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Treas.
HJ
10
.A13P4
v.342
u.s.
Department of the Treasury
PRESS RELEASES
STATEMENT BY THE U.S. TREASURY AND THE
FEDERAL RESERVE SYSTEM ON SUPPLEMENTAL
SWAP FACILITIES FOR MEXICO
January 2, 1995
In response to recent financial developments in Mexico, the existing $6.0 billion swap
agreements between the United States and Mexico have been- supplemented with an additional
$3 billion short-term facility, with the Treasury and the Federal Reserve each participating
up to $1.5 billion. Similarly, the existing CAN$1.0 billion swap facility between the Bank
of Canada and the Bank of Mexico has been supplemented by an additional CAN$500
million.
We have taken this action in the context of the North American Financial Group,
which was announced along with the establishment of a tri-Iateral foreign exchange swap
facility on April 26, 1994.
We will continue to consult closely on developments in Mexican financial markets.
Jnu 6 j5 0 uU7
CONTACT: Office of Financing
202-219-3350
FOR IMMEDIATE RELEAfk2
Janua:x 'i :: 1?~.5
r:f. O.
oil j
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RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $13,401 million of 13-week bills to be issued
January 5, 1995 and to mature April 6, 1995 were
accepted today (CUSIP: 912794R48).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.76%
5.78%
5.78%
Investment
Rate
5.93%
5.95%
5.95%
Price
98.544
98.539
98.539
$5,350,000 was accepted at lower yields.
Tenders at the high discount rate were allotted 83%.
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
$46,783,122
Accepted
$13,401,017
$41,529,045
1,376,502
$42,905,547
$8,146,940
1,376,502
$9,523,442
3,209,830
3,209,830
667,745
$46,783,122
667,745
$13,401,017
An additional $358,055 thousand of bills will be
issued to foreign official institutions for new cash.
FN-8
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
JAN
6i5 0 UU70 5
CONTACT: Office of Financing
202-219-3350
FOR IMMEDIATE RELEASE
J an ua~r-y) T3G ;~.?7 ~=-9 5....
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RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $13,435 million of 26-week bills to be issued
January 5, 1995 and to mature July 6, 1995 were
accepted today (CUSIP: 912794T87).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
6.36%
6.38%
6.37%
Investment
Rate
6.66%
6.68%
6.67%
Price
96.785
96.775
96.780
$40,000 was accepted at lower yields.
Tenders at the high discount rate were allotted 11%.
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
$45,187,632
Accepted
$13,434,824
$39,039,716
1,258,861
$40,298,577
$7,286,908
1,258,861
$8,545,769
3,400,000
3,400,000
1, 489,055
$45,187,632
1,489,055
$13,434,824
An additional $798,345 thousand of bills will be
issued to foreign official institutions for new cash.
FN-9
DEPARTMENT
OF
THE
TREASURY
NEWS
OFFICE OF PUBliC AFFAiRS -1500 PENNSYLVANIA AVENUE, N.W.• WASIDNGTON, D.C .• 20220. (202) 622-2960
FOR RELEASE AT 2:30 P.M.
January 3, 1.995
CONTACT:
Office of Financing
202/21.9-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $26,800 million, to be issued January 1.2,
1.995. This offering will provide about $1.,175 million of new
cash for the Treasury, as the maturing 13-week and 26-week bills
are outstanding in the amount of $25,634 million.
In addition to
the maturing 13-week and 26-week bills, there are $16,037 million
of maturing 52-week bills. The disposition of this latter amount
was announced last week.
Federal Reserve Banks hold $10,687 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 $3,535 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 $3,220 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
FN-IO
HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED JANUARY 12, 1995
January 3, 1995
Offering Amount .
$13,400 million
$13,400 million
Description of Offering:
Term and type of security
CUSIP number
Auctiop. date
Issue date
Maturity date
Original issue date
Currently outstanding
Minimum bid amount
Multiples .
91-day bill
912794 R5 5
January 9, 1995
January 12, 1995
April 13, 1995
October 13, 1994
$13,284 million
$10,000
$ 1,000
182'-day bill
912794 T9 5
January 9, 1995
Jariuary 12, 1995
July 13, 1995'
January 12, 1995
$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 Standard time
on auction day
Prior to 1:00 p.m. Eastern Standard 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
NEWS
omCE OF PUB
(::
FOR IMMEDiA'rERELEASE ''''
January 3, 1995
.
~.
,
'-..
'.
Contact: Michelle Smith
(202) 622-2013
i
U.S. INCREASES SWAP LINE WITH MEXICO TO $9 BILLION
Acting Treasury Secretary Frank N. Newman announced that the Treasury
Department and the Federal Reserve are expanding the existing swap line with Mexico, from
$6 billion to $9 billion, as part of an international expansion of credit to that country.
"The decision to increase our swap line with Mexico is based on the importance of
the U.S.-Mexican economic relationship, the substantial economic reforms that Mexico has
undertaken in recent years, and the strong program announced by President Zedillo,"
Newman said.
The swap -::acility, which was made permanent in the context of the formation of the
North American Financial Group on April 26, 1994, is funded jointly by Treasury's
Exchange Stabilization Fund and the Federal Reserve System. All drawings on the credit
lines will have assured means of repayment.
-30-
FN-ll
DEPARTMENT
OF
THE
TREASURY
NEWS
AFFAIRS ..
l~OO
PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.. 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
January 3, 1995
Contact: Michelle Smith
(202) 622-2960
TREASURY RELEASES FOREIGN EXCHANGE REPORT
The U. S. Department of the Treasury today released the seventh Annual Report to
Congress on International Economic and Exchange Rate Policy, which analyzes economic
developments in the major industrial countries and also reviews the foreign exchange systems
and policies of Korea, Taiwan and China.
"This report underlines the substantial improvement in the economic outlook since
1993. Global recovery is now well underway, with inflation holding at relatively low
levels," Acting Treasury Secretary Frank N. Newman said.
The Report indicates that global economic recovery continues in the United States,
Canada and the UK, and has strengthened in continental Europe and, to a lesser extent,
Japan, while inflationary pressures remain modest.
Renewed growth in domestic 'demand in
Europe and Japan will likely contribute to substantial growth in U.S. exports 1995 and 1996.
The Report notes that the Administration in early November again expressed its
concern about the decline of the dollar, recorded through late October, and reiterated its
exchange rate policy, emphasizing the benefits of a strong dollar.
As in the July 1994 update of the Sixth Annual Report, this Report concludes that
neither Korea nor Taiwan is manipulating the exchange rate between its currency and the
U.S. dollar. Both continue, however, to maintain a number of troubling financial and
foreign exchange policies, including capital controls, which discourage investment and
hamper the full effect of market forces in exchange rate determination.
FN-12
(MORE)
page 2
The Report observes that China has undertaken reforms ,of its exchange rate market,
and it concludes, unlike the July 1994 Report, that China is not manipulating its exchange
system to prevent balance of payments adjustment or gain unfair competitive advantage in
international exchange. However, the Report concludes that China should commit to
liberalizing access to foreign exchange for current account transactions, as required under
Article VIII of the IMP's Articles of Agreement. The Report notes that the United States
continues to seek such commitments from China in bilateral negotiations and in multilateral
negotiations regarding China's accession to the World Trade Organization.
The Report, prepared in consultation with the Federal Reserve, is required under the
Omnibus Trade and Competitiveness Act of 1988.
-30-
DEPARTMENT OF THE TREASURY
SEVENTH ANNUAL
REPORT TO THE CONGRESS
ON
INTERNATIONAL ECONOMIC AND EXCHANGE RATE POLICY
DECEMBER 1994
Embargoed for release until
5:00 p.m., January 3, 1995
TABLE OF CONTENTS
~
Part I
Summary and Conclusions
Part II
Global Economic Developments
Part III
Appendix
1
A.
Economic Situation in the G-7 Countries
3
B.
Developments in the Foreign Exchange Markets
9
C.
U. S. Balance of Payments Developments
13
Actions Under Section 3004
Korea
17
Taiwan
22
China
26
Text of Sections 3004 - 3006 of the Omnibus Trade and Competitiveness Act
of 1988
PART I: SUMMARY AND CONCLUSIONS
This seventh annual Report addresses recent developments in U. S. international
economic policy, including exchange rate policy, since the interim Report to Congress
submitted in July 1994. It is based on information available for the most part through
November 1994. These reports are required under Sections 3004 and 3005 of the Omnibus
Trade and Competitiveness Act of 1988 (Trade Act).
Global recovery is now well underway. Recovery is strengthening in continental
Europe, and in Japan there are initial signs of recovery. The Managing Director of the
International Monetary Fund has termed the 1995 outlook for the world economy the most
favorable in seven years.
With the momentum now shifting from the United States, Canada and the UK, where
growth first took hold, to the economies in continental Europe (and, more hesitantly, Japan),
the prospects for a sustained and balanced recovery are much improved. G-7 growth in 1995
is expected to average at least 2.7 percent -- about the same as in 1994, and double the
figure recorded in 1993.
Inflation in the G-7 has been held to levels achieved only once since the 1960s,
despite gains in capacity utilization. The inflation outlook for 1995 is only slightly less
favorable. Those that started earlier in the recovery cycle, the United States, Canada and the
UK, will likely see a very modest increase in inflation, but the steady decline of inflation in
Germany and continued progress in Italy will provide a counterbalance.
The growing sense of optimism about recovery and output growth in the industrial
countries is not, however, without blemishes. Unemployment in Europe remains very high,
and the upturn is not expected to be sufficient to bring about a substantial improvement. The
large fiscal deficits in Europe are also troubling, although most European countries have
embarked on strenuous efforts to reduce the underlying structural deficit.
Stronger growth in the United States than in many key trading partners led to a
widening of the U.S. current account deficit in 1994. The current account deficit will likely
continue to widen further during the remainder of 1994 and in 1995, although it will remain
well below peaks recorded in the late-1980s as a percentage of GDP.
Japan's surpluses, though still high, have started to decline. For the first ten months
of 1994, the current account surplus fell 9.2 percent in yen terms relative to the same period
in 1993, and declined 1.6 percent in dollar terms on the same basis. A further modest
reduction is expected in 1995 as domestic demand strengthens in Japan.
When measured on a trade-weighted basis, the dollar declined approximately 4
percent between October 1, 1993 and November 30, 1994. However, the peak-ta-trough
decline from early 1994 to the dollar's lows in October was 14.6 percent vs. the yen and 5
percent vs. the DM. The decline against the yen and mark during a period of robust growth
and low inflation in the United States prompted the Administration to express concern about
2
the decline on several occasions and to undertake several rounds of intervention. The
Administration has made clear its desire for a strong dollar.
The main themes of the IMP's annual Article IV consultation with the United States
Government, completed in August, were the U.S. fiscal outlook -- and its implications for
the U. S. external position -- and the appropriate monetary policy at this stage of recovery in
the United States.
In this Report, Treasury has re-examined the systems and policies of Korea, Taiwan
and China, which have been identified in some previous reports as having manipulated the
exchange rate between their currency and the U.S. dollar in order to prevent effective
balance of payments adjustment or to gain an unfair advantage in international trade. It is
Treasury's judgement that, at the current time, neither Korea nor Taiwan is manipulating the
exchange rate between its currency and the U.S. dollar for such purposes. However, both
Korea and Taiwan continue to maintain a number of troubling financial and foreign exchange
policies, capital controls in particular, which discourage investment and hamper the full
effect of market forces in exchange rate determination. Treasury will continue to seek
removal of these impediments in the context of bilateral negotiations and/or discussions.
