183 days in any 12-month period commencing or ending in
the taxable period concerned;
(b)
the remuneration is paid by, or on behalf of,
an employer who is not a resident of the other State;
and
(c)
the remuneration is not borne by a permanent
establishment or a fixed base which the employer has in
the other State.
3.
Notwithstanding the preceding provisions of this
Article, remuneration derived by a resident of a Contracting
State in respect of an employment exercised as a member of
the regular complement of a ship or aircraft operated in
international traffic shall be taxable only in that State.
ARTICLE 16
Directors' Fees
Directors' fees and other remuneration derived by a
resident of a Contracting State for services rendered in the
-
39 -
other Contracting state in his capacity as a member of the
board of directors of a company that is a resident of the
other Contracting state may be taxed in that other state.
ARTICLE 17
Artistes and sportsmen
1.
Notwithstanding the provisions of Articles 14
(Independent Personal Services) and 15 (Dependent Personal
Services), income derived by a resident of a Contracting
state as an entertainer, such as a theatre, motion picture,
radio, or television artiste or a musician, or as a
sportsman, from his personal activities as such exercised in
the other Contracting State, may be taxed in that other
state.
However, the provisions of this paragraph shall not
apply where the amount of the gross receipts derived by such
entertainer or sportsman from such activities, including
expenses reimbursed to him or borne on his behalf, does not
exceed 10,000 United states dollars or its equivalent in
French francs for the taxable period concerned.
2.
Where income in respect of personal activities
exercised by an entertainer or sportsman in his capacity as
such accrues not to the entertainer or sportsman but to
another person, whether or not a resident of a Contracting
State, that income may, notwithstanding the provisions of
Articles 7 (Business Profits), 14 (Independent Personal
Services), and 15 (Dependent Personal Services), be taxed in
- 40 -
the Contracting state in which the activities of the
entertainer or sportsman are exercised.
However, the
provisions of this paragraph shall not apply where it is
established that neither the entertainer or sportsman nor
persons related to him derive from that other person any
income, directly or indirectly, in respect of such
activities that in the aggregate exceeds the amount
specified in paragraph 1 for the taxable period concerned.
3.
The provisions of paragraphs 1 and 2 shall not
apply to income derived by a resident of a contracting state
as an entertainer or a sportsman from his personal
activities as such exercised in the other Contracting State
if the visit to that other State is principally
supported,
,
directly or indirectly, by public funds of the firstmentioned State or a political subdivision (in the case of
the United States) or local authority thereof.
In such case
the income shall be taxable only in the first-mentioned
State.
ARTICLE 18
Pensions
1.
Subject to the provisions of paragraph 2 of
Article 19 (Public Remuneration) :
(a)
except as provided in subparagraph (b),
pensions and other similar remuneration, including
distributions from pension and other retirement
- 41 -
arrangements, derived and beneficially owned by a
resident of a Contracting State in consideration of
past employment, whether paid periodically or in a lump
sum, shall be taxable only in that State;
(b)
pensions and other payments made under the
social security legislation of a Contracting State to a
resident of the other Contracting State shall be
taxable only in the first-mentioned State.
Pensions
and other payments made under the social security
legislation of France to a resident of France who is a
citizen of the" United States shall be taxable only in
France.
The term "social security legislation"
includes the Railroad Retirement Act in the case of the
•
United states and the French social security regimes
which are of a mandatory character.
2.
(a)
In determining "the taxable income of an
individual who renders personal services and who is a
resident of a Contracting state but not a national of
that state, contributions paid by, or on behalf of,
such individual to a pension or other retirement
arrangement that is established and maintained and
recognized for tax purposes in the other contracting
State shall be treated in the same way for tax purposes
in the first-mentioned state as a contribution paid to
a pension or other retirement arrangement that is
established and maintained and recognized for tax
-
42 -
purposes in that first-mentioned State, provided that
the competent authority of the first-mentioned State
agrees that the pension or other retirement arrangement
generally corresponds to a pension or other retirement
arrangement recognized for tax purposes by that State.
(b)
For the purposes of subparagraph (a):
(i)
where the competent authority of France
agrees that a United States pension or other
retirement arrangement generally corresponds to a
mandatory French pension arrangement (without
regard to the mandatory nature of such
arrangement), it is understood that contributions
to the United states pension or other retirement
arrangement shall be treated in France in the same
way for tax purposes as contributions to the
French mandatory pension arrangement: and
(ii)
where the competent authority of the
United States agrees that a mandatory French
pension or other retirement arrangement generally
corresponds to a United states pension or other
retirement arrangement (without regard to the
mandatory nature of such arrangement), it is
understood that contributions to the French
pension or other retirement arrangement shall be
treated in the United States in the same way for
- 43 -
tax purposes as contributions to the United States
pension or other retirement arrangement: and
(iii)
a pension or other retirement
arrangement is recognized for tax purposes in a
state if the contributions to the arrangement
would qualify for tax relief in that State.
(c)
Payments received by a beneficiary in respect
of an arrangement referred to in subparagraph (a) that
satisfies the requirements of this paragraph shall be
included in income for tax purposes of the Contracting
State of which the beneficiary is a resident, subject
to the provisions of Article 24 (Relief from Double
Taxation), when and to the
exte~t
that such payments
are considered gross income by the other Contracting
State.
ARTICLE 19
Public Remuneration
1.
(a)
Remuneration, other than a pension, paid by a
Contracting state, a political subdivision (in the case
of the United States) or local authority thereof, or an
agency or instrumentality of that State, subdivision,
or authority to an individual in respect of services
rendered to that State, subdivision, authority, agency,
or instrumentality shall be taxable only in that state.
(b)
However, such remuneration shall be taxable
- 44 -
only in the other contracting State if the services are
rendered in that state and the individual is a resident
of and a national of that state and not at the same
time a national of the first-mentioned State.
2.
(a)
Any pension paid by, or out of funds created
by, a Contracting State, a political subdivision (in
the case of the united States) or local authority
thereof, or an agency or instrumentality of that State,
SUbdivision, or authority to an individual in respect
of services rendered to that State, subdivision,
authority, agency, or instrumentality shall be taxable
only in that State.
(b)
However, such pension phall be taxable only
in the other Contracting State if the individual is a
resident of and a national of that State and not at the
same time a national of the first-mentioned State.
3.
The provisions of Articles 14 (Independent
Personal Services), 15 (Dependent Personal Services), 16
(Directors' Fees), 17 (Artistes and Sportsmen), and 18
(Pensions) shall apply to remuneration and pensions paid in
respect of services rendered in connection with a business
carried on by a Contracting State, a political subdivision
(in the case of the United States) or local authority
thereof, or an agency or instrumentality of that State,
SUbdivision, or authority.
- 45 -
ARTICLE 20
Teachers and Researchers
1.
An individual who is a resident of a Contracting
State immediately before his visit to the other Contracting
State and who, at the invitation of the Government of that
other State or of a university or other recognized
educational or research institution situated in that other
State, visits that other State for the primary purpose of
teaching or engaging in research, or both, at a university
or other recognized educational or research institution
shall be taxable only in the first-mentioned state on his
income from personal services for such teaching or research
for a period not exceeding 2 years frpm the date of his
arrival in the other state.
An individual shall be entitled
to the benefits of this paragraph only once.
2.
The provisions of paragraph 1 shall not apply to
income from research if such research is undertaken not in
the public interest but primarily for the private benefit of
a specific person or persons.
ARTICLE 21
Students and Trainees
1.
(a)
An individual who is a resident of a
Contracting state immediately before his visit to the
other contracting State and who is temporarily present
- 46 -
in the other Contracting State for the primary purpose
of:
(i)
studying at a university or other
recognized educational institution in that other
Contracting State:
(ii)
securing training required to qualify
him to practice a profession or professional
specialty: or
(iii)
studying or doing research as a
recipient of a grant, allowance, or award from a
not-for-profit governmental, religious,
charitable, scientific, artistic, cultural, or
educational organization,
shall be exempt from tax in that other State with
respect to amounts referred to in subparagraph (b).
(b)
The amounts ref.erred to in subparagraph (a)
are:
(i)
gifts from abroad for the purposes of
his maintenance, education, study, research, or
training;
(ii)
a grant, allowance, or award described
ln subparagraph (a) (iii)
(iii)
i
and
income from personal services performed
in the other Contracting State in an amount not in
excess of 5,000 United States dollars or its
- 47 -
equivalent in French francs for any taxable
period.
(C)
The benefits of this paragraph shall only
extend for such period of time as may be reasonably or
customarily required to effectuate the purpose of the
visit, but in no event shall any individual have the
benefits of this Article and Article 20 (Teachers and
Researchers) for more than a total of five taxable
periods.
(d)
The provisions of subparagraph (a) shall not
apply to income from research if such research is
undertaken not in the public interest but primarily for
the private benefit of a specifi'c person or persons.
2.
An individual who is a resident of a Contracting
State immediately before his visit to the other Contracting
State, and who is temporarily present in that other State as
an employee of, or under contract with, a resident of the
first-mentioned state for the primary purpose of:
(a)
acquiring technical, professional, or
business experience from a person other than that
resident of the first-mentioned State, or
(b)
studying at a university or other recognized
educational institution in the other state,
shall be exempt from tax by that other State for a period of
12 consecutive months with respect to his income from
personal services in an aggregate amount not in excess of
- 48 -
8,000 United states dollars or its equivalent in French
francs.
ARTICLE 22
Other Income
1.
Items of income of a resident of a contracting
state, wherever arising, not dealt with in the foregoing
Articles of this convention shall be taxable only in that
state.
2.
The provisions of paragraph 1 shall not apply to
income, other than income from real property as defined in
paragraph 2 of Article 6 (Income from Real Property), if the
recipient of such income, being a resident of a Contracting
State, carries on business in the other Contracting State
through a permanent establishment situated therein, or
performs in that other State independent personal services
from a fixed base situated therein, and the right or
property in respect of which the income is paid is
effectively connected with such permanent establishment or
fixed base.
In such case the provisions of Article 7
(Business Profits) or Article 14 (Independent Personal
Services), as the case may be, shall apply.
-
49 -
ARTICLE 23
Capital
1.
(a)
Capital represented by real property referred
to in Article 6 (Income from Real Property) and
situated in a Contracting state may be taxed in that
State.
(b)
Capital represented by shares, rights, or an
interest in a company the assets of which consist at
least 50 percent of real property situated in a
Contracting State, or derive at least 50 percent of
their value, directly or indirectly, from real property
situated in a Contracting State, may be taxed in that
State.
(c)
If and to the extent that the assets of a
person other than an individual or a company consist of
real property situated iri a Contracting state, or
derive their value, directly or indirectly, from real
property situated in a Contracting State, capital
represented by an interest in such person may be taxed
in that state.
2.
Capital of an individual represented by shares,
rights, or an interest (other than shares, rights, or an
interest referred to in subparagraph (b) or (c) of paragraph
1) forming part of a substantial interest in a company that
is a resident of a Contracting state may be taxed in that
State.
An individual is considered to have a substantial
-
50 -
interest if he or she owns, alone or with related persons,
directly or indirectly, shares, rights, or interests the
total of which gives right to at least 25 percent of the
corporate earnings.
3.
Capital represented by movable property forming
part of the business property of a permanent establishment
that an enterprise of a Contracting state has in the other
Contracting state or by movable property pertaining to a
fixed base that is available to a resident of a Contracting
State in the other Contracting state for the purpose of
performing independent personal services may be taxed in
that other State.
4.
Capital of an enterprise ot a Contracting State
that operates ships or aircraft in international traffic
represented by such ships or aircraft and movable property
pertaining to the operation of such ships or aircraft shall
be taxable only in that State.
5.
All other elements of capital of a resident of a
Contracting State are taxable only in that State.
6.
Notwithstanding the provisions of the preceding
paragraphs of this Article, for the purposes of taxation
with respect to the wealth tax referred to in subparagraph
(b) (iv) of paragraph 1 of Article 2 (Taxes Covered) of an
individual resident of France who is a citizen of the united
States and not a French national, the assets situated
outside of France that such a person owns on the first of
- 51 -
January of each of the five years following the calendar
year in which he becomes a resident of France shall be
excluded from the base of assessment of the above-mentioned
wealth tax relating to each of those five years.