Treasury acknowledges that major strides in reforming China's foreign exchange
system have been made this year. However, China maintains significant restrictions on
foreign exchange transactions. Domestic firms are required to sell foreign exchange to
designated banks, and while Foreign-funded enterprises (FFEs) may use the foreign exchange
earned through exports, they must receive prior approval from the State Administration of
Exchange Control (SAEC) for all purchases of foreign exchange in the interbank market.
Moreover, China continues to require SAEC approval for certain current account
transactions, including repatriation of profits.
At the moment, SAEC approval of foreign exchange purchases for foreign firms is
not difficult to obtain. This liberal implementation stems from favorable market conditions -ample foreign exchange availability and strong demand for the renminbi. However, as in the
past, the SAEC could withhold approval. It is clear that the rationale for maintainin~ the
approval system is to maintain the government's capability to ration foreign exchange
Thus, Treasury has determined that China is not currently manipulating its excnange
system to prevent effective balance of payments adjustment or gain unfair competitive
advantage in international trade. However, it is essential that China commit to liberalizing
access to foreign exchange for current account transactions, as is required under Article VIII
of the IMP's Articles of Agreement. The United States continues to seek such commitments
from China in bilateral negotiations and in multilateral negotiations regarding China's
accession to the World Trade Organization (WTO).
3
PART ll: GLOBAL ECONOMIC DEVELOPMENTS
A. Economic Situation in the G-7 Countries
Recoyeor of Growth is Takin& Hold
The global recovery is on track. The overall outlook appears to be the most favorable
in years, and the International Monetary Fund expects that global growth in 1995 will be the
highest since 1988.
The recovery which began in the United States, Canada and the UK has now spread
to continental Europe, and signs of an upturn are appearing in Japan. Aggregate G-7 growth
for 1994 should reach close to 3 percent, and could exceed that rate in 1995. (The IMP
growth forecasts published in October and noted below may now be somewhat conservative,
especially regarding European growth, in light of recent indicators.)
Table 1
G-7: Real GOP Growth
(% change y/y)
1m
United States
Japan
Germany·
France
Italy
United Kingdom
Canada
3.1
0.1
-1.1
-1.0
..().7.
2.0
2.2
IMP
3.7
0.9
2.3
1.9
1.5
3.3
4.1
1.4
2.8
Total G-7
1994F
Consensus
3.8
0.6
2.5
2.2
2.1
3.5
4.1
2.8
1995F
IMP
2.8
3.0
2.8
3.0
3.8
Consensus
2.8
1.9
2.9
3.8
2.8
2.9
3.8
2.7
2.7
2.5
2.5
• All Germany; F = Forecast
Sources: IMF, World Economic Outlook, October 1994, and Consensus Economics,
Consensus Forecasts, November 1994.
The recovery in Europe began with the export sector. Domestic demand -consumption, business investment and housing -- is now strengthening, and should carry the
advance into 1995. In Japan, consumption rose sharply in the third quarter. Business
investment -- though weak -- registered its first uptick in three years, suggesting that 1995
should see greater strength on the investment side and a gradually building acceleration in
growth. The overall picture suggests that recovery will grow to encompass more and more
countries in a broad, non-inflationary upturn. Economic conditions and policies are oriented
to making the expansion sustainable.
4
Pros.pects for Low Inflation are Bri2ht
The G-7 can look forward to a continuation of inflatio~ rates that are among the
lowest in nearly 30 years. On average, G-7 inflation is expected to be around 2.2 percent in
1994, and 2.5 percent in 1995.
Table 2
G-7: Consumer Price Inflation
(% change y/y)
1993
United States
Japan
Germany·
France
Italy
United Kingdom
Canada
3.0
1.3
4.6
2.1
4.2
1.6
1.8
IMF
2.7
0.7
3.1
1.8
3.8
2.5
0.2
Total G-7
2.7
2.3
1994F
Consensus
2.7
0.6
3.0
1.8
3.9
2.5
0.3
2.2
IMF
3.4
0.7
2.2
1.8
3.1
3.1
1.6
1995F
Consensus
3.4
0.6
2.4
2.1
3.8
3.4
1.9
2.5
2.7
• All Germany for IMF; F=Forecast
Sources: IMF, World Economic Outlook, October 1994, and Consensus Economics,
Consensus Forecasts, November 1994.
The optimistic outlook for inflation is well grounded. The moderate pace of the
expansion and the shift of momentum from the countries recovering earlier to the Continent
and Japan have helped to prevent undue pressure on supply in anyone country, thereby
containing inflation pressures. The normal rise in global commodity prices associated with
an industrial country upturn has been moderate.
In addition, the gap between actual and estimates of potential output remains sizeable
in most countries. Hence, economies at a relatively early stage in their expansion ca
continue to grow for some time at above their long-run potential without experiencinJ
inflationary pressures, and the recovery should not be cut short by the need to restrain
inflation. Furthermore, G-7 policy measures are consistent with the goal of non-inflationary
growth with higher employment.
5
Table 3
G-7: Output Gaps
" of potential GOP
United States
Japan
Germany·
France
Italy
United Kingdom
Canada
Source: IMF, World Economic
• All Germany
1993
1994
-0.9
+0.2
-3.8
-5.6
-1.6
-1.7
-3.0
-3.1
-3.8
-4.2
-4.8
-3.7
-4.3
-2.9
Outlook, October 1994
1995
+0.2
-5.5
-1.5
-2.3
-3.5
-2.8
-1.9
Judicious Monetary and Fiscal Policies
Monetary poli~ is being employed to bear on inflation risks in a timely fashion.
Monetary tightening has been underway in the countries leading the recovery. Fiscal policy
has also become more restrictive in all 0-7 countries except (appropriately) Japan. This
fiscal restraint will continue in 1995.
The restrictive movement in fiscal policy is indicated by the reduction in "structuraln
budget balances (Le., the fiscal position estimated by abstrac~g from the normal cyclical
movements in revenues and expenditures). Since the upturn will also reduce budget deficits
by the revenue-increasing action of cyclical forces, the reduction in actual budget deficits will
be even greater -- from 4.0 percent of 0-7 ODP in 1993 to 3.2 percent in 1995, according
to IMF projections. The tightening outside Japan will be even greater.
This generally optimistic picture should not obscure some very real problem areas. In
addition to the continuing large high Japanese current account surpluses noted below, these
problems include high fiscal deficits in many European countries, despite the reductions now
in train. Both the IMF and the OECD estimate that the United States will have the lowest
0-7 government sector budget deficit to ODP ratio again in 1995. Continuing efforts over
the medium term will be needed to correct these deficits.
External Account Developments
While Japan's trade and current account surpluses remain high, they have started to
come down. The current account surplus measured in yen peaked in 1992. Because of the
rise of the yen against the dollar, however, the surplus in dollar terms continued to rise for
some time, but may now be turning around. For the fust ten months of 1994, the surplus in
yen terms was down 9.2 percent relative to the same period in 1993, while the surplus in
dollar terms fell 1.6 percent.
6
Trade volume figures show a substantial rise in imports, although exports have also
risen somewhat. For 1994 as a whole, it is entirely possible that Japan's current account
surplus measured in dollars could be the same as or slightly higher than its $131 billion level
in 1993. But the cumulative impact of the past yen rise (which took place mainly in the first
half of 1993) and the gradual strengthening of domestic demand in Japan should produce a
small reduction in the 1995 surplus even in dollar terms .
--_
... ..
......:~"""'CananueTO""I.I.'"
IIIIpaIt V _ _ _ Up" W . . Due to Onrwl. CIIraIwaI
-..
,ft
,ft
,...
,ft
ft
ft
....
....
......
...
..........--'-..........-'-.. . . . . . .---'-.. . . . . . .---'-.. . . . . . .---'-.. . . . . .---'-.. . . . . .-'--.. . . . . .-'--.. . . . . .-'-.. . . . . .-'--' ·,ft
,...
......
......-.
.,
·,ft "--"-.. . . . . . .
~
Chart 1
Even in 1995, however, Japan's external surpluses will remain sizeable, both in
absolute terms and in proportion to GDP. It will therefore remain urgent that Japan continue
to open its markets and avoid premature monetary and fiscal policy tightening, so that the
recovery can gather strength and produce an expansion of domestic demand large enough to
make a sizeable reduction in Japan's external imbalances. (For a discussion of u.s. trade
and current account prospects, see section lIB.)
7
Table 4
G-7: Current Account Balances
($ billions; % of GDP in parentheses)
1993
1994F
IMP
United States
Japan
Germany*
France
Italy
United Kingdom
Canada
Total G-7
1995F
-104
+131
-20
+10
+11
-16
-24
(-1.6)
(+3.1)
(-1.0)
(+0.8)
(1.2)
(-1.6)
(-4.3)
-149
+136
-16
+10
+31
-13
-21
(-2.2)
(+2.9)
(-0.8)
(+0.7)
(+3.0)
(-1.3)
(-3.9)
Consensus
-143
+130
-25
+8
+20
-8
-22
-11
(-0.1)
-23
(-0.1)
-39
IMP
-167
+129
-14
+12
+38
-18
-19
(-2.4)
(+2.6)
(-0.6)
(+0.9)
(+3.4)
(-1.6)
(-3.3)
-39
(-0.2)
Consensus
-141
+115
-16
+5
+23
-9
-20
-44
* All Germany for IMP; F=Forecast
Sources: IMP, World Economic Outlook, October 1994, and Consensus Economics, Consensus Forecasts,
November 1994.
Unemployment and Structural Adjustment
The recovery has produced substantial employment gains in the United States. Since
January 1993, 5.2 million new payroll jobs have been added, mostly in the private sector.
The unemployment rate dropped to 5.6 percent in November. Job gains are now spreading
to other countries, although unemployment remains high, particularly in Europe.
Reduction in unemployment rates normally lags upturns in production. The year 1995
should see a reduction in unemployment on the Continent, although the decline may be too
small to reduce the aggregate European unemployment rate much below 10 percent before
1996. Thus, while it is likely that some gradual improvement in the unemployment rates
will occur, and there is some evidence that 0-7 labor markets are becoming more flexible,
rates will remain at historically high levels in Europe even into the latter part of the decade.
More progress in the structural policy area, supported by appropriate macroeconomic
policies, is essential.
Other structural changes in the industrial economies have made product markets more
competitive and reduced price-raising power. Among these changes is a more open
international trade regime, which may reduce the power of capacity constraints in anyone
country to accelerate inflation.
8
Rise in
Lon~-term
Interest Rates
Long-term interest rates have risen substantially in all industrial countries over the
past twelve months, although the size of the increase varies across countries. While the
measurement of "real" (i.e., inflation-adjusted) interest rates is subject to a wide range of
uncertainty, there appears to be a roughly one percentage point increase in the real ten-year
bond rate which is common to all countries that have closely linked markets. This rise in
real rates is due to the increasing strength of the global recovery, which has focussed
attention on the large structural budget deficits in many countries. Increases in bond yields
over and above the higher real rate reflect a mixture of concerns about future inflation and
uncertainties about the future path of price increases that differs among countries. For
example, the additional rise is lowest in Japan, where current and likely future inflation rates
are lowest.
Policy ReQUirements
In the United States, where the expansion is now in its third year, monetary policy
has been directed toward sustaining recovery with low inflation. The substantial increase in
short-term rates since February 1994 (2-112 percentage points for Federal funds and over 3
percentage points for three month CDs) has begun to show some signs of slowing demand.
The combined effects of the deficit reduction program and strong recovery brought the U.S.
federal budget deficit down to only $203.4 billion (3.1 percent of GDP) in FY94, the lowest
in five years. There will be another sizeable cut in the deficit in FY95, for the third
consecutive year.
In continental Europe, it will be important to continue the process of fiscal restraint.
In addition to improving fiscal positions, this process will ensure continuing anti-inflation
effects as the recovery accelerates. In this context of fiscal tightening -- and given declining
inflation and substantial remaining gaps between actual and potential output -- there is no
evident need for a tightening of monetary policy. Recovery also provides an opportunity to
address structural obstacles to job creation more vigorously.
Japan needs to ensure that macroeconomic policy continues to support deman
that the recovery which appears finally to be underway does not falter. In the fiscal
area, it is essential to avoid a premature withdrawal of stimulus from the tax side, as well as
expenditure cuts in the normal budget process that might undo the positive impact of the tax
cuts on domestic demand and groWth. In addition, the Bank of Japan should resist tightening
monetary policy until the recovery is more assured. Real short-term interest rates are high,
the financial system is still under strain, inflation is nil and the yen has been very strong. As
the OECD remarks in its latest Economic Outlook, "the appropriate time for moving rates to
an upward path appears to be some way off. "
9
B. Developments in the Foreip Exchana;e Markets
Introduction
Between October 1, 1993 and November 30, 1994, the dollar experienced a moderate
decline of approximately 4 percent on a nominal trade-weighted basis. The decline was
widespread, including against many currencies which customarily follow dollar movements in
the exchange markets. The dollar ended the period at a level 3.5 percent below its average
over the past seven years in trade-weighted terms.
Real Trade-Weighted Exchange Rate Indices
October 1993 to September 1994
(Monthly)
...
... .. •
104
o
o
..... 102
II
~
0)
~
100
L-
(I)
.D
~
98
~
96
o
"0
..
-.
..
....... --_..
.._..._-----..
~
.
----. , .-.....
.. ...
•••
••
.......
...' ".. .. .......... .... ... --...............
•
~
~
••
~.~
-.~.~
... .. e.
~.
.
£;
I
94
Oct-93 Nov-93
De~93
"'
Jan-94 Feb-94 Mar-94 Apr-94 May-94 J,Jn-94 J,J1-94 Aug-94
_
Dollar
Source: JPMorgan Index,usilg Od93= 100.
_-_ ...
...Yen
.............
Se~94
Od-94 Nov-94
OM
Chart 2
The downward movement in the dollar was first evidenced in January against the yen,
reversing a trend of appreciation that had begun in August 1993. Over the next two months,
the dollar also began to decline against the German mark and other European currencies.
The following table shows the percent change in the dollar against various currencies from
October 1, 1993 through November 30, 1994. The peak-to-trough decline from early 1994
to the dollar's lows in October was 14.6 percent vs. the yen and 5.0 percent vs. the DM.
10
Do liar VS. Yen and DM
October 1993 to November 1994
116r-----------------------------------------------------------,
112~----~~~~~~~~~_.~------------------------------~
:;
\.
1.75
1. 7
.!
=
8 108 I~~~~~~----~~----~----\~~~~~t_----------------------~
~
1.65 0
104
1.6 i
I-
Q
'•• -
~
~
0.
~
100~----------------------------------~~~~~~~~~--~~
1.55 Q
1.5
Chart 3
Table 5
Change in Dollar vs. Selected Currencies
(percentage Change)
Change:
Currency
October 1. 1993-November 30. 1994
Japanese Yen
-6.7%
German Mark
-3.9%
British Pound
-4.3%
French Franc
-5.4%
Italian Lira
1.6%
Canadian Dollar
3.4%
Swiss Franc
-6.8%
Mexican Peso
10.3%
Korean Won
-2.2%
Taiwanese Dollar
-2.3%
Factors Behind Recent Foreign Exchange Market Developments
The depreciation of the dollar over the period can be attributed to two sets of factors.
First, there was a renewed focus in the market on external imbalances and the associated
11
trade tensions between the United States and Japan. Second, there was a change in market
expectations regarding the monetary policy response to the sustained strength of the economic
expansion in the United States and a faster than expected recovery Europe.
m
The widening of Japan's trade surplus in late 1993 and into early 1994 raised market
caution about the need for further adjustment in imbalances. The market showed sensitivity
at times to developments in US-Japan trade negotiations in subsequent months, given their
importance to the adjustment process. Lack of progress in Japan on fiscal and other policy
measures which influence domestic demand led the market to believe that external adjustment
might come about mainly through the yen/dollar exchange rate.
In addition, the deterioration in the U.S. current account deficit that accompanied the
recovery generated some concern in the market. Changes in capital flows, including the
continued diversification of U. S. investors into foreign assets and a period of reduced
demand by Japanese investors for foreign assets were perceived to have exerted pressure on
the dollar.
Market expectations about growth, inflation, and the expected monetary policy
response played a key role. At times, there was downward pressure on the dollar as the
market participants gradually realized that U.S. economic growth was moving along faster
than they had anticipated and became concerned whether the monetary response would be
adequate to keep the economy from quickly reaching employment and capacity constraints.
Over the period, the pace of economic recovery in Germany and throughout Europe
accelerated faster than many market participants had anticipated, raising expectations of
strong relative investment returns in these markets and thereby leading to some adjustment
out of dollar assets. Market perceptions in the summer that the monetary easing cycle in
Europe was over implied that interest rate differentials would not widen sufficiently in the
dollar's favor.
The dollar stabilized for a short period beginning in mid-July as some of these
concerns receded. Optimism spread about the favorable resolution of the framework talks
with Japan. There was a growing feeling in the market that the Japanese trade surplus had
peaked. The August tightening by the Federal Reserve was well received in the markets.
Later, the dollar was supported by encouraging signs that other steps, such as preliminary
Japanese tax reform and other policies to stimulate domestic demand, were being taken to
address external imbalances.
However, starting in September, renewed indications of stronger than anticipated U.S.
economic activity kept U. S. bond prices under pressure. Increases in various indicators of
capacity utilization, of prices of inputs, and of employment pointed to sustained growth at
faster than anticipated rates, which raised the market's concern about inflation risks. The
dollar temporarily traded lower during the second half of October.
12
Subsequently, the dollar recovered following foreign exchange market intervention by
the U.S. monetary authorities in early November and an increase by the FOMe in short term
interest rates on November 15. Over the course of this period, short-term interest
differentials favoring dollar placements widened further. Also, recent months' data have
provided evidence that the Japanese trade surplus has probably peaked and is on a declining
trend.
Exchange Rate Policy
The Administration supports a strong dollar. A strong dollar is good for the U.S. and
world economies:
it supports confidence in the financial markets;
it enhances the attractiveness of U. S. assets;
it gives an incentive for longer-term investment in the United States; and
it helps to keep inflation low.
In early November, Secretary Bentsen stated that a decline in the dollar would be
inconsistent with the fundamentals of a strong, investment-led recovery in the United States
and with the greatly enhanced ability of U.S. firms to compete around the world, and that a
continuation would be counterproductive for the U.S. and world ec<:momies. The U.S.
position is shared generally among the G-7 authorities, who agree that, in prevailing
economic conditions, a decline of the dollar is neither justified nor desirable.
As we have emphasized since early 1993, the Administration's position on exchange
rate policy rests on two basic points. First, exchange rates should reflect economic
fundamentals, as they evolve, and the policies that help shape the fundamentals. Second, the
U. S. monetary authorities are prepared to cooperate with other G-7 authorities in the foreign
exchange market when appropriate. As we have demonstrated in the past year, we believe
that intervention can be a valuable policy instrument in the right circumstances.
Foreign Exchange Market Intervention
During the period under review, the Administration intervened in the foreign
exchange market on five days. The first three episodes, occurring on April 29, May 4, and
June 24, are detailed in the July report. On November 2 and 3, the U.S. monetary
authorities intervened in the foreign exchange market, purchasing dollars against sales of
Japanese yen and German marks.
13
C. U.S. Balance-of-Payments Developments
Goods and Services Trade
The U.S. deficit on Goods and Services (G&S) trade continued to widen in 1994,
running at an annual rate of $109.3 billion for the first 9 months, compared with $74.1
billion for the same period in 1993, and a recent low point of $28 billion for the year 1991.
This widening was entirely due to an increased deficit on goods trade. The surplus on trade
in services so far this year is roughly unchanged from the 1993 level.
Weasures of the U.S. Trade Balance
(lIP dill In lua blilione]
-to
-200
- - - -- - - -- - -- - - -- - -- - - -
-
r/\
--f- --- -- --~-..:..::.. --- -- --
__ '\ J
- - - --- -;-.-:;- - -- - --
- - -
-- - - --- -
- -- - -- - -
--~
1m
19ft
..,
_I . . , .
1917
-to
'\. "\
-200
..,
nil
1919
1t90
1m
1"
tIDal - - . - .
"''''''''''I9M
Chart 4
The goods trade balance was heavily influenced by cyclical factors.
o
The robust U.S. expansion, now in its third year, continues to draw in imports, which
are up 12.6 percent in value terms for first 9 months of 1994 over the same period in
1993. Strong import growth is characteristic of such a robust expansion. However,
40 percent of the increase has been accounted for by capital goods, including
computers. Such imports have a positive impact on the U.S. economy, since they
support the strong capital investment expenditures by U.S. frrms, which in tum
contribute to the continued strong competitive performance by U.S. exporters in the
face of weak demand in several major export markets.
o
Exports are up 9.3 percent in value terms over the first 9 months, despite having been
hampered by sluggish growth in Europe and Japan. The drag of sluggish growth in
major industrial country markets has been partly offset by strong growth in emerging
country markets, and continued improvement in the foreign market share of U.S.
exports, reflecting a robust U.S. competitive position as measured, e.g., by relative
unit labor costs.
14
Table 6
Goods Exports and Imports by End-Use 1993-4
($ billion; Jan-Sept at annual rates) .
Imports
Exports
End-Use Category
1994
1993
1994
1993
39.9
39.6
27.5
30.6
Industrial Materials
110.0
118.3
145.4
159.1
Capital Equipment
178.0
201.5
148.4
178.7
Automobiles & Parts
51.4
56.0
101.0
115.7
Misc. Manufactures
77.3
84.2
150.2
164.0
456.6
499.6
572.4
648.0
448.5
490.1
580.7
654.0
Foods, Feeds, & Beverages
TOTAL,CENSUSBAS~
TOTAL, BOP
BAS~
The surplus on services, though large, has remained in the $55 billion range for
several years, after rapid growth in the latter 1980s. The factors behind this apparent
levelling-off are not clear, but may in part reflect the same cyclical factors influencing the
goods trade balance, since U.S. competitiveness is as marked in services as in goods.
Recovery abroad should contribute to a renewed widening in the services surplus.
However, renewed growth in the services surplus may well be offset by a widening
deficit on investment income, as a decade of current account deficits has built-up a large net
debt which has to be serviced. In 1994, for the first time, the United States will run a deficit
on net investment income.
Table 7
U.S. Current Account: 1987; 1991*; 1994
($ billion; data from SCB)
Balance
1987
1991*
1994#
Goods
-160
-74
-164
Services
+8
+46
+57
Investment Income
+8
+15
-10
Transfers
-23
-35*
-32
Current Account
-167
-49*
-149
*excludes $42 billion in one-time transfers from allies to support Desert Storm. Totals
may not add due to rounding.
#Jan-Sept at annual rate
15
Chan2in2 Capital Account Patterns
The pattern of fmancing of the U.S. current a~unt has changed somewhat in recent
years. Direct investment recorded net inflows during much of the decade of the 1980s, but
has shifted to net outflows so far during the 1990s. At the same time, there has been a
substantial decline in the net inflow from securities transactions, though changes in the net
have masked much larger swings in gross inflows and outflows. (In particular, there was a
very large surge in U.S. purchases of foreign securities during 1993, which rose to $142
billion annual rate during the second half of the year but dropped back sharply in 1994, to an
annual rate of $42 billion in the second and third quarters.) Banking transactions have
accounted for increased inflows. There have been substantial official inflows in recent years,
in part relating to foreign official intervention in exchange markets by major industrial
countries and in part to the accumulation of dollar reserves by dynamic developing countries,
which are a counterpart of their increased ability to attract private capital.