If such an
individual loses the status of resident of France for a
duration of at least three years and again becomes a
resident of France, the assets situated outside of France
that such a person owns on the first of January of each of
the five years following the calendar year in which he again
becomes a resident of France shall be excluded from the base
of assessment of the tax relating to each of those five
years.
ARTICLE 24
Relief From Double Taxation
1.
(a)
In accordance with the provisions and subject
to the limitations of the law of the united states (as
it may be amended from time to time without changing
the general principle hereof), the United states shall
allow to a citizen or a resident of the united states
as a credit against the united states income tax:
(i)
the French income tax paid by or on
behalf of such citizen or resident: and
(ii)
in the case of a united states company
owning at least 10 percent of the voting power of
a company that is a resident of France and from
- 52 -
which the United states company receives
dividends, the French income tax paid by or on
behalf of the distributing corporation with
respect to the profits out of which the dividends
are paid.
(b)
In the case of an individual who is both a
resident of France and a citizen of the united States:
(i)
the United states shall allow as a
credit against the United states income tax the
French income tax paid after the credit referred
to in subparagraph (a) (iii) of paragraph 2.
However, the credit so allowed against United
States income tax shall not· reduce that portion of
the United States income tax that is creditable
against French income tax in accordance with
subparagraph (a) (iii) of paragraph 2;
(ii)
income referred to in paragraph 2 and
income that, but for the citizenship of the
taxpayer, would be exempt from United States
income tax under the Convention, shall be
considered income from sources within France to
the extent necessary to give effect to the
provisions of subparagraph (b) (i).
The provisions
of this subparagraph (b) (ii) shall apply only to
the extent that an item of income is included in
gross income for purposes of determining French
- 53 -
tax.
No provision of this subparagraph (b)
relating to source of income shall apply in
determining credits against United states income
tax for foreign taxes other than French income tax
as defined in subparagraph (e); and
(c)
In the case of an individual who is both a
resident and citizen of the united states and a
national of France, the provisions of paragraph 2 of
Article 29 (Miscellaneous Provisions) shall apply to
remuneration and pensions described in paragraph 1 or 2
of Article 19 (Public Remuneration), but such
remuneration and pensions shall be treated by the
United states as income from sources within France.
(d)
If, for any taxable period, a partnership of
which an individual member is a resident of France so
elects, for united states tax purposes, any income
which solely by reason of paragraph 4 of Article 14 is
not exempt from French tax under this Article shall be
considered income from sources within France.
The
amount of such income shall reduce (but not below zero)
the amount of partnership earned income from sources
outside the united states that would otherwise be
allocated to partners who are not residents of France.
For this purpose, the reduction shall apply first to
income from sources within France and then to other
income from sources outside the United states.
If the
- 54 -
individual member of the partnership is both a resident
of France and a citizen of the united States, this
provision shall not result in a reduction of United
States tax below that which the taxpayer would have
incurred without the benefit of deductions or
exclusions available solely by reason of his presence
or residence outside the united states.
(e)
For the purposes of this Article, the term
"French income tax" means the taxes referred to in
subparagraph (b) (i) or (ii) of paragraph 1 of Article 2
(Taxes Covered)', and any identical or substantially
similar taxes that are imposed after the date of
signature of the Convention in addition to, or in place
of, the existing taxes.
2.
In the case of France, double taxation shall be
avoided in the following manner:
(a)
Income arising in the United states that may
be taxed or shall be taxable only in the United states
in accordance with the provisions of this Convention
shall be taken into account for the computation of the
French tax where the beneficiary of such income is a
resident of France and where such income is not
exempted from company tax according to French domestic
law.
In that case, the United States tax shall not be
deductible from such income, but the beneficiary shall
- 55 be entitled to a tax credit against the French tax.
Such credit shall be equal:
(i)
in the case of income other than that
referred to in subparagraphs (ii) and (iii), to
the amount of French tax attributable to such
income:
(ii)
in the case of income referred to in
Article 14 (Independent Personal Services), to the
amount of French tax attributable to such income;
however, in the case referred to in paragraph 4 of
Article 14 (Independent Personal Services), such
credit shall not give rise to an exemption that
exceeds the limit specified in that paragraph;
(iii)
in the case of income referred to in
Article 10 (Dividends), Article 11 (Interest),
Article 12 (Royalties), paragraph 1 of Article 13
(Capital Gains), Article 16 (Directors' Fees), and
Article 17 (Artistes and Sportsmen), to the amount
of tax paid in the United States in accordance
with the provisions of the Convention; however,
such credit shall not exceed the amount of French
tax attributable to such income.
(b)
In the case where the beneficial owner of the
income arising in the United States is an individual
who is both a resident of France and a citizen of the
- 56 -
United States, the credit provided in paragraph 2
(a) (i) shall also be granted in the case of:
(i) income consisting of dividends paid by a
company that is a resident of the United states,
interest arising in the United States, as
described in paragraph 5 of Article 11 (Interest),
or royalties arising in the united States, as
described in paragraph 6 of Article 12
(Royalties), that is derived and beneficially
owned by such individual and that is paid by:
(aa) the United states or any political
subdivision or local authority thereof; or
(bb) a person created or organized under
the laws of a state of the United States or
the District of Columbia, the principal class
of shares of or interests in which
1S
substantially and regularly traded on a
recognized stock exchange as defined in
subparagraph (e) of paragraph 6 of Article 30
(Limitation on Benefits of the Convention);
or
(cc) a company that is a resident of the
United States, provided that less than 10
percent of the outstanding shares of the
voting power in such company was owned
(directly or indirectly) by the resident of
- 57 -
France at all times during the part of such
company's taxable period preceding the date
of payment of the income to the owner of the
income and during the prior taxable period
(if any) of such company, and provided that
less than 50 percent of such voting power was
owned (either directly or indirectly) by
residents of France during the same period;
or
(dd) a resident of the united states,
not more than 25 percent of the gross income
of which for the prior taxable period (if
any) consisted directly or indirectly of
income derived from sources outside the
United states;
(ii)
capital gains derived from the
alienation of capital assets generating income
described in subparagraph (i); however, such
alienation shall be taken into account for the
determination of the threshold of taxation
applicable in France to capital gains on movable
property;
(iii)
profits or gains derived from
transactions on a public united states options or
futures market;
-
(iv)
58 -
income dealt with in subparagraph (a) of
paragraph 1 of Article 18 (Pensions) to the extent
attributable to services performed by the
beneficiary of such income while his principal
place of employment was in the United
(v)
States~
income that would be exempt from United
states tax under Articles 20 (Teachers and
Researchers) or 21 (Students and Trainees) if the
individual were not a citizen of the United·
states; and
(vi)
U.s. source alimony and annuities.
The provisions of this subparagraph (b) shall apply
only if the citizen of the
Unit~d
states who is a
resident of France demonstrates that he has complied
with his United States income tax obligations, and
subject to receipt by the French tax administration of
such certification as may be prescribed by the
competent authority of France, or upon request to the
French tax administration for refund of tax withheld
together with the presentation of any certification
required by the competent authority of France.
(c)
A resident of France who owns capital that
may be taxed in the United States according to the
provisions of paragraph 1, 2, or 3 of Article 23
(Capital) may also be taxed in France in respect of
such capital.
The French tax
~hall
be computed by
- 59 -
allowing a tax credit equal to the amount of tax paid
in the United States on such capital.
That tax credit
shall not exceed the amount of the French tax
attributable to such capital.
(d)
(i)
For purposes of this paragraph, the term
"resident of France" includes a "societe de
personnes," a "groupement d'interet economique"
(economic interest group), or a "groupement
europeen d'interet economique ll (European economic
interest group) that is constituted in France and
has its place of effective management in France.
(ii)
The term "amount of French tax
attributable to such
income~
as used in
subparagraph (a) means:
(aa) where the tax on such income is
computed by applying a proportional rate, the
amount of the net income concerned multiplied
by the rate which actually applies to that
income;
(bb) where the tax on such income is
computed by applying a progressive scale, the
amount of the net income concerned multiplied
by the rate resulting from the ratio of the
French income tax actually payable on the
total net income in accordance with French
law to the amount of that total net income.
- 60 -
(iii)
The term "amount of tax paid in the
United states" as used in subparagraph (a) means
the amount of the united states income tax
effectively and definitively borne in respect of
the items of income concerned, in accordance with
the provisions of the Convention, by the
beneficial owner thereof who is a resident of
France.
But this term shall not include the
amount of tax that the united states may levy
under the provisions of paragraph 2 of Article 29
(Miscellaneous Provisions).
(iv)
The interpretation of subparagraphs (ii)
and (iii) shall apply, by analogy,
to the terms
,
"amount of the French tax attributable to such
capital" and "amount of tax paid in the United
States," as used in subparagraph (c).
(e) (i)
Where French domestic law allows
companies that are residents of France to
determine their taxable profits on a consolidation
basis, including the profits or losses of
subsidiaries that are residents of the United
States or of permanent establishments situated in
the United States, the provisions of the
convention shall not prevent the application of
that law.
- 61 -
(ii)
Where in accordance with its domestic
law, France, in determining the taxable profits of
residents, permits the deduction of the losses of
subsidiaries that are residents of the United
states or of permanent establishments situated in
the United states and includes the profits of
those subsidiaries or of those permanent
establishments up to the amount of the losses so
deducted, the provisions of the Convention shall
not prevent the application of that law.
(iii)
Nothing in the Convention shall prevent
France from applying the provisions of Article
209B of its tax code (code ,general des impots) or
any substantially similar provisions which may
amend or replace the provisions of that Article.
ARTICLE 25
Non-Discrimination
1.
Individuals who are nationals of a Contracting
state and residents of the other Contracting state shall not
be subjected in that other state to any taxation or any
requirement connected therewith that is other or more
burdensome than the taxation and connected requirements to
which individuals who are nationals and residents of that
other State in the same circumstances are or may be
subjected.
-
2.
62 -
The taxation on a permanent establishment that an
enterprise of a Contracting State has in the other
Contracting State shall not be less favorably levied in that
other State than the taxation levied on enterprises of that
other State carrying on the same activities.
This provision
shall not be construed as obliging a contracting State to
grant to residents of the other Contracting state any
personal allowances, reliefs, and reductions for taxation
purposes on account of civil status or family
responsibilities that it grants to its own residents.
The provisions of this paragraph shall not prevent the
application by either Contracting State of the taxes
described in paragraph 7 of Article 10 (Dividends).
I
3.
(a)
Except where the provisions of paragraph 1 of
Article 9 (Associated Enterprises), paragraph 6 of
Article 11 (Interest), or paragraph 7 of Article 12
(Royalties) apply, interest, royalties, and other
disbursements paid by an enterprise of a Contracting
State to a resident of the other Contracting state
shall, for the purposes of determining the taxable
profits of such enterprise, be deductible under the
same conditions as if they had been paid to a resident
of the first-mentioned state.
Similarly, any debts of
an enterprise of a Contracting State to a resident of
the other Contracting State shall, for the purposes of
determining the taxable capital of such enterprise, be
-
63 -
deductible under the same conditions as if they had
been contracted to a resident of the first-mentioned
state.
(b)
Nothing in this Convention shall prevent the
application of Article 212 of the French tax code (code
general des impots) as it may be amended from time to
time without changing the general principle thereof, or
of any substantially similar provisions which may be
enacted in addition to or in substitution for that
provision (including provisions substantially similar
to those applicable in the other Contracting State), to
the extent that such application is consistent with the
principles of paragraph 1 of Article
9 (Associated
,
Enterprises) .
4.
Enterprises of a Contracting State, the capital of
which is wholly or partly owned or controlled, directly or
indirectly, by one or more residents of the other
Contracting state, shall not be subjected in the
first-mentioned state to any taxation or any requirement
connected therewith which is other or more burdensome than
the taxation and connected requirements to which other
similar enterprises of the first-mentioned State are or may
be subjected.
5.
The provisions of this Article shall,
notwithstanding the provisions of Article 2 (Taxes Covered),
apply to taxes of every kind and description imposed by a
- 64 -
Contracting State or a political subdivision (in the case of
the United states) or local authority thereof.
ARTICLE 26
Mutual Agreement Procedure
1.
Where a person considers that the actions of one
or both of the contracting states result or will result for
him in taxation not in accordance with the provisions of
this Convention, he may, irrespective of the remedies
provided by the domestic law of those states, present his
case to the competent authority of the contracting state of
which he is a resident or national.
presented within three years of the
The case must be
~otification
of the
action resulting in taxation not in accordance with the
provisions of this Convention.
2.
The competent authority shall endeavor, if the
objection appears to it to be justified and if it is not
itself able to arrive at a satisfactory solution, to resolve
the case by mutual agreement with the competent authority of
the other contracting state, with a view to the avoidance of
taxation which is not in accordance with the Convention.
Any agreement reached shall be implemented notwithstanding
any time limits or other procedural limitations in the
domestic law of the Contracting States.
3.
The competent authorities of the Contracting
States shall endeavor to resolve by mutual agreement any
- 65 -
difficulties or doubts arising as to the interpretation or
application of the Convention.
In particular, they may
agree:
(a)
to the same attribution of profits to a
resident of a Contracting State and its permanent
establishment situated in the other Contracting state;
(b)
to the same allocation of income between a
resident of a Contracting State and any associated
enterprise described in paragraph 1 of Article 9
(Associated Enterprises);
(c)
to the same determination of the source of
particular items of income;
Cd)
concerning the matters described in
I
subparagraphs (a), (b), and (c) of this paragraph with
respect to past or future years; or
{e}
to increase the money amounts referred to in
Articles 17 (Artistes and Sportsmen) and 21 (Students
and Trainees) to reflect economic or monetary
developments.
They may also agree to eliminate double taxation in cases
not provided for in the Convention.
5.
The competent authorities of the Contracting
States may communicate with each other directly for the
purpose of reaching an agreement in the sense of the
preceding paragraphs.
When it seems
adv~sable
for the
purpose of reaching agreement, the competent authorities or
- 66 their representatives may meet together for an oral exchange
of opinions.
6.
If an agreement cannot be reached by the competent
authorities pursuant to the previous paragraphs of this
Article, the case may, if both competent authorities and the
taxpayer agree, be submitted for arbitration, provided that
the taxpayer agrees in writing to be bound by the decision
of the arbitration board.
The competent authorities may
release to the arbitration board such information as is
necessary for carrying out the arbitration procedure.
The
decision of the arbitration board shall be binding on the
taxpayer and on both States with respect to that case.
The
procedures, including the composition of the board, shall be
established between the Contracting states by notes to be
exchanged through diplomatic channels after consultation
between the competent authorities.
The provisions of this
paragraph shall not have effect until the date specified in
the exchange of diplomatic notes.
ARTICLE 27
Exchange of Information
1.
The competent authorities of the Contracting
states shall exchange such information as is pertinent for
carrying out the provisions of this Convention and of the
domestic laws of the Contracting states concerning taxes
covered by this convention insofar as the taxation
- 67 -
thereunder is not contrary to this Convention.
The exchange
of information is not restricted by Article 1 (Personal
Scope).
Any information received by a Contracting State
shall be treated as secret in the same manner as information
obtained under the domestic laws of that State and shall be
disclosed only to persons or authorities (including courts
and administrative bodies) involved in the assessment,
collection, or administration of, the enforcement or
prosecution in respect of, or the determination of appeals
in relation to, the taxes covered by this Convention.
Such
persons or authorities shall use the information only for
such purposes.
They may disclose the information in public
court proceedings or in judicial decisions.
2.
In no case shall the provisions of paragraph 1 be
construed so as to impose on a Contracting State the
obligation:
(a)
to carry out administrative measures at
variance with the laws or the administrative practice
of that or of the other Contracting State;
(b)
to supply particulars that are not obtainable
under the laws or in the normal course of the
administration of that or of the other Contracting
State;
(c)
to supply information that would disclose any
trade, business, industrial, commercial, or
professional secret or trade process, or information,
- 68 -
the disclosure of which would be contrary to public
policy (ordre public) .
3.
The exchange of information shall be on request
with reference to particular cases, or spontaneous, or on a
routine basis.
The competent authorities of the Contracting
States shall agree on the list of information which shall be
furnished on a routine basis.
4.
(a)
If information is requested by a contracting
State in accordance with this Article, the other·
Contracting State shall obtain the information to which
the request relates in the same manner and to the same
extent as if its own taxation were involved,
notwithstanding the fact that
t~e
other State may not,
at that time, need such information for purposes of its
own tax.
(b)
If specifically requested by the competent
authority of a Contracting State, the competent
authority of the other Contracting state shall, if
possible, provide information under this Article in the
form of depositions of witnesses and authenticated
copies of unedited original documents (including books,
papers, statements, records, accounts, and writings),
to the same extent such depositions and documents can
be obtained under the laws and administrative practices
of that other State with respect to its own taxes.
- 69 -
(c)
A contracting State shall allow
representatives of the other Contracting State to enter
the first-mentioned state to interview taxpayers and
look at and copy their books and records, but only
after obtaining the consent of those taxpayers and the
competent authority of the first-mentioned state (who
may be present or represented, if desired), and only if
the two contracting states agree, in an exchange of
diplomatic notes, to allow such inquiries on a
reciprocal basis.
Such inquiries shall not be
considered audits for purposes of French domestic law.
Notwithstanding the provisions of Article 2 (Taxes
5.
Covered)
I
all taxes imposed on
behal~
of a Contracting state
shall be considered as taxes covered by the Convention for
purposes of this Article.
ARTICLE 28
Assistance in Collection
1.
The Contracting States undertake to lend
assistance and support to each other in the collection of
the taxes to which this Convention applies (together with
interest, costs, and additions to the taxes and fines not
being of a penal character) in cases where the taxes are
definitively due according to the laws of the State making
the application.
-
2.
70 -
Revenue claims of each of the Contracting states
which have been finally determined will be accepted for
enforcement by the State to which application is made and
collected in that State in accordance with the laws
applicable to the enforcement and collection of its own
taxes.
3.
The application will be accompanied by such
documents as are required by the laws of the State making
the application to establish that the taxes have been
finally determined.
4.
If the revenue claim has not been finally
determined, the State to which application is made will take
such measures of conservancy (including measures with
respect to transfer of property of nonresident aliens) as
are authorized by its laws for the enforcement of its own
taxes.
5.
The assistance provided for in this Article shall
not be accorded with respect to citizens, companies, or
other entities of the Contracting state to which application
is made except in cases where the exemption from or
reduction of tax or the payment of tax credits provided for
in paragraph 4 of Article 10 (Dividends) granted under the
convention to such citizens, companies, or other entities
has, according to mutual agreement between the competent
authorities of the Contracting States, been enjoyed by
persons not entitled to such benefits.
- 71 ARTICLE 29
Miscellaneous Provisions
1.
The Convention shall not restrict in any manner
any exclusion, exemption, deduction, credit, or other
allowance now or hereafter accorded by
(a)
the laws of:
(i)
(ii)
the United states;
France, in the case of a resident
(within the meaning of Article 4 (Resident»
citizen of the United states.
or
However,
notwithstanding the preceding sentence, the
provisions of paragraph 5 of Article 6 (Income
from Real Property), Article 19 (Public
Remuneration), Article 20 (Teachers and
Researchers), and Article 24 (Relief from Double
Taxation) shall apply, regardless of any
exclusion, exemption, deduction, credit, or other
allowance accorded by the laws of France; or
(b)
by any other agreement between the
Contracting states.
2.
Notwithstanding any provision of the Convention
except the provisions of paragraph 3, the United states may
tax its residents, as determined under Article 4 (Resident),
and its citizens as if the Convention had not come into
effect.
For this purpose, the term "citizen" shall include
a former citizen whose loss of citizenship had as one of its
- 72 -
principal purposes the avoidance of income tax, but only for
a period of 10 years following such loss.
3.
The provisions of paragraph 2 shall not affect:
(a)
the benefits conferred under paragraph 2 of
Article 9 (Associated Enterprises)
under paragraph
I
l(b) of Article 18 (Pensions), and under Articles 24
(Relief From Double Taxation), 25 (Non-Discrimination),
and 26 (Mutual Agreement Procedure)
(b)
~
and
the benefits conferred under Articles 19
(Public Remuneration), 20 (Teachers and Researchers),
21 (Students and Trainees), and 31 (Diplomatic and
Consular Officers), upon individuals who are neither
citizens of, nor have immigrant ptatus in, the United
States.
4.
Notwithstanding the provisions of Article 2 (Taxes
Covered), any transaction in which an order for the
purchase, sale, or exchange of stocks or securities
originates in one Contracting state and is executed through
a stock exchange in the other contracting State shall be
exempt in the first-mentioned State from stamp or like tax
otherwise arising with respect to such transaction.
5.
A resident of a Contracting State that maintains
one or several abodes in the other Contracting State shall
not be subject in that other state to an income tax
according to an "imputed income" based on the rental value
of that or those abodes.
- 73 -
6.
Nothing in this Convention shall affect the U.S.
taxation of an excess inclusion with respect to a residual
interest in a real estate mortgage investment conduit under
section 860G of the Internal Revenue Code, as it may be
amended from time to time without changing the general
principle thereof.
7.
For purposes of the taxation by France of
residents of France who are citizens of the united States:
(a)
benefits other than capital gain received by
reason of the exercise of options with respect to
shares of companies resident in the United states shall
be considered income when and to the extent that the
exercise of the option or
dispo~ition
of the stock
gives rise to ordinary income for United States tax
purposes;
(b)
United states state and local income taxes on
income from personal services and any other business
income (except income that is exempt under subparagraph
2(a) (i) or (ii) of Article 24 (Relief from Double
Taxation)) shall be allowed as business expenses.
8.
Notwithstanding the provisions of subparagraph
1 (b) :
(a)
Notwithstanding any other agreement to which
the Contracting states may be parties, a dispute
concerning whether a measure is within the scope of
this Convention shall be considered only by the
- 74 -
competent authorities of the Contracting states, as
defined in subparagraph l(h) of Article 3 (General
Definitions) of this Convention, and the procedures
under this Convention exclusively shall apply to the
dispute.
(b)
Unless the competent authorities determine
that a taxation measure is not within the scope of this
Convention, the nondiscrimination obligations of this
Convention exclusively shall apply with respect to that
measure, except for such national treatment or mostfavored-nation obligations as may apply to trade in
goods under the General Agreement on Tariffs and Trade.
No national treatment or most-favored-nation
obligation
•
under any other agreement shall apply with respect to
that measure.
(c)
For the purpose of this paragraph, a
"measure" is a law, regulation, rule, procedure,
decision, administrative action, or any other form of
measure.
ARTICLE 30
Limitation on Benefits of the convention
1.