Table 8
Annual Capital Flows: 1981-85; 1986-90; 1991-93; 1994
($billion; annual averages, selected transactions)
1994*
1981-85
1986-90
1991-93
+11
+28
-24
-15
+23
+31
+5
+18
Corporate (non-cl.i.)
+1
+3
+12
+14
Banks, net
-1
+15
+32
+119
Official, net
-5
+28
+5
+52
Direct Invest, net
Securities, net
* Jan-Sept at annual rate
Outlook for the Trade and Current Account
Relative growth performance by the United States and its major trading partners will
continue to be a major factor driving the U.S. trade and current account during 1995 and
beyond. The U.S. economy should continue to expand, though at a more moderate pace,
and thus imports will continue to grow as well. Renewed expansion in Europe and Japan
will give a boost to U.S. exports, but the improvement will be gradual.
We expect the U.S. trade and current account deficit to continue to widen in 1995,
albeit at a declining rate, reflecting this growth pattern. (A range of recent private and
public sector forecasts is shown below.) However, the deficit in 1995 should not exceed
2-112 percent of GDP, well short of the peak deficit of 3.7 percent of GDP recorded in
1987. Recent data confirm that a recovery is underway in Europe -- though the likely vigor
of the expansion remains uncertain -- and prospects for a revival of economic activity in
Japan have improved. And various indicators of U.S. competitiveness, notably data on unit
16
labor costs and export market shares, show that U.S. goods are highly competitive in world
markets.
Table 9
FORECASTS OF CURRENT ACCOUNT BALANCE
1995
1994
Source
$billion
%GDP
$billion
%GDP
L. Meyer & Assoc (12/94)
-155
(-2.3)
-172
(-2.4)
DR! (12/94)
-158
(-2.3)
-200
(-2.8)
Consensus Econ, London (11194)
-143
(-2.1)
-141
(-2.0)
OECD (12/94)
-154
(-2.3)
-173
(-2.4)
IMF (10/94)
-149
(-2.2)
-168
(-2.4)
The timing of a possible tum-around is very difficult to predict, but, if activity in the
U.S. moderates as expected and there is robust recovery in Europe and Japan, at some point
during the course of 1995 or 1996 the U.S. current account deficit should stabilize or begin
to decline -- at least as a share of GDP, and probably in absolute terms as well.
The degree, and longevity, of such a tum-around will depend on improvements in the
U.S. saving performance. At current levels of private saving, even if the progress made to
date in reducing the budget deficit can be sustained, domestic saving will continue to be
inadequate to finance desired levels of investment, and the United States will continue to
need to borrow abroad to finance the difference -- or cut investment and future growth.
Substantial further progress in improving U.S. saving performance will be needed to produce
long-term reductions in the current account deficit.
17
PART m: ACTIONS UNDER SECTION 3004
Section 3004 of the Omnibus Trade and Competitiveness Act of 1988 requires the
Secretary of the Treasury to consider whether countries manipulate the rate of exchange
between their currencies and the U.S. dollar for the purposes of preventing effective balance
of payments adjustment or gaining competitive advantage in international trade. Section
3004 also requires the Secretary to undertake negotiations with those manipulating countries
that have material global current account surpluses and significant bilateral trade surpluses
with the United States. This section summarizes the current status of Korea, Taiwan and
China, which in some past reports have been designated as manipulating the rates of
exchange between their currencies and the U. S. dollar.
KOREA
Korea currently has a global current account deficit, but maintains a small bilateral
trade surplus with the United States. It is the judgement of the Treasury Department that
Korea is not at this time manipulating the rate of exchange between the won and the U.S.
dollar to prevent effective balance of payments adjustment or to gain unfair competitive
advantage in international trade.
Notwithstanding this determination, the Treasury Department remains concerned that
Korea's continued use of foreign exchange and capital controls reduces market demand for
the won and thereby tends to deter upward pressure on the won.
Trade and Economic Developments
Korea's external accounts continued to shift in 1994. Korea's current account was
nearly balanced in 1993, recording a small surplus of $500 million compared to a deficit of
$4.5 billion in 1992. Korea's trade balance registered a surplus of $1.9 billion in 1993.
This year, according to statistics provided by the Bank of Korea, the current account
balance in January-June registered a deficit of roughly $2.7 billion. A small second-half
surplus is expected to lower the annual deficit to $2.5 billion. Trade flows accounted for
most of the increased deficit. Imports, reflecting the recovery in aggregate demand as Korea
pulled out of last year's recession, jumped roughly 14.5 percent in the first half of 1994
compared to the same period in 1993. Korea's exports, on the other hand, grew by 11.9
percent during January-June 1994, compared to 5.9 percent during the same period in 1993.
Overall, Korea registered a trade deficit of $1.6 billion during the first six months of this
year. Korea ended 1993 with $20.7 billion in gross reserves (excluding gold), equivalent to
over two months of imports. By May 1994, this figure had risen to an estimated $21.4
billion.
While Korea's economic recovery has been the driving force in widening the overall
deficit in dollar terms, exchange rate developments may also be playing a role. Won
18
depreciation with respect to the yen and EU currencies has increased the dollar value of
imports but will only gradually slow the growth of import volumes ("the J-curve effect").
According to Korean statistics, the value of imports from the EU and Japan grew at 22.8 and
21.9 percent, respectively, during the first half of 1994. This is more rapid than the rate of
growth reported for imports from the United States, whose currency remained comparatively
stable relative to the won. Despite government promotion of 1994 as "Visit Korea" year, the
deficit in the tourism account during January-June more than tripled to $655 million
compared to the same period in 1993.
Korea's trade with the United States has also undergone significant adjustment.
During January-September 1994, Korea's trade surplus with the United States amounted to
$1.4 billion, down from the $1.9 billion surplus recorded in the first nine months of 1993
according to U.S. statistics. The decline in Korea's surplus with the United States is
attributable to the surge in Korea's economic growth and the consequent increase in
aggregate demand for imports. Korea's imports from the United States during JanuarySeptember 1994 grew by roughly 18 percent over the same period in 1993. By comparison,
the value of Korean exports to the United States grew by 11.5 percent.
Overall, the Korean economy surged ahead in the first two quarters of this year. Real
GNP grew by an estimated 8.5 percent, with average growth for the entire year predicted to
be around 8 percent. Facility investment and exports led the second quarter growth, as in
the frrst quarter, but the second quarter also saw an acceleration in private consumption
spending, which rose 7.6 percent over 1993 levels. Korea seems destined to overshoot its
target of 6 percent inflation for 1994. The government has focused its 1995 budget on price
stabilization, however, and the Bank of Korea will attempt to keep monetary growth in the
14-15 percent range.
Despite the depreciation of the won relative to the yen, Korea's trade deficit with
Japan has widened. While Korean exports to Japan have risen 13.2 percent, the value of
Korean imports from Japan have grown even more rapidly -- possibly due to the J-curve
effect mentioned earlier and inelastic demand for imported capital equipment and inputs from
Japan. The chronic trade deficit with Japan is a concern for Korean officials, with the gap
widening 32 percent from $4.4 billion during the frrst half of 1993 to roughly $5.9 billion
during the same period in 1994.
At the same time, the decline of the won relative to the yen has apparently also made
Korea more competitive in some export markets in which it competes with Japan. Exports to
the developing nations, for example, grew by 16.4 percent during the first half of 1994,
while exports to the developed nations (the United States, Japan, and the European Union)
grew by only 8.9 percent during the same period.
19
Exchane;e Rate DevelQPments
The value of the Korean won relative to the U.S. dollar has not changed significantly
since the last report in July 1994. Between December 31, 1993 and November 18, 1994, the
won appreciated 1.9 percent relative to the dollar.
Korea's exchange rate system has acted to keep the won's value against the dollar
virtually steady while the dollar has declined against most other major currencies. As a
result, the won has captured the competitive benefits of the dollar's depreciation against the
yen, declining from 629 won per 100 yen in early 1993 to a record low of 818 won per 100
yen at the end of June.
Exchane;e Rate and Financial System
Korea's exchange rate system is characterized by thin trading and an extensive set of
capital controls. Treasury believes that the maintenance of foreign exchange and capital
controls, rather than direct intervention by the Bank of Korea, is the more important factor in
deterring upward pressure on the won.
Under the present system, the won's exchange rate is determined by a weighted
average of the interbank won-dollar exchange rates applied in spot transactions on the
previous day. The won is allowed to fluctuate + 1 percent relative to the dollar on a daily
basis. In July, the Minister of Finance stated that the government intends to widen the
exchange rate fluctuation band to + 1.2 - 1.5 percent sometime before year-end 1994. In
October, the new Minister of Finance announced that the limit would be increased to + 1.5
percent effective November 1.
Korea continues to maintain a broad array of controls on foreign exchange and capital
account transactions. These controls inhibit market forces from fully determining the
exchange rate, prevent the free flow of capital both into and out of Korea, and constitute a
potential means by which Korean authorities may influence the exchange rate. Foreign
exchange banks, for example, have been required to obtain and review documentation of
underlying commercial transactions for most foreign exchange transactions. Effective
November 1, 1994, the MoF relaxed these regulations to some degree by increasing the
minimum value of forward foreign exchange contracts subject to underlying documentation
requirements to $10 million, up from $3 million. Despite this recent move, however, these
restrictions remain an impediment to foreign exchange transactions. Korea's restrictive terms
for deferred import payment, although recently eased by means of expanding the payback
period to 150 days, sti11lag far behind international norms and continue to be a key concern.
Offshore financing is also restricted. Some progress was made in this area during the
summer, but the easing of access to offshore financing was selectively focused to maximize
the importation of high-tech or capital equipment while leaving other sectors untouched.
20
Regarding inward capital controls, foreigners have been subject to a 10 percent
general and 3 percent specific limit on investment in Korean stocks. Newly appointed
Finance Minister Park Jae Yoon announced October 5 that, effective December 1, the 10
percent ceiling on aggregate foreign purchases in a listed stock will be increased to 12
percent, with the ceiling going to 15 percent sometime in 1995. The 3 percent limit on
purchases by an individual will remain unchanged. Soon after the announcement, however,
the Stock Market Stabilization Fund reportedly sold its equity holdings to slow the rise in
stock prices. The Fund's decision to sell equity holdings was viewed by some as
unnecessary intervention in the market. Treasury will closely monitor this issue and continue
to press Korea for more rapid liberalization.
With regard to capital outflows, Koreans and Korean companies are permitted,
effective July 1, 1994, to purchase foreign stocks and bonds, but individual Koreans are
limited to investments of up to $125,000 and companies up to $375,000. However, new
capital controls were introduced early this year in response to a surge in capital inflows.
Foreign investors were required to obtain special identification cards prior to purchasing
Korean shares. Foreign investors were also required to deposit 40 percent of the purchase
price prior to entering the order -- a practice prohibited in the United States -- thereby
cutting U.S. institutional investors out of Korea's securities market. Although these
regulations were eased during the course of the year, their imposition had the effect of
slowing capital inflows during the early months of 1994.
The limits on capital inflows and outflows, while they were eased on an incremental
basis, reflect the cautious approach taken by the Korean government and the desire to
insulate the won from the effects of market-determined capital flows. The imposition of new
capital controls earlier this year and more recent actions to depress activity on the Korean
stock exchange are evidence that Korean authorities are still far from the goal of allowing
market forces to determine exchange rates. Moreover, such actions undermine foreign
confidence in Korea's financial liberalization commitments, and in the longer run can
complicate monetary management.