A resident of a Contracting state that derives
income from the other Contracting state shall be entitled in
that other state to all of the benefits of this Convention
only if such resident is one of the following:
- 75 -
(a)
an individual;
(b)
a Contracting State, a political subdivision
(in the case of the United States) or local authority
thereof, or an agency or instrumentality of that State,
subdivision, or authority;
(c)
a company meeting one of the following
conditions:
(i)
the principal class of its shares is
listed on a recognized securities exchange located
in either Contracting State and is substantially
and regularly traded on one or more recognized
securities exchanges;
(ii)
more than 50
per~ent
of the aggregate
vote and value of its shares is owned, directly or
indirectly, by any combination of companies that
are resident in either Contracting State, the
principal classes of the shares of which are
listed and traded as described in subparagraph
(c) (i), persons referred to in subparagraph (b),
and companies of which more than 50 percent of the
aggregate vote and value is owned by persons
referred to in subparagraph (b);
(iii) (aa) at least 30 percent of the
aggregate vote and value of its shares is
owned, directly or indirectly, by any
combination of companies that are resident in
-
76 -
the first-mentioned Contracting state, the
principal classes of the shares of which are
listed and traded as described in
subparagraph (c) (i), persons referred to in
subparagraph (b), and companies of which more
than 50 percent of the aggregate vote and
value is owned by persons referred to in
subparagraph (b): and
(bb) at least 70 percent of the
aggregate vote and value of its shares is
owned, directly or indirectly, by any
combination of companies that are residents
of either Contracting .State or of one or more
member states of the European Union, the
principal classes of shares of which are
listed and substantially and regularly traded
on one or more recognized stock exchanges,
persons referred to in subparagraph (b),
companies of which more than 50 percent of
the aggregate vote and value is owned by
persons referred to in subparagraph (b), one
or more member states of the European Union,
political SUbdivisions or local authorities
thereof, or agencies or instrumentalities of
those member states, subdivisions, or
authorities, and companies of which more than
- 77 50 percent of the aggregate vote and value is
owned by such member states, subdivisions,
authorities, or agencies or
instrumentalities;
(d)
a person, if 50 percent or more of the
beneficial interest in such person (or, in the case of
a company, 50 percent or more of the vote and value of
the company's shares) is not owned, directly or
indirectly, by persons that are not qualified persons,
and:
(i)
less than 50 percent of the gross income
of such person is used, directly or indirectly, to
make deductible payments to persons that are not
qualified persons; or
(ii)
less than 70 percent of such gross
income is used, directly or indirectly, to make
deductible payments to persons that are not
qualified persons and less than 30 percent of such
gross income is used, directly or indirectly, to
make deductible payments to persons that are
neither qualified persons nor residents of member
states of the European Union;
(e)
a pension trust or an organization referred
to in subparagraph (b) (ii) of paragraph 2 of Article 4
(Resident), provided that more than half of its
-
78 -
beneficiaries, members, or participants, if any, are
qualified persons: or
(f)
an investment entity referred to in
subparagraph (b) (iii) of paragraph 2 of Article 4
(Residence), provided that more than half of the
shares, rights, or interests in such entity is owned by
qualified persons.
2.
(a)
A resident of a Contracting state shall
also be entitled to the benefits of the Convention with
respect to income derived from the other Contracting
state if:
(i)
such resident is engaged in the active
conduct of a trade or business in the firstmentioned State (other than the business of making
or managing investments, unless the activities are
banking or insurance activities carried on by a
bank or insurance company)
(ii)
i
the income is connected with or
incidental to the trade or business in the firstmentioned State; and
(iii)
the trade or business
~s
sUbstantial in
relation to the activity in the other state that
generated the income.
(b)
For purposes of subparagraph (a), whether the
trade or business of the resident in the firstmentioned State is substantial in relation to the
-
79 -
activity in the other State will be determined based on
all of the facts and circumstances.
In any case,
however, the trade or business will be deemed
substantial if, for the first preceding taxable period
or for the average of the three preceding taxable
periods, each of the following ratios equals at least
7.5 percent and the average of the ratios exceeds 10
percent:
(i)
the ratio of the value of assets used or
held for use in the conduct of the trade or
business of the resident in the first-mentioned
State to the value of assets used or held for use
in the conduct of the activity in the other State;
(ii)
the ratio of the gross income derived
from the conduct of the trade or business of the
resident in the first-mentioned state to the gross
income derived from the conduct of the activity in
the other State;
(iii)
the ratio of the payroll expense of the
trade or business of the resident in the firstmentioned State for services performed in that
State to the payroll expense of the activity in
the other State for services performed in that
other State.
In determining the above ratios, assets, income, and
payroll expense shall be taken into account only to the
-
80 -
extent of the resident's direct or indirect ownership
interest in the activity in the other State.
If
neither the resident nor any of its associated
enterprises has an ownership interest in the activity
in the other State, the resident's trade or business ln
the first-mentioned state shall be considered
sUbstantial in relation to such activity.
3.
A resident of a Contracting State shall also be
entitled to the benefits of this Convention if that resident
functions as a headquarter company for a multinational
corporate group.
4.
A company resident in a Contracting state shall
also be entitled to the benefits of the Convention in
respect of income referred to in Articles 10 (Dividends), 11
(Interest)
I
or 12 (Royalties) if:
(a)
more than 30 percent of the aggregate vote
and value of all of its shares is owned, directly or
indirectly, by qualified persons resident in that
State:
(b)
more than 70 percent of all such shares is
owned, directly or indirectly, by any combination of
one or more qualified persons and persons that are
residents of member states of the European Union: and
(c)
such company meets the base reduction test
described in subparagraphs (d) (i) and (ii) of paragraph
1.
- 81 -
5.
Notwithstanding the provisions of paragraphs 1
through 4, where an enterprise of a Contracting state that
is exempt from tax in that state on the profits of its
permanent establishments which are not situated in that
state derives income from the other Contracting State, and
that income is attributable to a permanent establishment
which that enterprise has in a third jurisdiction, the tax
benefits that would otherwise apply under the other
provisions of the Convention will not apply to any item of
income on which the combined tax in the first-mentioned
state and in the third jurisdiction is less than 60 percent
of the tax that would be imposed in the first-mentioned
state if the income were earned in thpt state by the
enterprise and were not attributable to the permanent
establishment in the third jurisdiction.
Any dividends,
interest, or royalties to which the provisions of this
paragraph apply shall be subject to tax in the other state
at a rate not exceeding 15 percent of the gross amount
thereof.
Any other income to which the provisions of this
paragraph apply shall be subject to tax under the provisions
of the domestic law of the other Contracting State,
notwithstanding any other provision of the Convention.
The
provisions of this paragraph shall not apply if:
(a)
the income derived from the other contracting
state is in connection with or incidental to the active
conduct of a trade or business carried on by the
- 82 -
permanent establishment in the third jurisdiction
(other than the business of making or managing
investments unless these activities are banking or
insurance activities carried on by a bank or insurance
company); or
(b)
when France is the first-mentioned state,
France taxes the profits of such permanent
establishment according to the provisions of its
domestic law referred to in subparagraph (e) (iii) of
paragraph 2 of Article 24 (Relief from Double Taxation)
or the United states taxes such profits according to
the provisions of subpart F of part II of subchapter N
of chapter 1 of subtitle A of the Internal Revenue
Code, as it may be amended from time to time without
changing the general principle thereof.
6.
The following definitions shall apply for purposes
of this Article:
(a)
The reference in subparagraphs (c) (ii) and
(c) (iii) of paragraph 1 to shares that are owned
"directly or indirectly" shall mean that all companies
in the chain of ownership must be residents of a
Contracting State or of a member state of the European
Union, as defined in subparagraph (d) of paragraph 6.
(b)
The term "gross income," as used in
subparagraph (d) of paragraph 1, means gross income for
the first taxable period preceding the current taxable
-
83 -
period, provided that the amount of gross income for
the first taxable period preceding the current taxable
period shall be deemed to be no less than the average
of the annual amounts of gross income for the four
taxable periods preceding the current taxable period.
(c)
The term "deductible payments" as used in
subparagraph (d) of paragraph 1 includes payments for
interest or royalties, but does not include payments at
arm's length for the purchase or use of or the right to
use tangible property in the ordinary course of
business or remuneration at arm's length for services
performed in the Contracting state in which the person
making such payments is a
resid~nt.
Types of payments
may be added to, or eliminated from, the exceptions
mentioned in the preceding definition of "deductible
payments" by mutual agreement of the competent
authorities.
(d)
The term "resident of a member state of the
European Union," as used in paragraph 1, means a person
that would be entitled to the benefits of a
comprehensive income tax convention in force between
any member state of the European Union and the
Contracting state from which the benefits of this
Convention are claimed, provided that if such
convention does not contain a comprehensive Limitation
on Benefits article (including provisions similar to
-
84 -
those of subparagraphs (c) and (d) of paragraph 1 and
paragraph 2 of this Article), the person would be
entitled to the benefits of this Convention under the
principles of paragraph 1 if such person were a
resident of one of the Contracting States under Article
4 (Resident) of this Convention.
(e)
The term "recognized securities exchange" as
used in paragraph 1 means:
(i)
the NASDAQ System owned by the National
Association of securities Dealers, Inc. and any
stock exchange registered with the
u.s.
Securities
and Exchange Commission as a national securities
exchange for purposes of the
u.s.
Securities
Exchange Act of 1934;
(ii)
the French stock exchanges controlled by
the "Commission des· operations de bourse," and the
stock exchanges of Amsterdam, Brussels, Frankfurt,
Hamburg, London, Madrid, Milan, Sydney, Tokyo, and
Toronto;
(iii)
any other stock exchanges agreed upon by
the competent authorities of both Contracting
States.
( f)
The term "qualified person" as used in
paragraphs 1 and 4 means any person that is entitled to
the benefits of the Convention under paragraph 1 or who
is a citizen of the United States;
-
(g)
85 -
the term "engaged in the active conduct of a
trade or business" as used in paragraph 2 applies to a
person that is directly so engaged or is a partner in a
partnership that is so engaged, or is so engaged
through one or more associated enterprises (wherever
resident) ;
(h)
the term "headquarter company" as used in
paragraph 3 means a person fulfilling the following
conditions:
(i)
it provides in the Contracting state of
which it is a resident a substantial portion of
the overall supervision and administration of a
multinational corporate group, which may include,
but cannot be principally, group financing;
(ii)
the corporate group consists of
companies that are resident in, and engaged in an
active business in, at least five countries, and
the business activities carried on in each of the
five countries (or five groupings of countries)
generate at least 10 percent of the gross income
of the group;
(iii)
the business activities carried on in
anyone country other than the Contracting state
of which the headquarter company is a resident
generate less than 50 percent of the gross income
of the group;
- 86 -
(iv)
no more than 25 percent of its gross
income is derived from the other
(v)
state~
it has, and exercises, independent
discretionary authority to carry out the functions
referred to in subparagraph (i);
(vi)
it is subject to the same income
taxation rules in the Contracting state of which
it is a resident as persons described in paragraph
2~
and
(vii)
the income derived in the other
Contracting state either is derived in connection
with, or is incidental to, the active business
referred to in subparagraph (ii).
If the gross income requirements of subparagraph (ii),
(iii), or (iv) of this paragraph are not fulfilled,
they will be deemed to be fulfilled if the required
ratios are met when calculated on the basis of the
average gross income of the headquarters company and
the average gross income of the group for the preceding
four taxable periods.
7.
A resident of a Contracting State that is not
entitled to the benefits of the Convention under the
provisions of the preceding paragraphs of this Article
shall, nevertheless, be granted the benefits of the
Convention if the competent authority of the other
Contracting State determines, upon such person's request,
- 87 -
(a)
that the establishment, acquisition, or
maintenance of such person and the conduct of its
operations did not have as one of its principal
purposes the obtaining of benefits under the
Convention, or
(b)
that it would not be appropriate, having
regard to the purpose of this Article, to deny the
benefits of the Convention to such person.
The competent authority of the other Contracting state shall
consult with the competent authority of the first-mentioned
State before denying the benefits of the Convention under
this paragraph.
8.
The competent authorities ot the contracting
States may consult together with a view to developing a
commonly agreed application of the provisions of this
Article.
ARTICLE 31
Diplomatic and Consular Officers
1.
Nothing in this Convention shall affect the fiscal
privileges of diplomatic agents or consular officers under
the general rules of international law or under the
provisions of special agreements.
2.
Notwithstanding the provisions of Article 4
(Resident), an individual who is a member of a diplomatic
mission, consular post, or permanent mission of a
- 88 Contracting state that is situated in the other contracting
state or in a third state shall be deemed for the purposes
of the Convention to be a resident of the sending state if
he is liable therein to the same obligations in relation to
tax on his total income or capital as are residents of that
State.
3.
The Convention shall not apply to international
organizations, to organs or officials thereof, or to persons
who are members of a diplomatic mission, consular post, or
permanent mission of a third state, who are present in a
Contracting state and are not liable in either
Co~tracting
State to the same obligations in respect of taxes on income
or on capital as are residents of that State.
ARTICLE 32
Provisions for Implementation
1.
Notwithstanding the provisions of subparagraph
4(i) of Article 10 (Dividends) and of paragraph 8 of Article
30 (Limitation on Benefits of the Convention), the competent
authorities of the Contracting states may prescribe rules
and procedures, jointly or separately, to determine the mode
of application of the provisions of this Convention.
2.
The requirements to which a resident of a
Contracting State may be subjected in order to obtain in the
other Contracting State the tax reductions, exemptions, or
other advantages provided for by the Convention shall,
- 89 -
unless otherwise settled, jointly or separately, by the
competent authorities, include the presentation of a form
providing the nature and the amount or value of the income
or capital concerned, the residence of the taxpayer, and
other relevant information.
If so agreed by the competent
authorities, the form shall include such certification by
the tax administration of the first-mentioned State as may
be prescribed by them.
ARTICLE 33
Entry Into Force
1.
The contracting states shall notify each other
when their respective constitutional and statutory
requirements for the entry into force of this Convention
have been satisfied.
The Convention shall enter into force
on the date of receipt of the·later of such notifications.
2.
The provisions of the Convention shall have
effect:
(a)
in respect of taxes withheld at source on
dividends, interest, and royalties and the U.S. excise
tax on insurance premiums paid to foreign insurers, for
amounts paid or credited on or after the first day of
the second month next following the date on which the
Convention enters into force;
(b)
in respect of other taxes on income, for
taxable periods beginning on -or after the first day of
- 90 January of the year following the year in which the
Convention enters into force; and
(c)
in respect of taxes not mentioned in
subparagraph (a) or (b), for taxes on taxable events
occurring on or after the first day of January of the
year following the year in which the Convention enters
into force.
3.
Notwithstanding the provisions of paragraph 2,
(a)
the provisions of subparagraph (e) of
paragraph 4 of Article 10 (Dividends) and of Article 12
(Royalties) shall have effect for dividends and
royalties paid or credited on or after the first day of
January 1991:
(b)
The provisions of Article 26 shall apply in
respect of cases presented to the competent authorities
on or after the date of entry into force of the
Convention.
4.
The Convention Between the United States of
America and the French Republic with Respect to Taxes on
Income and Property, Signed on July 28, 1967 and Amended by
Protocols of October 12, 1970, November 24, 1978, January
17, 1984 and June 16, 1988 and the exchanges of letters
attached thereto shall cease to have effect from the date on
which the provisions of this Convention become effective in
accordance with the provisions of this Article.
- 91 -
ARTICLE 34
Termination
This Convention shall remain in force indefinitely.
However, either Contracting state may terminate the
Convention by giving notice of termination through
diplomatic channels at least six months before the end of
any calendar year after the expiration of a period of five
years from the date on which the Convention enters into
force.
In such event, the Convention shall cease to have
effect:
(a)
in respect of taxes withheld at source on
dividends, interest, and royalties and the u.s. excise
tax on insurance premiums paid to foreign insurers, for
amounts paid or credited on or after the first day of
January next following the expiration of the six-month
period;
(b)
in respect of other taxes on income, for
taxable periods beginning on or after the first day of
January next following the expiration of the six-month
period; and
(c)
in respect of taxes not described in
subparagraph (a) or (b)
I
for taxes on taxable events
occurring on or after the first day of January of the
year following the expiration of the six-month period.
- 92 -
DONE at Paris, this
day of
1994, in duplicate, in the English and French languages,
both texts being equally authentic.
FOR THE GOVERNMENT OF THE
UNITED STATES OF AMERICA:
FOR THE GOVERNMENT OF THE
FRENCH REPUBLIC:
1st exchange of letters
US REPLY
EXCELLENCY:
I have the honor to acknowledge receipt of your Note of
today's date which reads as follows:
"In connection with the Income Tax convention between France
and the United states, signed today, I should like, on behalf of
my Government, to propose to you a common position with respect
to the two following points.
with respect to the provisions of subparagraph 2 (b) (iv) of
Article 4 (Resident), to the extent that the members of a
"societe de personnes," a "groupement d'interet economique"
(economic interest group) or a "groupement europe en d'interet
economique" (European economic interest group) that is
constituted in France and has its place of effective management
in France and that is not subject to company tax therein are
residents of a third State, the U.s. income tax liability in the
case of such "societe de personnes" or group shall be determined
under the U.s. Income Tax Convention, if any, with that third
state, it being understood that such "societe de personnes" or
group shall be treated as a partnership fo~ the purposes of u.s.
tax benefits under that Convention.
with respect to the application of Article 8 (Shipping and
Air Transport), notwithstanding Article 2, under which the
Convention applies only to taxes imposed by the national
governments, France agrees that enterprises of the United states
that operate ships or aircraft in international traffic shall be
automatically relieved from the "taxe professionnelle" in France
in respect of such operations, provided that enterprises of
France that operate ships or aircraft in international traffic
are not subject to state income taxes in the United states in
respect of such operations.
If this is in accord with your understanding, I would
appreciate a confirmation from you tothis effect.
If so, this
understanding and your reply agreeing to its terms shall
constitute an integral part of the Convention. 1I
I have the honor to confirm the agreement of my Government
on the preceding points.
[Complimentary closing.]
To be signed by
Ambassador Harriman
2cnd exchange of Letters
EXCELLENCY:
I have the honor to refer to the Income Tax Convention
between the united States and France, signed today.
During the course of discussions leading to the development
of the Convention, the United States and French delegations
agreed that nothing in paragraph 5 of Article 11 (Interest) shall
be understood to prevent or limit the application by a
Contracting State of its internal law, or of its income tax
treaty with a third State, with respect to interest paid by a
permanent establishment located in that Contracting State. The
provisions of internal law referred to in the preceding sentence
are, in the case of the united States, those provisions of the
Internal Revenue Code that impose a tax on interest described in
section 884(f) (1) (A) of such Code, and in the case of France
articles 119 bis and 125 A of the code general des impots.
The United States and French delegations further agreed that
the term "business property," as used in paragraph 3 of Article
13 (Capital Gains) and paragraph 3 of Article 23 (Capital), has a
narrower meaning in some cases than does the term "assets," as
used in paragraph 2 of Article 13 and paragraph 1 of Article 23,
notwithstanding that the single French term "actif" is used
throughout.
If this is in accord with your understanding, I would
appreciate a confirmation from you to this effect. If so, this
understanding and your reply agreeing to its terms shall
constitute an integral part of the Convention.
Accept, Excellency the renewed assurances of my highest
consideration.
To be signed by
Ambassador Harriman
PROTOCOL AMENDING THE CONVENTION BETWEEN THE UNITED
STATES OF AMERICA AND CANADA WITH RESPECT TO TAXES
ON INCOME AND ON CAPITAL SIGNED AT WASHINGTON ON
SEPTEMBER 26, 1980, AS AMENDED BY THE PROTOCOLS
SIGNED ON JUNE 14, 1983 AND MARCH 28, 1984
The United states of America and canada, desiring to
conclude a Protocol to amend the Convention with Respect to
Taxes on Income and on Capital signed at Washington on
September 26, 1980, as amended by the Protocols signed on
June 14, 1983 and March 28, 1984 (hereinafter referred to as
"the Convention"), have agreed as follows:
-2-
ARTICLE 1
1.
Paragraphs 2 to 4 of Article II (Taxes covered) of the
convention shall be deleted and replaced by the following:
Notwithstanding paragraph 1, the taxes existing on
to which the
Convention shall apply are:
"2.
(a) In the case of Canada, the taxes imposed by
the Government of Canada under the Income Tax Act;
and
(b) In the case of the United States, the Federal
income taxes imposed by the Internal Revenue Code
of 1986. However, the Convention shall apply to:
(i) The united states accumulated earnings
tax and personal holding company tax, to the
extent, and only to the extent, necessary to
implement the provisions of paragraphs 5 and
8 of Article X (Dividends);
(ii) The united states excise taxes imposed
with respect to private foundations, to the
extent, and only to the extent, necessary to
implement the provisions of paragraph 4 of
Article XXI (Exempt Organizations);
(iii) The United states social security
taxes, to the extent, and only to the extent,
necessary to implement the provisions of
paragraph 2 of Article XXIV (Elimination of
Double Taxation) and paragraph 4 of Article
XXIX (Miscellaneous Rules); and
(iv) The United states estate taxes imposed
by the Internal Revenue Code of 1986, to the
extent, and only to the extent, necessary to
implement the provisions of Article XXIX B
(Taxes Imposed by Reason of Death).
3.
The Convention shall apply also to:
(a) Any taxes identical or substantially similar
to those taxes to which the Convention applies
under paragraph 2; and
(b)
Taxes on capital;
-3-
which are imposed after ______________________~~~~--in addition to, or in place of, the taxes to which the
Convention applies under paragraph 2."
ARTICLE 2
Subparagraphs (c) and (d) of paragraph 1 of Article III
(General Definitions) of the Convention shall be deleted and
replaced by the following:
"(c) The term "Canadian tax" means the taxes
referred to in Article II (Taxes Covered) that are
imposed on income by Canada;
(d) The term "united states tax" means the taxes
referred to in Article I I (Taxes Covered), other
than in subparagraph (b) (i) to (iv) thereof, that
are imposed on income by the united states;1I
ARTICLE 3
1.
Paragraph 1 of Article IV (Residence) of the Convention
shall be deleted and replaced by the following:
"1. For the purposes of this Convention, the term
"resident" of a contracting State means any person
that, under the laws of that state, is liable to tax
therein by reason of that person's domicile, residence,
citizenship, place of management, place of
incorporation or any other criterion of a similar
nature, but in the case of an estate or trust, only to
the extent that income derived by the estate or trust
is liable to tax in that state, either in its hands or
in the hands of its beneficiaries. For the purposes of
this paragraph, an individual who is not a resident of
Canada under this paragraph and who is a United states
citizen or an alien admitted to the united states for
permanent residence (a "green card ll holder) is a
resident of the United states only if the individual
has a sUbstantial presence, permanent home or habitual
abode in the united states, and that individual's
personal and economic relations are closer to the
United states than to any third state. The term
"resident" of a Contracting state is understood to
include:
-4-
(a) The Government of that state or a political
subdivision or local authority thereof or any
agency or instrumentality of any such government,
subdivision or authority, and
(b)
(i) A trust, organization or other
arrangement that is operated exclusively to
administer or provide pension, retirement or
employee benefits; and
(ii) A not-for-profit organization
that was constituted in that state and that is, by
reason of its nature as such, generally exempt
from income taxation in that state."
2.
A new sentence shall be added at the end of paragraph 3
of Article IV (Residence) of the Convention as follows:
"Notwithstanding the preceding sentence, a company that
was created in a contracting state, that is a resident
of both Contracting states and that is continued at any
time in the other Contracting state in accordance with
the corporate law in that other State shall be deemed
while it is so continued to be a resident of that other
state."
ARTICLE 4
Paragraphs 3 and 4 of Article IX (Related Persons) of
the Convention shall be deleted and replaced by the
following:
"3. Where an adjustment is made or to be made by a
contracting state in accordance with paragraph 1, the
other contracting state shall (notwithstanding any time
or procedural limitations in the domestic law of that
other State) make a corresponding adjustment to the
income, loss or tax of the related person in that other
state if:
and
(a) It agrees with the first-mentioned adjustment;
(b) Within six years from the end of the taxable
year to which the first-mentioned adjustment
relates, the competent authority of the other
state has been notified of the first-mentioned
adjustment. The competent
authorities , however,
.
may agree to cons1der cases where the
-5-
corresponding adjustment would not otherwise be
barred by any time or procedural limitations in
the other state, even if the notification is not
made within the six-year period.
4.
In the event that the notification referred to in
paragraph 3 is not given within the time period
referred to therein, and the competent authorities have
not agreed to otherwise consider the case in accordance
with paragraph 3(b), the competent authority of the
contracting state which has made or is to make the
first-mentioned adjustment may provide relief from
double taxation where appropriate."
ARTICLE 5
1.
The references in paragraphs 2(a) and 6 of Article X
(Dividends) of the Convention to a rate of tax of "10 per
cent" shall be deleted and replaced by references to a rate
of tax of 115 per cent".