Financial Negotiations
Treasury has continued to engage Korean authorities in discussions related to
accelerating its financial market and capital account liberalization and will continue to do so
under extended Uruguay Round negotiations and further bilateral contacts. Most recently,
Treasury has focused on the need for the exchange rate to reflect the influence of global
capital markets. Treasury has expressed concern to Korean officials about the consequences
of maintaining an undervalued exchange rate. Of particular note since the last report, the
Ministry of Finance announced on December 7 its Foreign Exchange System Reform Plan -- a
package of measures based on the recommendations of a study committee set up earlier this
year. The reforms will loosen some controls on Korea's foreign exchange and capital
markets, and will be introduced in three stages: 1995; 1996-97; and 1998-99. Specific areas
which will be affected by the reform plan include selected current and capital account
21
transactions, importJexport payments and the foreign exchange market structure -- including
transition to a floating rate system for the won in 1996-97.
This latest package of reforms will, when fully implemented, represent an important
liberalization of Korea's foreign exchange system. However, the plan delays many of the
more important reform measures until the end of the reform schedule. Treasury will closely
monitor implementation of the plan and encourage Korean authorities to accelerate its pace.
Assessment
The present determination, like the assessment contained in the July 1994 report, is
that Korea is not at this time engaging in practices which constitute manipulation of the
exchange rate between its currency and the U.S. dollar. Two factors support this conclusion.
First, the won/dollar exchange rate has remained relatively unchanged since the July report.
Second, Korea's current account and trade balance are now in deficit.
However, Treasury will continue to urge Korean authorities to make greater progress
in lifting exchange and capital controls in the context of bilateral financial policy talks and in
the extended Uruguay Round financial services negotiations. Removal of these controls is
essential to promote the freer flow of goods, services, and capital, to facilitate Korea's
integration with global financial markets, and to permit the won to respond to market forces.
22
TAIW AN (figures in U.S. dollars)
Taiwan continues to register an overall current account surplus and a bilateral trade
surplus with the United States. However, it is the judgement of the Treasury Department
that Taiwan is not at this time manipulating the rate of exchange between the New Taiwan
(NT) dollar and the U.S. dollar for purposes of preventing effective balance of payments
adjustment or gaining unfair competitive advantage in international trade.
Notwithstanding this determination, the Treasury Department remains concerned that
restrictions maintained by Taiwan on foreign exchange transactions and capital flows
continue to reduce market demand for the NT dollar and thereby deter market generated
appreciation.
During several rounds of negotiations during 1994 concerning a draft Special
Exchange Agreement as part of Taiwan's accession to the World Trade Organization (WTO),
Taiwan showed a willingness to undertake that it will not impose exchange restrictions on
current account transactions. Despite this progress, however, Taiwan has been unwilling to
remove key restrictions that can constrain demand for the NT dollar for capital account
transactions. Permitting the full range of market forces to determine the level of demand for
the NT dollar would likely contribute to further adjustment of the existing bilateral trade
imbalance.
Trade and Economic Developments
Taiwan's current account surplus fell from $8.2 billion (3.9 Percent of GDP) in 1992
to $6.7 billion (3 percent of GDP) in 1993. This decline was mainly attributable to a smaller
overall merchandise trade surplus, which declined $1.4 billion from $12.8 billion in 1992 to
$11.5 billion in 1993 -- the lowest surplus since 1983. A slightly larger deficit in services
and income ($4.6 billion in 1993 compared to $4.4 billion in 1992) and an increase in the
deficit in private unrequited transfers from $168 million in 1992 to $957 million in 1993 also
contributed to the reduction of the current account surplus.
According to recent estimates, Taiwan registered a current account surplus of $2.4
billion in the first six months of 1994. Taiwan's trade surpluses continued to shrink in 1994.
The continuing decline in Taiwan's trade surpluses stems from the slow recovery in Taiwan's
export markets and from increasing competition posed by nations such as the PRe and
Thailand. Taiwan's global trade surplus for the fust eight months of 1994 was $3.9 billion,
compared to $5.1 billion in the corresponding period in 1993.
Taiwan's bilateral trade surplus with the United States was $8.8 billion in 1993, down
from $9.4 billion in 1992. Adjustment in Taiwan's bilateral trade surplus with the United
States, has stalled so far this year. Taiwan's surplus with the United States during JanuarySeptember 1994 registered roughly $7 billion, a small increase over the $6.8 billion seen in
the same period in 1993. As the New Taiwan dollar/U.S. dollar exchange rate has remained
23
relatively steady, the small increase in the bilateral trade deficit with Taiwan is probably
attributable to increased economic growth in the U. S.
In 1992, Taiwan ran its first overall balance of payments deficit in twelve years.
Since that time, however, Taiwan's position has improved, despite a steady decline in the
current account surplus. Taiwan registered an overall surplus of $1.5 billion in 1993, which
grew to $3.8 billion in the first six months of 1994. The principal reasons for this
improvement in the balance of payments are: 1) a substantial increase in the inflow of
foreign direct and portfolio investment; 2) a steady fall in Taiwan's direct and portfolio
investment abroad; 3) a drop in Taiwan's purchases of foreign real estate; and 4) a net
inflow of short-term capital in 1994. Because of these factors, Taiwan's long- and shortterm capital accounts together ran a surplus of $2.1 billion in the first half of 1994,
compared to a deficit of $4.8 billion for all of 1993. Taiwan ended 1993 with $83.6 billion
in foreign exchange reserves, equivalent to over one year of imports. By August 1994, this
figure had climbed to $91 billion.
Taiwan's real GDP grew 6.2 percent during 1993, continuing the pattern set in recent
years of more moderate growth. Annual growth rates below the seven percent rate which
prevailed over the last several decades reflect both Taiwan's economic maturation and
weakness in the world economy. Economic growth in the first half of 1994 registered only
5.7 percent, but an increase in exports and private sector investment has led to an upward
adjustment of Taiwan's economic forecast to 6.2 percent growth for all of 1994.
Inflation in Taiwan ran at roughly 2.9 percent for 1993, but indicators for 1994 are
mixed. The consumer price index jumped to 7.1 percent in August and 6.7 percent in
September over previous year levels. These rates are far above the Central Bank's target of
3.8 percent for the full year. Inflation may have been distorted, however, by poor weather,
which has significantly increased prices for basic commodities. The growth of broad money
(M2) during the first eight months of 1994 slightly surp~sed the Central Bank's target of 15
percent.
Foreign direct investment in Taiwan, measured on an approval basis, has declined
steadily in recent years. The most likely causes for this drop include the earlier appreciation
of the NT dollar against the U. S. dollar, an increase in labor costs and an increase in land
costs. Inward foreign investment showed a surprising increase during the first six months of
1994, however, totalling $465 million during January-June of this year, an increase of 72
percent over the same period in 1993. Further, it is estimated that Taiwan received $1.5
billion of portfolio investment in the first half of 1994, compared to $433 million during the
same period in 1993.
Exchan~e
Rate Developments
The NT dollar depreciated nearly 5 percent against the US dollar in 1993, largely due
to strong capital outflows from the island during the first three quarters of that year.
24
However, between December 31, 1993 and November 18, 1994, the NT dollar has
strengthened moderately, appreciating by roughly 1.2 percent relative to the U.S. dollar.
Exchange Rate and Financial System
Taiwan continues to maintain controls and regulations on foreign exchange
transactions and capital flows. Together, these limit the size of Taiwan's foreign exchange
market. Principally through negotiations held on accession to the WTO, Taiwan has made
some progress in liberalizing its financial sector during the past year. Certain key ceilings
and restrictions on foreign exchange remain in place, however, and authorities on Taiwan are
reluctant to abolish them in favor of indirect controls.
Taiwan's ceilings on banks' foreign exchange liabilities limit the ability of banks to
engage in forward trading in the NT dollar, to offer foreign currency loans in Taiwan, and to
use swap funding in order to obtain NT dollars with which to make local currency loans. In
January, the Taiwan authorities again raised the foreign exchange liabilities ceiling for
commercial banks, and the industry as a whole does not appear to be operating up against the
ceilings at present. Nevertheless, the existence of these ceilings may act to restrict the
activities of individual foreign banks. The existing limits force banks to be more selective in
the types of business that they do and have the effect of restricting long-term lending. Also,
although some banks still have excess capacity on their limits, the Gross Business Revenue
Tax on domestic interbank loans makes interbank lending too expensive. Further, while
there currently is excess foreign liability capacity in the market, there is no guarantee that
this will not change. The use of foreign currency borrowing is generally influenced by
interest rate differentials and exchange rate movements. The current limits hinder the ability
of banks to react to market movements and thus raise their costs. Taiwan authorities have
pledged to replace these limits with reserve requirements after passage of a new Central Bank
law.
Limits on foreign banks' short and long foreign exchange positions are also a
concern. Under current regulations, foreign banks are subject to the same ceiling as "small"
domestic banks. That is, foreign banks are limited to a $20 million "long" position
compared to $50 million for large domestic banks; and a $6 million "short" position,
compared to $10 million for large domestic banks. As New Taiwan dollar funding and
liquidity remain areas of concern for foreign banks, raising the long and short ceilings for
foreign banks to a level comparable to that for large domestic banks would be a positive
development.
Non-trade-related capital inflows and outflows by an individual continue to be subject
to a limit of $5 million per year without prior approval. The limit for firms, however, has
been raised to $10 million per year. Foreign individual investors are prohibited from
investing on Taiwan's stock exchange (the Taiex). The Taiex was opened to foreign
institutional investors in January 1991, but these investors continue to face restrictions on
repatriation of capital and earnings. On the positive side, however, the Central Bank of
25
China has raised the ceiling for aggregate foreign institutional investment from $5 billion to
$10 billion, and increased the limit for a single institutional investor from $100 million to
$200 million.
Financial Policy Nel:otiations
While not citing Taiwan as an exchange rate manipulator, Treasury nonetheless
continues to urge Taiwan to move more rapidly to reduce restrictions on foreign exchange
transactions and capital flows. Taiwan's aim of achieving the status of a regional fmancial
center will require significant liberalization of these restrictions, as well as further movement
toward opening its financial markets. Progress has been made in this regard during WTO
accession negotiations, but foreign exchange restrictions remain a particularly troublesome
area.
Of particular note since the last report, bilateral negotiations conducted in July
resulted in a draft Special Exchange Agreement for use by the GATT Working Party in its
discussions on Taiwan's accession to the WTO. The Special Exchange Agreement outlines
disciplines on the use of foreign exchange restrictions once Taiwan joins the WTO. The
draft agreement has strong commitments prohibiting exchange restrictions on the current
account, and also requires Taiwan to seek to avoid capital controls.
Assessment
The present determination maintains the assessment contained in the July 1994 report
that Taiwan is not at this time engaging in practices which constitute manipulation of the
exchange rate between its currency and the u.S. dollar. Two factors support this conclusion.
First, there has been no significant change in the value of the New Taiwan dollar relative to
the U.S. dollar since the last report. Second, adjustment continues to occur in Taiwan's
current account and trade surpluses.
Treasury will continue to use bilateral and multilateral discussions to press for further
elimination of restrictions on foreign exchange transactions and capital movements which
constrain demand for the NT dollar.
26
CHINA
As noted in the July report, China has taken important steps to reform its foreign
exchange system this year, unifying exchange rates and liberalizing domestic firms' access to
foreign exchange. Yet, government approval of foreign exchange purchases by foreignfunded enterprises, which account for a large share of China's imports, is still required.