2.
Paragraph 7 of Article X (Dividends) of the convention
shall be deleted and replaced by the following:
"7.
Notwithstanding the provisions of paragraph 2,
(a) Dividends paid by a company that is a
resident of Canada and a non-resident-owned
investment corporation to a company that is a
resident of the united states, that owns at
least 10 per cent of the voting stock of the
company paying the dividends and that is the
beneficial owner of such dividends, may be
taxed in Canada at a rate not exceeding 10
per cent of the gross amount of the
dividends;
(b) Paragraph 2(b) and not paragraph 2(a)
shall apply in the case of dividends paid by
a resident of the united states that is a
Regulated Investment Company; and
(c) Paragraph 2(a) shall not apply to dividends
paid by a resident of the united states that is a
Real Estate Investment Trust, and paragraph 2(b)
shall apply only where such dividends are
beneficially owned by an individual holding an
interest of less than 10 per cent in the trust;
otherwise the rate of tax applicable under the
domestic law of the united states shall apply.
-6-
Where an estate or a testamentary trust acquired
its interest in a Real Estate Investment Trust as
a consequence of an individual's death, for the
purposes of the preceding sentence the estate or
trust shall for the five-year period following the
death be deemed with respect to that interest to
be an individual."
ARTICLE 6
1.
The reference in paragraph 2 of Article XI (Interest)
of the Convention to "15 per cent" shall be deleted and
replaced by a reference to "10 per cent".
2.
Paragraph 3{d) of Article XI (Interest) of the
Convention shall be deleted and replaced by the following:
II (d) The interest is beneficially owned by a
resident of the other Contracting state and is
paid with respect to indebtedness arising as a
consequence of the sale on credit by a resident of
that other state of any equipment, merchandise or
services except where the sale or indebtedness was
between related persons; or"
3.
A new paragraph 9 shall be added to Article XI
(Interest) of the Convention as follows:
"9. The provisions of paragraphs 2 and 3 shall not
apply to an excess inclusion with respect to a residual
interest in a Real Estate Mortgage Investment Conduit
to which section a60G of the united states Internal
Revenue Code, as it may be amended from time to time
without changing the general principle thereof,
applies."
ARTICLE 7
1.
Paragraph 3 of Article XII (Royalties) of the
Convention shall be deleted and replaced by the following:
"3.
Notwithstanding the provisions of paragraph 2,
(a) Copyright royalties and other like
payments in respect of the production or
reproduction of any literary, dramatic,
musical or artistic work (other than payments
in respect of motion pictures and works on
-7-
film, videotape or other means of
reproduction for use in connection with
television):
(b) Payments for the use of, or the right to
use, computer software:
(c) Payments for the use of, or the right to
use, any patent or any information concerning
industrial, commercial or scientific
experience (but not including any such
information provided in connection with a
rental or franchise agreement); and
(d) Payments with respect to broadcasting as may
be agreed for the purposes of this paragraph in an
exchange of notes between the Contracting states;
arising in a Contracting state and beneficially owned
by a resident of the other Contracting state shall be
taxable only in that other state."
2.
paragraph 6 of Article XII (Royalties) of the
convention shall be deleted and replaced by the following:
"6. For the purposes of this Article,
(a) Royalties shall be deemed to arise in a
contracting state when the payer is a resident of
that state. Where, however, the person paying the
royalties, whether he is a resident of a
Contracting state or not, has in a state a
permanent establishment or a fixed base in
connection with which the obligation to pay the
royalties was incurred, and such royalties are
borne by such permanent establishment or fixed
base, then such royalties shall be deemed to arise
in the state in which the permanent establishment
or fixed base is situated and not in any other
state of which the payer is a resident; and
(b) Where subparagraph (a) does not operate to
treat royalties as arising in either Contracting
state and the royalties are for the use of, or the
right to use, intangible property or tangible
personal property in a Contracting state, then
such royalties shall be deemed to arise in that
state."
-8-
ARTICLE 8
Paragraph 8 of Article XIII (Gains) of the Convention
shall be deleted and replaced by the following:
"8. Where a resident of a Contracting state alienates
property in the course of a corporate or other
organization, reorganization, amalgamation, division or
similar transaction and profit, gain or income with
respect to such alienation is not recognized for the
purpose of taxation in that state, if requested to do
so by the person who acquires the property, the
competent authority of the other Contracting state may
agree, in order to avoid double taxation and subject to
terms and conditions satisfactory to such competent
authority, to defer the recognition of the profit, gain
or income with respect to such property for the purpose
of taxation in that other state until such time and in
such manner as may be stipulated in the agreement.·1
ARTICLE 9
1.
Paragraph 3 of Article XVIII {Pensions and Annuities}
of the convention shall be deleted and replaced by the
following:
"3. For the purposes of this Convention, the term
"pensions" includes any payment under a superannuation,
pension or other retirement arrangement, Armed Forces
retirement pay, war veterans pensions and allowances
and amounts paid under a sickness, accident or
disability plan, but does not include payments under an
income-averaging annuity contract or any benefit
referred to in paragraph 5. 11
2.
paragraph 5 of Article XVIII (pensions and Annuities)
of the Convention shall be deleted and replaced by the
following:
1/5. Benefits under the social security legislation in
a contracting state (including tier 1 railroad benefits
but not including unemployment benefits) paid to a
resident of the other Contracting state (and in the
case of Canadian benefits, to a citizen of the United
states) shall be taxable only in the first-mentioned
state."
3.
A new paragraph 7 shall be added to Article XVIII
(Pensions and Annuities) of the convention as follows:
-9-
"7. A natural person who is a citizen or resident of a
Contracting state and a beneficiary of a trust,
company, organization or other arrangement that is a
resident of the other Contracting state, generally
exempt from income taxation in that other state and
operated exclusively to provide pension, retirement or
employee benefits may elect to defer taxation in the
first-mentioned state, under rules established by the
competent authority of that state, with respect to any
income accrued in the plan but not distributed by the
plan, until such time as and to the extent that a
distribution is made from the plan or any plan
substituted therefor."
ARTICLE 10
1.
Paragraphs 2 and 3 of Article XXI (Exempt
Organizations) of the Convention shall be deleted and
replaced by the following:
"2. Subject to the provisions of paragraph 3, income
referred to in Articles X (Dividends) and XI (Interest)
derived by:
(a) A trust, company, organization or other
arrangement that is a resident of a Contracting
state, generally exempt from income taxation in a
taxable year in that state and operated
exclusively to administer or provide pension,
retirement or employee benefits; or
(b) A trust, company, organization or other
arrangement that is a resident of a Contracting
state, generally exempt from income taxation in a
taxable year in that State and operated
exclusively to earn income for the benefit of an
organization referred to in subparagraph (a)i
shall be exempt from income taxation in that taxable
year in the other contracting state.
3.
The provisions of paragraphs 1 and 2 shall not
apply with respect to the income of a trust, company,
organization or other arrangement from carrying on a
trade or business or from a related person other than a
person referred to in paragraph 1 or 2."
2.
A new sentence shall be added at the end of paragraph 5
of Article XXI (Exempt organizations) of the Convention as
follows:
-10-
"For the purposes of this paragraph, a company that is
a resident of Canada and that is taxable in the United
states as if it were a resident of the united states
shall be deemed to be a resident of the united states."
3.
Paragraph 6 of Article XXI (Exempt Organizations) of
the Convention shall be deleted and replaced by the
following:
"6. For the purposes of Canadian taxation, gifts by a
resident of Canada to an organization that is a
resident of the United states, that is generally exempt
from United states tax and that could qualify in Canada
as a registered charity if it were a resident of Canada
and created or established in Canada, shall be treated
as gifts to a registered charity; however, no relief
from taxation shall be available in any taxation year
with respect to such gifts (other than such gifts to a
college or university at which the resident or a member
of the resident's family is or was enrolled) to the
extent that such relief would exceed the amount of
relief that would be available under the Income Tax Act
if the only income of the resident for that year were
the resident's income arising in the united states.
The preceding sentence shall not be interpreted to
allow in any taxation year relief from taxation for
gifts to registered charities in excess of the amount
of relief allowed under the percentage limitations of
the laws of Canada in respect of relief for gifts to
registered charities."
ARTICLE 11
A new paragraph 3 shall be added to Article XXII (Other
Income) of the Convention as follows:
"3. Losses incurred by a resident of a Contracting
state with respect to wagering transactions the gains
on which may be taxed in the other Contracting state
shall, for the purpose of taxation in that other state,
be deductible to the same extent that such losses would
be deductible if they were incurred by a resident of
that other state."
-11-
ARTICLE 12
Paragraphs 2(a) and 2(b) of Article XXIV (Elimination
of Double Taxation) of the Convention shall be deleted and
replaced by the following:
1.
"Ca) Subject to the provisions of the law of
Canada regarding the deduction from tax payable in
Canada of tax paid in a territory outside Canada
and to any subsequent modification of those
provisions (which shall not affect the general
principle hereof)
(i) Income tax paid or accrued to the United
states on profits, income or gains arising in
the United states, and
(ii) In the case of an individual, any social
security taxes paid to the united states
(other than taxes relating to unemployment
insurance benefits) by the individual on such
profits, income or gains
shall be deducted from any Canadian tax payable in
respect of such profits, income or gains;
(b) Subject to the existing provisions of the law
of Canada regarding the taxation of income from a
foreign affiliate and to any subsequent
modification of those provisions -- which shall
not affect the general principle hereof -- for the
purpose of computing Canadian tax, a company which
is a resident of Canada shall be allowed to deduct
in computing its taxable income any dividend
received by it out of the exempt surplus of a
foreign affiliate which is a resident of the
United states; and"
2.
Paragraph 5 of Article XXIV (Elimination of Double
Taxation) of the Convention shall be deleted and replaced by
the following:
"5. Notwithstanding the prov~s~ons of paragraph 4,
where a United states citizen is a resident of Canada,
the following rules shall apply in respect of the items
of income referred to in Article X (Dividends), XI
(Interest) or XII (Royalties) that arise (within the
meaning of paragraph 3) in the united states and that
would be subject to united states tax if the resident
of Canada were not a citizen of the united States, as
long as the law in force in Canada allows a deduction
in computing income for the portion of any foreign tax
-12-
paid in respect of such items which exceeds 15 per cent
of the amount thereof:
(a) The deduction so allowed in Canada shall not
be reduced by any credit or deduction for income
tax paid or accrued to Canada allowed in computing
the United states tax on such items;
(b) Canada shall allow a deduction from Canadian
tax on such items in respect of income tax paid or
accrued to the United states on such items, except
that such deduction need not exceed the amount of
the tax that would be paid on such items to the
United states if the resident of Canada were not a
United states citizen; and
(c) For the purposes of computing the United
states tax on such items, the United states shall
allow as a credit against united States tax the
income tax paid or accrued to Canada after the
deduction referred to in subparagraph (br. The
credit so allowed shall reduce only that portion
of the united states tax on such items which
exceeds the amount of tax that would be paid to
the United states on such items if the resident of
Canada were not a united states citizen."
3.
Paragraph 7 of Article XXIV (Elimination of Double
Taxation) of the Convention shall be deleted and replaced by
the following:
"7. For the purposes of this Article, any reference to
"income tax paid or accrued" to a Contracting state
shall include Canadian tax and United states tax, as
the case may be, and taxes of general application which
are paid or accrued to a political subdivision or local
authority of that state, which are not imposed by that
political subdivision or local authority in a manner
inconsistent with the provisions of the Convention and
which are substantially similar to the Canadian tax or
united states tax, as the case may be."
4.
A new paragraph 10 shall be added to Article XXIV
(Elimination of Double Taxation) of the Convention as
follows:
"10. Where in accordance with any prov1s10n of the
Convention income derived or capital owned by a
resident of a Contracting State is exempt from tax in
that state, such state may nevertheless, in calculating
the amount of tax on other income or capital, take into
account the exempted income or capital."
-13ARTICLE 13
1.