Documentation requirements for domestic enterprises wishing to acquire foreign exchange for
current transactions are also burdensome and give authorities the scope to prohibit foreign
exchange transactions. While approval is readily given at the moment, the arrangements can
only be viewed as intended to provide the means to limit imports of goods and services if
government officials wish to do so. The non-transparency of the process and the criteria for
approval allow scope for discrimination in imports.
It is therefore Treasury's determination that China is not currently manipulating its
exchange system to prevent effective balance of payments adjustment and gain unfair
competitive advantage in international trade, but that it retains the capacity and bureaucratic
means to do so in the future. In the context of bilateral negotiations as well as multilateral
negotiations on China's entry into the WTO, Treasury continues to urge China to complete
market-oriented reform of its foreign exchange system, give foreign and domestic firms equal
access to the new interbank foreign exchange market, and eliminate all government approval
systems aimed at regulating the level and composition of imports of goods and services.
Indeed, foreign exchange controls are but a part of a multiplicity of formal and
informal trade controls. Restrictions include foreign exchange balancing requirements,
limitations on the trading rights of foreign and domestic firms, and import licenses that
restrict and distort the composition of China's imports.
Trade and Economic Developments
After deteriorating to a deficit of $12.2 billion in 1993, China's overall trade balance
returned to surplus in the first nine months of 1994 as exports benefitted from stronger
growth in China's markets. China's data indicate that exports were up 30 percent in the fIrst
three quarters of 1994 to $79.4 billion while imports, driven by China's continued rapid
growth, rose 15 percent to $78.0 billion. China thus reported a trade surplus of $1.4 billion
for January-September 1994. Current account information is not yet available for this year,
but the improvement in China's trade account should give China a small current account
surplus in 1994.
In this context, it is important to reiterate the caveat noted in previous reports that
China's trade data are not consistent with those of its trading partners. Specifically, China's
data significantly understate exports because of the incentives that China's foreign exchange
surrender requirements generate to underreport export earnings and hold foreign exchange
offshore. For example, while China reported a trade deficit of $12.2 billion for 1993
trading partner data adjusted for differences in valuation and transshipment through H~ng
28
accelerating in the second half of this year. Industrial sector value added grew 18.1 percent
in the third quarter, 2.3 percentage points higher than in the first half.
China's inflation figures reflect this acceleration in demand and monetary growth.
Urban prices were 27.5 percent higher in September 1994 compared to September 1993.
Inflation rates have shown an upward trend in recent months, rising from an average of 25
percent in the first quarter. China's authorities blame the upward trend on rising food prices
resulting from price decontrol and supply problems. Nevertheless, consumer demand is also
likely playing an important role as urban wages have risen 30-40 percent in the first three
quarters of the year. Under these circumstances, the need for renewed emphasis on
monetary restraint is evident.
Forei~n Exchan~e
System
China's current foreign exchange system operates as a highly managed float. The
daily exchange rate is set according to the median price for foreign exchange on the
preceding day. An interbank market for foreign exchange, the foreign exchange trading
center (FETC), was established in April 1994. The headquarters are located in Shanghai
with additional, satellite-linked centers in 19 cities.
Foreign-funded enterprises (FFEs) may, with the approval of the State Administration
of Exchange Control (SAEC), buy and sell foreign exchange in the interbank market using a
member institution as agent. (Member institutions currently comprise 278 domestic banks
and non-bank financial institutions and designated foreign banks.) A FFE agent bank must
submit the purchase request to the SAEC for approval. With SAEC approval, the agent bank
executes the transaction at the FETC. FFEs, unlike domestic firms, can retain their foreign
exchange earnings.
Domestic enterprises may not trade foreign exchange in the interbank market.
However, those domestic companies that have trading rights are allowed to purchase foreign
exchange automatically from designated members of the interbank market upon presentation
of: (1) an import contract; (2) a request for payment from a foreign institution; and (3) an
import license (if required). The spreads applicable to domestic fmns are reportedly
wider than those in the interbank market, providing a small profit margin for the bal
Domestic firms are required by the government to sell their foreign exchange earnings to a
designated bank at the prevailing exchange rate.
The important distinction between the treatment of FFEs and domestic fmns is that
FFEs cannot purchase foreign exchange without the approval of the SAEC, whereas domestic
firms may purchase foreign exchange automatically for permitted transactions. (Domestic
fmns must still obtain SAEC approval for capital account transactions and some invisible
current account transactions.) In this context, it is important to note that China continues to
impose requirements on FFEs to balance foreign exchange receipts and expenditures. The
29
SAEC approval system can be used as a means to enforce foreign exchange balancing
requirements.
If a domestic firm wishes to purchase foreign exchange for permitted current account
transactions, the request is not submitted to the SAEC. The firm needs only the required
documentation cited above. With such documentation, the domestic firm can buy the foreign
exchange directly from a designated bank.
Exchange rate management in the interbank market comes in two forms: (1) limiting
trading to within a particular range of the daily determined rate (±O.25 percent); and (2)
intervention through buying or selling foreign exchange by the People's Bank of China
(PBOC) to stabilize rates.
Outside the 19 cities linked to the interbank market in Shanghai, foreign firms must
trade foreign exchange in the previously existing swap centers. These swap centers are not
part of the integrated foreign exchange market in Shanghai but still must balance the local
supply and demand for foreign exchange according to the exchange rate set in Shanghai.
Local authorities often have been unwilling to allow foreign-funded enterprises to trade
foreign exchange outside the local swap center.
Exchange Rate Developments
On November 4, 1994 China's exchange rate (unified in January of this year) stood at
8.53 yuanldollar, a nominal appreciation of 2 percent from its end-1993 value of 8.71
yuanldollar. Most of this appreciation has come in recent months and is likely the result of
increased demand for renminbi stemming from domestic credit controls and the increased
availability of foreign exchange resulting from large investment inflows and China's
improved trade balance. Large accumulation of foreign currency by the People's Bank of
China, as evidenced by the large increase in official foreign exchange reserves, prevented
greater nominal appreciation of the exchange rate.
Nonetheless, China's inflation rate greatly exceeded that of the United States. As a
result, China's yuan/dollar exchange rate appreciated an estimated 12 percent in real terms
over the period end-1993 to end-September 1994.
Exchan~e
Rate Negotiations
In the context of bilateral negotiations between Treasury and Chinese authorities, as
well as in China's WTO accession negotiations, Treasury and other U.S. Government
agencies have pressed China to: (1) give domestic and foreign frrms equal access to a unified
foreign exchange market; (2) eliminate all requirements for government approval of foreign
exchange purchases for goods and services transactions (Le., move to current account
convertibility); and (3) eliminate foreign exchange balancing requirements.
30
While accepting these objectives as long-term goals, China's position in these
negotiations is that reforms undertaken this year are very significant; that access to foreign
exchange is already nearly unrestricted; and that China needs to maintain a system which
provides the capability of regulating foreign exchange availability.
Table 11
China: Nominal Bilateral Exchange Rate Indices
(End of Period)
United States
Japan
EU
1990
1991
1992
1993
Sept
1994
100
100
100
96.4
88.7
98.9"
80.2
73.7
91.1
68.9
56.7
84.8
65.5
47.8
72.7
China: Real Bilateral Exchange Rate Indices
(End of Period)
United States
Japan
EU
1990
1991
1992
1993
Sept
1994
100
100
100
97.2
89.9
98.6
83.9
78.8
93.8
82.4
70.5
101.3
92.2
70.2
102.6
Sources: IMF and Treasury Department Data
Decline of Index = Depreciation of Chinese Currency
September Real Exchange Rate Indices Are Based on Estimated Inflation Rates for China, Japan, and
the European Union
Assessment
Treasury acknowledges that major strides in reforming China's foreign exchange
system have been made this year. However, China maintains significant restrictions on
foreign exchange transactions. Domestic firms are required to sell foreign exchange to
designated banks, and, while FFEs may use the foreign exchange earned through exports,
they must receive prior approval from the SAEC for all purchases of foreign exchange in the
interbank market. Moreover, China continues to require SAEC approval for certain current
account transactions, including repatriation of profits.
31
At the moment, SAEC approval of foreign exchange purchases for foreign firms is
not difficult to obtain. This liberal implementation stems from favorable market conditions .ample foreign exchange availability and strong demand for the renminbi. However, as in the
past, the SAEC could withhold approval. It is clear that the rationale for maintaining the
approval system is to maintain the government's capability to ration foreign exchange.
Thus, Treasury has determined that China is not currently manipulating its exchange
system to prevent effective balance of payments adjustment or gain unfair competitive
advantage in international trade. However, it is essential that China commit to liberalizing
access to foreign exchange for current account transactions, as is required under Article vm
of the IMP's Articles of Agreement. The United States continues to seek such commitments
from China in bilateral negotiations and in multilateral negotiations regarding China's
accession to the WTO.
APPENDIX 1:
OMNIBUS TRADE AND COMPETITIVENFSS ACT OF 1988
{H.R.3)
SEC. 3004. INTERNATIONAL NEGOTIATIONS ON EXCHANGE RATE AND
ECONOMIC POLICOO.
(a) Multilateral Negotiations.--The President shall seek to confer and negotiate with other
countries-(1) to achieve--
(2)
(A)
better coordination of macroeconomic policies of the major
industrialized nations; and
(B)
more appropriate and sustainable levels of trade and current account
balances, and exchange rates of the dollar and other currencies
consistent with such balances; and
to develop a program for improving existing mechanisms for coordination and
improving the functioning of the exchange rate system to provide for long-term
exchange rate stability consistent with more appropriate and sustainable current
account balances.
(b)
Bilateral Negotiations. --The Secretary of the Treasury shall analyze on an annual basis
the exchange rate policies of foreign countries, in consultation. with the International
Monetary Fund, and consider whether countries manipulate the rate of exchange between
their currency and the United States dollar for purposes of preventing effective balance of
payments adjustments or gaining unfair competitive advantage in international trade. If the
Secretary considers that such manipulation is occurring with respect to countries that (1) have
material global current account surpluses; and (2) have significant bilateral trade surpluses
with the United States, the Secretary of the Treasury shall take action to initiate negotiations
with such foreign countries on an expedited basis, in the International Monetary Fund or
bilaterally, for the purpose of ensuring that such countries regularly and promptly adjust the
rate of exchange between their currencies and the United States dollar to permit effective
balance of payments adjustments and to eliminate the unfair advantage. The Secretary shall
not be required to initiate negotiations in cases where such negotiations would have a serious
detrimental impact on vital national economic and security interests; in such cases, the
Secretary shall inform the chairman and the ranking minority member of the Committee on
Banking, Housing, and Urban Affairs of the Senate and of the Committee on Banking,
Finance and Urban Affairs of Representatives of his determination.
SEC. 3005. REPORTING REQUIREMENTS.
(a)
Reports Required.--In furtherance of the purpose of this title, the Secretary,
after consultation with the Chairman of the Board, shall submit to the Committee on
Banking, Finance and Urban Affairs of the House of Representatives and the Committee on
Banking, Housing, and Urban Affairs of the Senate, on or before October 15 of each year, a
written report on international economic policy, including exchange rate policy. The
Secretary shall provide a written update of developments six months after the initial report.
In addition, the Secretary shall appear, if requested, before both committees to provide
testimony on these reports.