Paragraph 3 of Article XXV (Non-Discrimination) of the
Convention shall be deleted and replaced by the following:
"3. In determining the taxable income or tax payable of
an individual who is a resident of a Contracting state,
there shall be allowed as a deduction in respect of any
other person who is a resident of the other Contracting
state and who is dependent on the individual for
support the amount that would be so allowed if that
other person were a resident of the first-mentioned
state."
2.
Paragraph 10 of Article XXV (Non-Discrimination) of
the Convention shall be deleted and replaced by the
following:
"10. Notwithstanding the provisions of Article II
(Taxes Covered), this Article shall apply to all taxes
imposed by a Contracting state."
ARTICLE 14
A new paragraph 6 shall be added to Article XXVI
(Mutual Agreement Procedure) of the Convention as follows:
"6. If any difficulty or doubt arising as to the
interpretation or application of the Convention cannot
be resolved by the competent authorities pursuant to
the preceding paragraphs of this Article, the case may,
if both competent authorities and the taxpayer agree,
be submitted for arbitration, provided that the
taxpayer agrees in writing to be bound by the decision
of the arbitration board. The decision of the
arbitration board in a particular case shall be binding
on both States with respect to that case. The
procedures shall be established in an exchange of notes
between the contracting states. The provisions of this
paragraph shall have effect after the Contracting
States have so agreed through the exchange of notes."
ARTICLE 15
A new Article XXVI A (Assistance in Collection) shall
be added to the Convention as follows:
-14-
"Article XXVI A
Assistance in Collection
The Contracting states undertake to lend
assistance to each other in the collection of taxes
referred to in paragraph 9, together with interest,
costs, additions to such taxes and civil penalties,
referred to in this Article as a "revenue claim".
1.
2.
An application for assistance in the collection of
a revenue claim shall include a certification by the
competent authority of the applicant state that, under
the laws of that state, the revenue claim has been
finally determined. For the purposes of this Article,
a revenue claim is finally determined when the
applicant state has the right under its internal law to
collect the revenue claim and all administrative and
jUdicial rights of the taxpayer to restrain collection
in the applicant state have lapsed or been exhausted.
3.
A revenue claim of the applicant state that has
been finally determined may be accepted for collection
by the competent authority of the requested state and,
subject to the provisions of paragraph 7, if accepted
shall be collected by the requested state as though
such revenue claim were the requested state's own
revenue claim finally determined in accordance with the
laws applicable to the collection of the requested
state's own taxes.
4.
Where an application for collection of a revenue
claim in respect of a taxpayer is accepted
(a) By the United states, the revenue claim shall
be treated by the united states as an assessment
under united states laws against the taxpayer as
of the time the application is received; and
(b) By Canada, the revenue claim shall be treated
by Canada as an amount payable under the Income
Tax Act, the collection of which is not subject to
any restriction.
5.
Nothing in this Article shall be construed as
creating or providing any rights of administrative or
judicial review of the applicant state's finally
determined revenue claim by the requested state based
on any such rights that may be available under the laws
of eit~er Contracting state. If, at any time pending
execut10n of a request for assistance under this
~rticle, the applicant state loses the right under its
lnternal law to collect the revenue claim, the
-15-
competent authority of the applicant state shall
promptly withdraw the request for assistance in
collection.
6.
Subject to this paragraph, amounts collected by
the requested state pursuant to this Article shall be
forwarded to the competent authority of the applicant
State. Unless the competent authorities of the
Contracting states otherwise agree, the ordinary costs
incurred in providing collection assistance shall be
borne by the requested State and any extraordinary
costs so incurred shall be borne by the applicant
state.
7.
A revenue claim of an applicant state accepted for
collection shall not have in the requested state any
priority accorded to the revenue claims of the
requested state.
8.
No assistance shall be provided under this Article
for a revenue claim in respect of a taxpayer to the
extent that the taxpayer can demonstrate that
(a) Where the taxpayer is an individual, the
revenue claim relates to a taxable period in which
the taxpayer was a citizen of the requested state,
and
(b) Where the taxpayer is an entity that is a
company, estate or trust, the revenue claim
relates to a taxable period in which the taxpayer
derived its status as such an entity from the laws
in force in the requested state.
9.
Notwithstanding the provisions of Article II
(Taxes Covered), the provisions of this Article shall
apply to all categories of taxes collected by or on
behalf of the Government of a Contracting state.
10.
Nothing in this Article shall be construed as:
(a) Limiting the assistance provided for in
paragraph 4 of Article XXVI (Mutual Agreement
Procedure); or
(b) Imposing on either contracting state the
obligation to carry out administrative measures of
a different nature from those used in the
collection of its own taxes or that would be
contrary to its public policy (ordre public).
-1611. The competent authorities of the Contracting
states shall agree upon the mode of application of this
Article, including agreement to ensure comparable
levels of assistance to each of the Contracting
states."
ARTICLE 16
1.
paragraph 1 of Article XXVII (Exchange of Information)
of the Convention shall be deleted and replaced by the
following:
"1. The competent authorities of the contracting
states shall exchange such information as is relevant
for carrying out the provisions of this Convention or
of the domestic laws of the Contracting states
concerning taxes to which the Convention applies
insofar as the taxation thereunder is not contrary to
the Convention. The exchange of information is not
restricted by Article I (Personal Scope). Any
information received by a Contracting state shall be
treated as secret in the same manner as information
obtained under the taxation laws of that State and
shall be disclosed only to persons or authorities
(including courts and administrative bodies) involved
in the assessment or collection of, the administration
and enforcement in respect of, or the determination of
appeals in relation to the taxes to which the
Convention applies or, notwithstanding paragraph 4, in
relation to taxes imposed by a political subdivision or
local authority of a Contracting state that are
substantially similar to the taxes covered by the
Convention under Article II (Taxes Covered). Such
persons or authorities shall use the information only
for such purposes. They may disclose the information
in public court proceedings or in judicial decisions.
The competent authorities may release to an arbitration
board established pursuant to paragraph 6 of Article
XXVI (Mutual Agreement Procedure) such information as
is necessary for carrying out the arbitration
procedure; the members of the arbitration board shall
be subject to the limitations on disclosure described
in this Article."
2.
Paragraph 4 of Article XXVII (Exchange of Information)
of the Convention shall be deleted and replaced by the
following:
-17-
"4. For the purposes of this Article, the Convention
shall apply, notwithstanding the provisions of Article
II (Taxes Covered):
(a)
and
To all taxes imposed by a contracting State;
(b) To other taxes to which any other provision
of the Convention applies, but only to the extent
that the information is relevant for the purposes
of the application of that provision."
ARTICLE 17
1.
Paragraph 3(a) of Article XXIX (Miscellaneous Rules) of
the Convention shall be deleted and replaced by the
following:
"(a) Under paragraphs 3 and 4 of Article IX
(Related Persons), paragraphs 6 and 7 of Article
XIII (Gains), paragraphs 1, 3, 4, 5, 6(b) and 7 of
Article XVIII (Pensions and Annuities), paragraph
5 of Article XXIX (Miscellaneous Rules),
paragraphs 3 and 5 of Article XXX (Entry into
Force), and Articles XIX (Government Service), XXI
(Exempt Organizations), XXIV (Elimination of
Double Taxation), XXV (Non-Discrimination), XXVI
(Mutual Agreement Procedure) and XXIX B (Taxes
Imposed by Reason of Death):"
2.
Paragraphs 5 to 7 of Article XXIX (Miscellaneous Rules)
of the Convention shall be deleted and replaced by the
following:
"5. Where a person who is a resident of Canada and a
shareholder of a United states S corporation requests
the competent authority of Canada to do so, the
competent authority may agree, subject to terms and
conditions satisfactory to such competent authority, to
apply the following rules for the purposes of taxation
in Canada with respect to the period during which the
agreement is effective:
(a) The corporation shall be deemed to be a
controlled foreign affiliate of the person;
(b) All the income of the corporation shall be
deemed to be foreign accrual property income:
-18(c) For the purposes of subsection 20(11) of the
Income Tax Act, the amount of the corporation's
income that is included in the person's income
shall be deemed not to be income from a property;
and
(d) Each dividend paid to the person on a share
of the capital stock of the corporation shall be
excluded from the person's income and shall be
deducted in computing the adjusted cost base to
the person of the share.
6.
For purposes of paragraph 3 of Article XXII
(Consultation) of the General Agreement on Trade in
Services, the contracting States agree that:
(a) A measure falls within the scope of the
Convention only if:
(i) The measure relates to a tax to which
Article XXV (Non-Discrimination) of the
Convention applies; or
(ii) The measure relates to a tax to which
Article XXV (Non-Discrimination) of the
Convention does not apply and to which any
other provision of the Convention applies,
but only to the extent that the measure
relates to a matter dealt with in that other
provision of the Convention; and
(b) Notwithstanding paragraph 3 of Article XXII
(Consultation) of the General Agreement on Trade
in Services, any doubt as to the interpretation of
subparagraph (a) will be resolved under paragraph
3 of Article XXVI (Mutual Agreement Procedure) of
the Convention or any other procedure agreed to by
both Contracting states.
7.
The appropriate authority of a Contracting state
may request consultations with the appropriate
authority of the other Contracting state to determine
whether change to the Convention is appropriate to
respond to changes in the law or policy of that other
state. Where domestic legislation enacted by a
Contracting state unilaterally removes or significantly
limits any material benefit otherwise provided by the
Convention, the appropriate authorities shall promptly
consult for the purpose of considering an appropriate
change to the Convention."
-19-
ARTICLE 18
A new Article XXIX A (Limitation on Benefits) shall be
added to the Convention as follows:
"Article XXIX A
Limitation on Benefits
1.
For the purposes of the application of this
convention by the United states,
(a) A qualifying person shall be entitled to all
of the benefits of this Convention, and
(b) Except as provided in paragraphs 3, 4 and 6,
a person that is not a qualifying person shall not
be entitled to any benefits of the Convention.
2.
For the purposes of this Article, a qualifying
person is a resident of Canada that is:
(a) A natural person:
(b) The Government of Canada or a political
subdivision or local authority thereof, or any
agency or instrumentality of any such government,
subdivision or authority:
(c) A company or trust in whose principal class
of shares or units there is substantial and
regular trading on a recognized stock exchange;
(d) A company more than 50 per cent of the vote
and value of the shares (other than debt
SUbstitute shares) of which is owned, directly or
indirectly, by five or fewer persons each of which
is a company or trust referred to in subparagraph
(c), provided that each company or trust in the
chain of ownership is a qualifying person or a
resident or citizen of the united states:
(e)
(i) A company 50 per cent or more of the
vote and value of the shares (other than debt
substitute shares) of which is not owned,
directly or indirectly, by persons other than
qualifying persons or residents or citizens
of the united states, or
(ii) A trust 50 per cent or more of the
beneficial interest in which is not owned,
-20-
directly or indirectly, by persons other than
qualifying persons or residents or citizens
of the united states,
where the amount of the expenses deductible from
gross income that are paid or payable by the
company or trust, as the case may be, for its
preceding fiscal period (or, in the case of its
first fiscal period, that period) to persons that
are not qualifying persons or residents or
citizens of the united states is less than 50 per
cent of its gross income for that period;
(f)
An
estate;
(g) A not-for-profit organization, provided that
more than half of the beneficiaries, members'or
participants of the organization are qualifying
persons or residents or citizens of the united
states; or
(h) An organization described in paragraph 2 of
Article XXI (Exempt Organizations) and established
for the purpose of providing benefits primarily to
individuals who are qualifying persons, persons
who were qualifying persons within the five
preceding years, or residents or citizens of the
united states.
3.
Where a person that is a resident of Canada and is
not a qualifying person of canada, or a person related
thereto, is engaged in the active conduct of a trade or
business in Canada (other than the business of making
or managing investments, unless those activities are
carried on with customers in the ordinary course of
business by a bank, an insurance company, a registered
securities dealer or a deposit-taking financial
institution), the benefits of the Convention shall
apply to that resident person with respect to income
derived from the united states in connection with or
incidental to that trade or business, including any
such income derived directly or indirectly by that
resident person through one or more other persons that
are residents of the United states. Income shall be
deemed to be derived from the United states in
connection with the active conduct of a trade or
business in Canada only if that trade or business is
substantial in relation to the activity carried on in
the united states giving rise to the income in respect
of which benefits provided under the Convention by the
united states are claimed.
-21-
4.
A company that is a resident of Canada shall also
be entitled to the benefits of Articles X (Dividends),
XI (Interest) and XII (Royalties) if
Ca) Its shares that represent more than 90 per
cent of the aggregate vote and value represented
by all of its shares (other than debt substitute
shares) are owned, directly or indirectly, by
persons each of whom is a qualifying person, a
resident or citizen of the united states or a
person who
(i) Is a resident of a country with which
the United states has a comprehensive income
tax convention and is entitled to all of the
benefits provided by the United states under
that convention;
(ii) Would qualify for benefits under
paragraphs 2 or 3 if that person were a
resident of Canada (and, for the purposes of
paragraph 3, if the business it carried on in
the country of which it is a resident were
carried on by it in Canada); and
(iii) Would be entitled to a rate of United
states tax under the convention between that
person's country of residence and the United
states, in respect of the particular class of
income for which benefits are being claimed
under this Convention, that is at least as
low as the rate applicable under this
Convention; and
(b) The amount of the expenses deductible from
gross income that are paid or payable by the
company for its preceding fiscal period (or, in
the case of its first fiscal period, that period)
to persons that are not qualifying persons or
residents or citizens of the united states is less
than 50 per cent of the gross income of the
company for that period.
5.
For the purposes of this Article,
(a)
The term "recognized stock exchange" means:
(i) The NASDAQ System owned by the National
Association of securities Dealers, Inc. and
any stock exchange registered with the
Securities and Exchange commission as a
-22-
national securities exchange for purposes of
the Securities Exchange Act of 1934;
(ii) Canadian stock exchanges that are
"prescribed stock exchanges" under the Income
Tax Act; and
(iii) Any other stock exchange agreed upon
by the Contracting States in an exchange of
notes or by the competent authorities of the
Contracting States;
(b) The term "not-for-profit organization" of a
contracting State means an entity created or
established in that State and that is, by reason
of its not-for-profit status, generally exempt
from income taxation in that State, and includes a
private foundation, charity, trade union, trade
association or similar organization; and
(c)
The term "debt substitute share" means:
(i) A share described in paragraph (e} of
the definition "term preferred share" in the
Income Tax Act, as it may be amended from
time to time without changing the general
principle thereof; and
(ii) Such other type of share as may be
agreed upon by the competent authorities of
the Contracting States.
6.
Where a person that is a resident of Canada is not
entitled under the preceding provisions of this Article
to the benefits provided under the Convention by the
united States, the competent authority of the united
States shall, upon that person's request, determine on
the basis of all factors including the history,
structure, ownership and operations of that person
whether
(a) Its creation and existence did not have as a
principal purpose the obtaining of benefits under
the Convention that would not otherwise be
available; or
(b) It would not be appropriate, having regard to
the purpose of this Article, to deny the benefits
of the Convention to that person.
The person shall be granted the benefits of the
Convention by the united States where the competent
-23-
authority determines that subparagraph (a) or (b)
applies.
7.
It is understood that the fact that the preceding
provisions of this Article apply only for the purposes
of the application of the Convention by the united
states shall not be construed as restricting in any
manner the right of a contracting state to deny
benefits under the Convention where it can reasonably
be concluded that to do otherwise would result in an
abuse of the provisions of the Convention."
ARTICLE 19
A new Article XXIX B (Taxes Imposed by Reason of Death)
shall be added to the Convention as follows:
"Article XXIX B
Taxes Imposed by Reason of Death
1.
Where the property of an individual who is a
resident of a Contracting state passes by reason of the
individual's death to an organization referred to in
paragraph 1 of Article XXI (Exempt Organizations), the
tax consequences in a Contracting State arising out of
the passing of the property shall apply as if the
organization were a resident of that state.
2.
In determining the estate tax imposed by the
united states, the estate of an individual (other than
a citizen of the united states) who was a resident of
Canada at the time of the individual's death shall be
allowed a unified credit in an amount that bears the
same ratio to the credit allowed under the law of the
United states to the estate of a citizen of the United
states as the value of the part of the individual's
gross estate that at the time of the individual's death
is situated in the united states bears to the value of
the individual's entire gross estate wherever situated.
The amount of any unified credit otherwise allowable
under this paragraph shall be reduced by the amount of
any credit previously allowed with respect to any gift
made by the individual. The credit otherwise allowable
under this paragraph shall be allowed only if all
information necessary for the verification and
computation of the credit is provided.
-24-
3.
In determining the estate tax imposed by the
united states on an individual's estate with respect to
property that would qualify for the estate tax marital
deduction under the law of the United states if the
surviving spouse were a citizen of the united states
and all applicable elections were properly made, a nonrefundable credit shall be allowed in addition to, but
not in excess of, the amount of the unified credit
allowed under paragraph 2 (or, in the case of an
individual who was a citizen or resident of the United
states, under the law of the united states) before the
reduction for any credit allowed previously with
respect to any gift made by the individual, provided
that
(a) The individual was at the time of death a
citizen of the United states or a resident of
either contracting state:
(b) The surviving spouse was at the time of the
individual's death a resident of either
Contracting state;
(c) If both the individual and the surviving
spouse were residents of the united states at the
time of the individual's death, one or both was a
citizen of Canada; and
(d) The executor of the decedent's estate elects
the benefits of this paragraph and waives
irrevocably the benefits of any estate tax marital
deduction that would be allowed under the law of
the united states on a united states Federal
estate tax return filed for the individual's
estate by the date on which a qualified domestic
trust election could be made under the law of the
united states.
Solely for purposes of determining other credits
allowed under the law of the united states, the credit
provided under this paragraph shall be allowed after
such other credits.
4.
Where an individual was a resident of the united
states immediately before the individual's death, for
the purposes of subsection 70(6) of the Income Tax Act,
both the individual and the individual's spouse shall
be deemed to have been resident in Canada immediately
before the individual's death. Where a trust that
would be a trust described in subsection 70(6) of that
Act, if its trustees that were citizens of the united
states or domestic corporations under the law of the
-25-
United states were residents of Canada requests the
compet:nt authority of Canada to do so: the competent
author~ty may agree, subject to terms and conditions
satisfactory to such competent authority, to treat the
trust for the purposes of that Act as being resident in
Canada for such time as may be stipulated in the
agreement.
5.
In determining the amount of tax payable in Canada
for a taxation year by an individual who died in that
year and at a time immediately before which the
individual was a resident of Canada, the amount of any
estate tax payable in the United states in respect of
the individual's property situated in the united states
shall be allowed as a deduction from the amount of any
tax otherwise payable in Canada on any income, profits
or gains of the individual arising (within the meaning
of paragraph 3 of Article XXIV (Elimination of Double
Taxation» in the United states in that year, taking
into account the deduction for any income tax paid or
accrued to the united states that is provided under
paragraph 2{a), 4(a) or 5(b) of Article XXIV
(Elimination of Double Taxation).
6.
In determining the amount of estate tax payable in
the united states by the estate of an individual who
was a resident or citizen of the united states at the
time of death, a credit shall be allowed against any
estate tax imposed in respect of property situated
outside the united states for the income tax imposed in
Canada in respect of such property by reason of the
individual's death. The amount of such credit shall be
computed in accordance with the provisions and subject
to the limitations of the law of the united states
regarding credit for foreign death taxes (as it may be
amended from time to time without changing the general
principle hereof), as though the income tax imposed by
Canada were a creditable tax under that law.
7.
Provided that the value, at the time of death, of
the entire gross estate wherever situated of an
individual who was a resident of Canada (other than a
citizen of the United states) at the time of death does
not exceed 1.2 million u.s dollars or its equivalent in
Canadian dollars, the united states may impose its
estate tax upon property forming part of the estate of
the individual only if any gain derived by the
individual from the alienation of such property would
have been subject to income taxation by the united
States in accordance with Article XIII (Gains).11
-26-
ARTICLE 20
1.
The appropriate authorities of the Contracting states
shall consult within a three-year period from the date on
which this Protocol enters into force with respect to
further reductions in withholding taxes provided in the
Convention, and with respect to the rules in Article XXIX A
(Limitation on Benefits) of the Convention.
2.
The appropriate authorities of the contracting states
shall consult after a three-year period from the date on
which the Protocol enters into force in order to determine
whether it is appropriate to make the exchange of notes
referred to in of Article XXVI (Mutual Agreement Procedure)
of the Convention.
ARTICLE 21
1.
This Protocol shall be subject to ratification in
accordance with the applicable procedures in Canada and the
united states and instruments of ratification shall be
exchanged as soon as possible.
2.
The Protocol shall enter into force upon the exchange
of instruments of ratification, and shall have effect:
(a) For tax withheld at the source on income referred
to in Articles X (Dividends), XI (Interest), XII
(Royalties) and XVIII (Pensions and Annuities) of the
Convention, with respect to amounts paid or credited on
or after the first day of the second month next
following the date on which the Protocol enters into
force, except that the reference in paragraph 2(a) of
Article X (Dividends) of the Convention, as amended by
the Protocol, to "5 per cent" shall be read, in its
application to amounts paid or credited on or after
that first day:
(i)
After 1994 and before 1996, as "7 per cent";
and
(ii) After 1995 and before 1997, as "6 per cent";
and
(b) For other taxes, with respect to taxable years
beginning on or after the first day of January next
following the date on which the Protocol enters into
force, except that the reference in paragraph 6 of
Article X (Dividends) of the Convention, as amended by
the Protocol, to "5 per cent" shall be read, in its
-27-
application to taxable years beginning on or after that
first day and ending:
and
(i)
After 1994 and before 1996, as "7 per cent";
(ii) After 1995 and before 1997, as "6 per cent".
3.
Notwithstanding the provisions of paragraph 2, Article
XXVI A (Assistance in Collection) of the Convention shall
have effect for revenue claims finally determined by a
requesting state after the date that is 10 years before the
date on which the Protocol enters into force.
4.
Notwithstanding the provisions of paragraph 2,
paragraphs 2 through 7 of Article XXIX B (Taxes Imposed by
Reason of Death) of the Convention {and paragraph 2 of
Article II (Taxes Covered) and paragraph 3(a) of Article
XXIX (Miscellaneous Rules) of the Convention, as amended by
the Protocol, to the extent necessary to implement
paragraphs 2 through 7 of Article XXIX B (Taxes Imposed by
Reason of Death) of the Convention) shall, notwithstanding
any limitation imposed under the law of a Contracting state
on the assessment, reassessment or refund with respect to a
person's return, have effect with respect to deaths
occurring after the date on which the Protocol enters into
force and, provided that any claim for refund by reason of
this sentence is filed within one year of the date on which
the Protocol enters into force or within the otherwise
applicable period for filing such claims under domestic law,
with respect to benefits provided under any of those
paragraphs with respect to deaths occurring after November
10, 1988.
IN WITNESS WHEREOF, the undersigned, duly
authorized thereto by their respective Governments, have
signed this Protocol.
Done in two copies at Washington this
_____day of
1994, in the English and French
languages, each text being equally authentic.
For the Government of
the united states of America:
For the Government of
Canada:
UBLIe DEBT NEWS
Department of the Treasury • Bureau afthe Public Debt • Washington, DC 20239
CONTACT: Office of Financing
202-219-3350
FOR IMMEDIATE RELEASE
August 31, 1994
RESULTS OF TREASURY'S AUCTION OF 16-DAY BILLS
Tenders for $7,005 million of 16-day bills to be issued
September 6, 1994 and to mature September 22, 1994 were
accepted today (CUSIP: 912794L77).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
4.54%
4.60%
4.58%
Investment
Rate
4.62%
4.66%
4.66%
Price
99.798
99.796
99.796
Tenders at the high discount rate were allotted 80%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
LB-I050
AND
ACCEPTED ( in thousands)
Received
$27,540,000
AcceI2ted
$7/005,000
$27,540,000
0
$27,540,000
$7,005,000
0
$7,005,000
0
0
0
$27,540,000
0
$7,005,000
@FedFRASER