(b) Contents of Report.-- Each report submitted under subsection (a) shall contain--
(1)
an analysis of currency market developments and the relationship
between the United States dollar and the currencies of our major trade
competitors;
(2)
an evaluation of the factors in the United States and other economies
that underlie conditions in the currency markets, including
developments in bilateral trade and capital flows;
(3)
a description of currency intervention or other actions undertaken to
adjust the actual exchange rate of the dollar;
(4)
an assessment of the impact of the exchange rate of the United States
dollar on-(A) the ability of the United States to maintain a more appropriate and
sustainable balance in its current account and merchandise trade
account;
(B) production, employment, and noninflationary growth in the United
States·,
(C) the international competitive performance of United States
industries and the external indebtedness of the United States;
(5)
recommendations for any changes necessary in United States economic
policy to attain a more appropriate and sustainable balance in the
current account;
(6)
the results of negotiations conducted pursuant to section 3004;
2
(c)
(1)
key issues in United States policies arising from the most recent
consultation requested by the International Monetary Fund under article
IV of the Fund's Articles of Agreement; and
(8)
a report on the size and composition of international capital flows, and
the factors contributing to such flows, including, where possible, an
assessment of the impact of such flows on exchange rates and trade
flows.
Report by Board of Governors.--Section 2A(1) of the Federal Reserve Act (12
u.s.c. 225a(1» is amended by inserting after "the Nation" the following: ",
including an analysis of the impact of the exchange rate of the dollar on those
trends" .
SEC. 3006. DEFINITIONS.
As used in this subtitle:
(1) Secretary.--The term "Secretary" means the Secretary of the Treasury.
(2) Board.--The term "Board" means the Board of Governors of the Federal
Reserve System.
3
DEPARTMENT
OF
THE
TREASURY
NEWS
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIDNGTON, D.C. - 20220 _ (202) 622-2960
to,
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FOR IMMEDIATE RELEASE
Text as prepared for delivery
January 5, 1995
TESTIMONY OF (ACTING) TREASURY SECRETARY FRANK N. NEWMAN
SENATE COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
Good morning Mr. Chairman, Senator Sarbanes, and other members of the
committee. I am pleased to have the opportunity, along with my colleagues on the
President's Working Group on Financial Markets, to discuss with you issues important to the
financial system.
Before beginning remarks on today's topic, I would like to commend the Committee
for the exceptional work it did during the l03rd Congress in advancing legislation important
to the continued success of financial services in the United States. Interstate banking,
paperwork reduction, community development banking, and small business loan securitization
are just a few of the important legislative proposals that were passed by this committee in a
highly successful bipartisan fashion.
I look forward to working with the Committ~ in the months ahead on the various
issues under its jurisdiction and expect that, together, we will again have the opportunity for
genuinely constructive actions.
Today, I am here as both the acting Treasury Secretary and the acting chairman of the
President's Working Group on Financial Markets. I will present an update on recent
activities of the Working Group and share with you Treasury's assessment of the need for
federal government action -- legislative, regulatory or other -- to mitigate problems in the
financial markets.
The subjects of these hearings are very important, for the effective functioning of our
financial markets is crucial to the workings of the economy. The members of the Working
Group are aware that even with the best government policies, unexpected financial market
problems can occur, and the relevant agencies maintain an attitude of constant vigilance
concerning financial market developments.
FN-13
2
I would also like to assure the members of this committee that the participants in the
Working Group are constantly mindful of the need to balance the objectives of appropriate
protections for the financial system and the public, with th.e dangers of interfering too much
with the efficiency and innovation of the markets and placmg unwarranted regulatory burden
on business activities. Collectively, we have substantial private-sector experience, and try to
listen to the perspectives of market participants, while we take our oversight and regulatory
responsibilities with utmost seriousness.
In my own background, I have been the chief financial officer of two major and
successful banking companies. I have chaired committees responsible for the management of
interest-rate risk and market risk for hundreds of billions of dollars of assets and notional
amounts of derivatives, including approving -- and disapproving -- plans for investments
and offerings of new financial products. I have seen how derivatives can be used to manage
and reduce risk, but I have also seen how they can be misused. I, like my colleagues, try
continually to give significant consideration to the real world implications and practicality of
potential government actions, even as we recognize the importance of such factors as
disclosure to investors as well as the stability of the financial system that supports our
economy.
The Working Group was established by Executive Order in March 1988 in response
to the October 1987 stock market decline. In January 1994, Secretary Bentsen, as chairman,
reactivated the Working Group which consists of the Secretary of the Treasury, and the
chairs of the Federal Reserve, the SEC, and the CFrC. In addition, our meetings often
include the President of the Federal Reserve Bank of New York, the Comptroller of the
Currency, the chair of the FDIC, and the Assistant to the President for Economic Policy.
The primary goals of the Working Group are to promote information sharing among
regulators, to discuss various approaches for dealing with serious market issues as they arise,
and to encourage consistent and coordinated regulatory actions across markets and market
partici pants.
The members of the Working Group, like members of this committee, share common
goals: to protect the safety and soundness of the banking system, to maintain fair and orderly
markets, to improve disclosure to customers and investors so that they can make more
informed decisions, and to foster economic innovation and international competitiveness.
We all believe that the Working Group process has worked well in establishing close
working relationships among the agencies. While there is not complete agreement on every
issue, the Working Group has established effective communication among the agencies,
which has improved the regulatory process and the ultimate outcome for the financial
markets.
The issues the Working Group, and each agency within their respective jurisdictions,
has addressed include:
3
•
•
•
•
•
risk management and capital adequacy at regulated firms;
accounting and disclosure improvements;
enhancements to the systems for payment and settlement of financial transactions;
specific matters regarding exchange-traded securities and other instruments and overthe-counter financial derivatives, including marketing practices; and
evolution of markets and instruments and their possible impact on risk to the financial
system.
Government regulatory action must be measured, timely, and consistent with the
fundamental goals of economic growth and stability. It is not the role of government to
ensure that no market participant ever loses money or becomes insolvent. Participation in
financial markets entails risk, and the risk of loss or failure is a necessary discipline for
efficiency in financial markets. However, we recognize that the government has a role in
protecting the functioning of the financial system and ensuring the safety and soundness of
the banking system.
In October 1994, Secretary Bentsen transmitted a report to Congress which
summarized approximately 80 actions designed to reduce risks in financial markets taken by
the agencies represented in the Working Group, other federal regulators, and numerous other
government-related entities. Among the key points of that report were the following items:
•
The bank regulatory agencies have issued new guidelines to banks and examiners
detailing new standards for internal control and risk management. While these
standards include specific guidance concerning the sale and use of derivatives, they do
so -- appropriately -- within the broader context of overall management.
•
The Office of the Comptroller of the Currency, the Federal Reserve, and the FDIC
each have published proposals to amend their risk-based capital rules to better
encompass the credit risk of derivatives. The banking regulatory agencies are
working with the Basle Committee on Banking Supervision to develop international
capital standards for market risks, and a new proposal is expected to be released in a
few months.
•
The SEC is reviewing its capital rule in connection with derivatives and is considering
the use of sophisticated methods to set capital charges for exchange-traded options and
related positions.
•
The SEC is monitoring the activities of the unregulated affiliates of registered brokerdealers through its authority to collect risk-assessment data.
•
The CFfC has used its risk-assessment authority to collect data relative to the size
and scope of activities of affiliates of futures commission merchants and has
coordinated with the SEC on other information-sharing initiatives. The CFfC
recently adopted risk-assessment rules to require reporting of risk management
4
policies and certain other information by regulated entities. Following further review
and consultation with other regulators, the CFfC intends to adopt additional riskassessment rules.
•
Accounting and disclosure standards are in the process of being revised by the
Financial Accounting Standards Board and the SEC, and the bank call reports have
been expanded, in particular to deal with holding and trading in derivatives.
•
International coordination is being pursued through multilateral organizations, such as
laSCO, OECD, G-10, as well as bilateral discussions.
•
And, in a matter especially important to the Treasury Department, the Congress
passed and the President signed into law in December 1993 the Government Securities
Act Amendments of 1993, which, in addition to reauthorizing the Treasury's
rulemaking authority under the Government Securities Act of 1986, granted the bank
regulators and the National Association of Securities Dealers (with SEC approval) the
authority to write sales practice rules for government securities. The NASD has
proposed such rules and are now reviewing comments, and the bank regulators are
actively considering such rules.
There are many ways to get into trouble in financial markets, and one case that has
received a great deal of publicity recently -- Orange County's current financial difficulties -is another reminder that large, leveraged bets on interest rates can lead to large losses.
Having said that, I do not want to minimize the difficulties the people of Orange County are
facing as they deal with the enormous losses suffered in their investment pool.
Of late, each time a market participant suffers a large, newsworthy loss, the term
"derivatives" is used almost as if it were an explanation. In fact, risky market strategies,
such as borrowing short to invest long, have been around for a long time, while the terms
"derivatives," or even "swaps," are more recent coinages.
In the Orange County case, the losses were not caused by over-the-counter contracts
that market practitioners normally consider derivatives. Rather, Orange County got into
financial trouble because it was highly leveraged and there was a significant duration gap
between its assets and its liabilities, i.e., it purchased long-term securities with short-term
loans. This left Orange County highly vulnerable to increases in short-term interest rates. In
addition, Orange County had invested much of this borrowed money in categories of
securities issued by Government-sponsored enterprises, many of which were structured to be
especially sensitive to changes in interest rates.
The members of the Working Group all agree that the state governments have the
primary responsibility for ensuring the prudent investment practices of the governmental units
ultimately under their jurisdiction. Under current law, there are some significant, albeit
indirect, measures we as federal regulators can take due to our collective ability to regulate
5
the marketing practices of many of the counterparties to state and local governmental
authorities.
GSE structured notes and collateralized mortgage obligations are government
securities covered by the Government Securities Act. Since the enactment of the
Government Securities Act Amendments of 1993, the government has the authority to
promulgate sales practice rules, including suitability standards, through the NASD (with SEC
approval) or the bank regulators. Each appropriate agency is now actively considering such
rules.
Additionally, we believe that the Working Group has a role to play in helping to
develop and promote sound investment strategies for state and local authorities to adopt and
follow. Recently, on behalf of the Working Group, we invited a number of associations
representing state and local government entities to a meeting at the Treasury Department.
These associations are: the Government Finance Officers Association; the Municipal
Treasurer's Association; the National Association of State Auditors, Comptrollers, and
Treasurers; the National Association of State Treasurers; the National Conference of State
Legislatures; the National Governors Association; the National League of Cities; and the
U.S. Conference of Mayors. The Working Group and these associations have agreed to
work together to promote the use of model investment guidelines such as those already
developed by many of the associations, provide educational materials, conduct training
programs, share information and relevant guidelines by federal regulators, and identify
possible regulatory or oversight issues. The investment policies and practices that we are
discussing with these associations include management of credit and market risks, internal
controls, accounting, supervision and reporting, and investment disclosure.
The issues highlighted by the Orange County case are complex and important and
raise some very challenging questions. For example, since the financial insolvency of large
state and local governments could adversely affect national financial markets, should the
federal government have a larger role in ensuring that prudent practices are followed in order
to lessen the possibility of this occurring? What possible roles are practical? Also, should
broker-dealers and banks that market financial instruments to state and local governments be
required to review their investment policies? Should they have to determine whether the
particular instruments that are being recommended are appropriate for the governmental
entity? These and other questions have been debated by the Working Group, and my
colleagues will offer some particular perspectives on them.
The continual evolution of financial markets and fmancial instruments poses ever
broader issues for the federal government, and the Working Group continues to actively
address them. I have already mentioned some of the issues involved with respect to state and
local governments. More generally, we may need to reexamine certain aspects of the current
structure of our regulatory system and laws and consider whether modifications are needed.
For example, distinctions between certain securities, swaps, and futures contracts are
increasingly difficult to make in light of the evolution of financial instruments.
6
These issues bear importantly on the structure of our financial markets, the ability of
variously regulated entities to compete with each other, the types of suitability protection,
market transparency, and the degree of legal risk in our financial markets. Potentially, these
matters may impact the nature and degree of systemic risk in our financial markets and the
government's tools to mitigate such risk.
The financial regulatory agencies are taking significant steps to reduce risk in the
financial system, but still have a lot of work to do. The Working Group continues to find no
need at this time for additional broad legislative grants of authority to regulators in the area
of over-the-counter instruments usually referred to as financial derivatives. We nevertheless
expect to consider more targeted legislative proposals concerning particular ambiguities or
issues of law.
Last year, for example, the Working Group proposed that the Bankruptcy Code be
amended to clarify the status of netting of foreign currency transactions for delivery in two
days or less, and the Congress, responding to our request, did amend the Code to address
this point. The Orange County situation has indicated that there is some confusion about the
treatment of certain financial transactions in a Chapter 9 bankruptcy filing. The Working
Group, together with other relevant agencies such as the Justice Department, plans to study
and consider this issue and other areas of law that may be unclear, and we may, if
appropriate, make recommendations to Congress.
The financial markets are continually and rapidly evolving, and we believe that the
Working Group process assists the financial regulators in adopting a coordinated, flexible,
and constructive approach to this evolution. New regulatory authority or modification of
current authorities may prove necessary in the future in light of the increased use of highly
complex financial instruments and the increasing similarity of products and services provided
by institutions regulated under quite different regimes. We will continue to work on this
issue, some aspects of which, as you know, Treasury is required to study -- in concert with
an advisory committee -- and report to Congress under provisions of the Interstate Banking
and Branching Efficiency Act of 1994. We appreciate the opportunity to work with this
committee on these matters, particularly to achieve greater understanding by market
participants of the appropriate use of derivatives and other complex financial instruments,
and the dangers that can arise from their misuse.
Mr. Chairman, that concludes my prepared statement. I will be happy to respond to
questions you and the other members of the Committee may have.
-30-
UBLIC DEBT NEWS
Department of the Treasury •
B6~~J1Idf(ht(l}ti6li~q'9
JAM 1 U ~j
FOR IMMEDIATE RELEASE
January 5, 1995
• Washington, DC 20239
0 u j O~falTACT:
Office of Financing
202-219-3350
Ti~~tR[yT,~~R~~!G~ OF 52-WEEK BILLS
RESULTS OF
Tenders for $17,256 million of 52-week bills to be issued
January 12, 1995 and to mature January 11, 1996 were
accepted today (CUSIP: 912794W59).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
6.84%
6.86%
6.86%
Investment
Rate
7.32%
7.34%
7.34%
Price
93.084
93.064
93.064
$20,000 was accepted at lower yields.
Tenders at the high discount rate were allotted 67%.
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
FN-14
Received
$49,836,038
Acce:gted
$17,255,702
$43,905,075
1,368,963
$45,274,038
$11,324,739
1,368,963
$12,693,702
4,250,000
4,25'0,000
312,000
$49,836,038
312,000
$17,255,702
DEPARTMENT
OF
OFFICE OF PUBliC AFFAIRS -1500 PENNSYLVANIA A
FOR IMMEDIATE RELEASE
January 6, 1995
THE
TREASURY
N:W; ~WASHINGTON, D.C. -
20220 - (202) 622-2960
Contact: Michelle Smith
(202) 622-2960
U.S. TO HOST JANUARY MEETING ON
FINANCING ECONO~lIC DEVELOPMENT IN THE MIDDLE EAST
The United States will host a meeting in Washington on January 10-11, 1995 on
"Financing Institutions for Economic Development in the Middle East." This meeting
constitutes a key element of the follow-up to the Middle East/North Africa Economic
Summit held in Casablanca, Morocco in October 1994, which called for a group of
experts to examine different funding mechanisms to support the peace process, including
the creation of a Middle East Bank for Economic Cooperation and Development.
Attending the meeting will be 37 regional and extra-regional parties participating in and
supporting the Middle East peace process.
Additional information on the meeting is contained in a fact sheet available from
Treasury's Office of Public Affairs press office.
-30-
FN-15
FACT SHEET:
FINANCING INSTITUTIONS FOR ECONOMIC DEVELOPMENT
IN THE MIDDLE EAST
o
The United States will host a meeting in Washington on January 10-11, 1995 on
"Financing Institutions for Economic Development in the Middle East."
Attending the meeting will be 37 regional and extra-regional parties participating
in and supporting the Middle East Peace Process.
o
This meeting is a key element of the follow-up to the Casablanca Middle
East/North Africa Economic Summit in October 1994. The Casablanca
Declaration called for a group of experts to examine different funding mechanisms
to support the peace process, including the creation of a Middle East Bank for
Economic Cooperation and Development. The January 10-11 meeting is the fIrst
gathering of this group of experts.
o
Proposals for the creation of a Middle East Development Bank originate with the
core regional participants in the peace process. The Israeli-Palestinian Declaration
of Principles signed in September 1993 called for the creation of such a bank.
Jordan and Egypt joined this call in meetings of the four parties in Cairo in late
1994. In October, President Clinton told the Jordanian parliament that the U.S.
would take the lead in organizing interested countries to consider creation of a
properly structured regional development bank.
o
The January 10-11 meeting will consider fmancing mechanisms for economic
development and the creation of new institutions to address key regional needs
which are not adequately addressed through existing efforts. These include: the
development of regional infrastructure, promotion of the private sector, and
enhanced regional economic policy reform and dialogue. Regional development
banks exist in other areas and have proved to be effective channels to leverage
signifIcant assistance from private and public sources.
o
Any new institutions would be designed to meet the region's unique economic and
political needs and would complement, not duplicate, the work of existing
institutions. The basic objective would be to add an economic pillar of support
for the historic achievements in the peace process since Madrid.
o
The January 10-11 meeting will be the fIrst in series of meetings to examine these
issues in detail, leading to the second Middle EastiN orth Africa Economic Summit
in Amman, Jordan later this year, where key conclusions would be announced.
PUBLIC
DEB~(J
Itk§t3.
Department of the Treasury •
r ,-,
"- F-' . v, --"-I'!-_ - \
I
"
•
1
J L
f:\'- l
j
~
\:"
...
NEWS
Washington, DC 20239
Uf .-.,i'/
FOR RELEASE AT 3:00 PM
January 6, 1995
Contact: Peter Hollenbach
(202) 219-3302
PUBLIC DEBT ANNOUNCES ACTMTY FOR
SECURITIES IN THE STRIPS PROGRAM FOR DECEMBER 1994
Treasury's Bureau of the Public Debt announced activity figures for the month of December
1994, of securities within the Separate Trading of Registered Interest and Principal of
Securities program (STRIPS).
Dollar Amounts in Thousands
Principal Outstanding
(Eligible Securities)
$811,130,534
Held in U nstripped Form
$585,924,654
Held in Stripped Form
$225,205,880
$10,808,575
Reconstituted in December
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. F or more information concerning this service call 202-482-1986.
000
PA-170
(FN-16)
TABLE VI--HOLOINGS OF TREASURY SECURITIES IN STRIPPED FORM. DECEMBER 31. 1994
(In thousands)
---------------------------------------------------------------------------------------------------------------------I
Principal Amount Outstanding
II
1---------------- -----------------------------------1 I Reconstituted
I
Total
Portion Held in I Portion Held in I I This Monthl1
Maturity Date
Loan Description
I
I
Unstripped Form I Stripped Form II
-------------------------1--------------------1---------------- -----------------1-----------------1 1----------------7-1/2X Bond 2016 ........
8-3/4X Bond 2017 ........
8-7/8X Bond 2017 ........
9-1/8X Bond 2018........
9% Bond 201B ........... .
8-7/BX Bond 2019 ....... .
B-1/8X Bond 2019 ....... .
B-1/2X Bond 2020 ....... .
8-3/4X Bond 2020 ....... .
B-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 ....... .
7-1/2X Bond 2024 ....... .
Total.................
I ..... 11115116 ..... I
I ..... 5115/17 ...... I
I .... :8/15/17 ...... I
. .... 5/15/18 ...... I
..... 11/15/18 .... .
..... 2/15/19 ..... .
..... 8115/19 ..... .
..... 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 ..... .
..... B/15/23 ..... .
. .... 11/15/24 .....
. .................
18.864.448
18.194.169
14.016.858
8.708.639
9.032.870
19.250,798
20.213.832
10.228.868
10.15B.883
21,418,606
11,113.373
11.958.888
12,163.4B2
32,798,394
10.352.790
10.699.626
18.374,361
22.909.044
11.469.662
1---------------I 811.130.534
37.360
17.863.248 I
1.001.200 I
610,240
7.294.809 I
10.899.360
1, 40B. 000
8.044.058 I
5.972.800
46B,BOO
1.820.639 I
6,888.000
7.282.200
1.750.670 I
65.000
13.921. 600
811,200
5.329.198 I
3.296,640
556.480
16.917,192 I
5.581. 200
4.647.668 I
83.600
6.801,440
176,960
3.357.443 I
16.981.600
4.437.006 I
741.280
443,200
9,903,773 I
1.209.600
7,B65.280
4.093,608 I
121.920
6B4.160
7.306.560
4.856.922 I
25.685.475
1B7.150
7.112.919 I
7.995,990 I
2.356.BOO I I
160.000
6.401.600 \I
200.000
4.298.026 I
3.848.000 \I
67.200
14.526.361 I
-0292.60B \I
22.616.436 I
11.469.662 I
-0- II
-0-----------------I-------------~---I 1----------------585.924.654 I
225.205.880 I I
10.BOB.575
======================================================================================================================
#lEffective May 1. 19B7. securltles held in strlpped form were eligible for reconstitution to their unstrlpped form.
Note: On the 4th workday of each month Table VI wlll 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) 482-19B6. The balances
in thlS table are subject to audlt and subsequent adjustments.
TABLE VI--HOLOINGS OF TREASURY SECURITIES IN STRIPPED FORM. DECEMBER 31. 1994
(In thousands)
---------------------------------------------------------------------------------------------------------------------Loan Description
I
I
I
I
Maturity Date
Principal Amount Outstanding
II
I
1----------------------------------------------------1 I
Total
I Portion Held in I Portion Held in I I
I
I Unstripped Form I Stripped Form II
I
Reconstituted
This Month'1
-------------------------1-------------------- ----------------1-----------------1-----------------1 1----------------11-1/4% Note A-1995 .....
11-1/4% Note B-1995 .....
10-1/2% Note C-1995 .....
9-1/2% Note 0-1995 ......
8-7/8% Note A-1996 ......
7-3/8% Note C-1996 ......
7-1/4% Note 0-1996 ......
8-1/2% Note A-1997 ......
8-5/8% Note &-1997 ......
8-7/8% Note C-1997 ......
8-1/8% Note A-1998 ......
9% Note B-1998 ..........
9-1/4% Note C-1998 ......
8-7/8% Note 0-1998 ......
8-7/8% Note A-1999 ......
9-1/8% Note B-1999 ......
8% Note C-1999 ..........
7-7/8% Note 0-1999 ......
8-1/2% Note A-2000 ......
8-7/8% Note B-2000 ......
8-3/4% Note C-2000 ......
8-1/2% Note 0-2000 ......
7-3/4% Note A-2001 ......
8% Note B-2001 ..........
7-7/8% Note [-2001 ......
7-1/2% Note 0-2001 ......
7-1/2% Note A-2002 ......
6-3/8% Note B-2002 ......
6-1/4% Note A-2003 ......
5-3/4% Note B-2003 ......
5-7/8% Note A-2004 ......
7-1/4% Note B-2004 ......
7-1/4% Note [-2004 ......
7-7/8% Note 0-2004 ......
11-5/8% Bond 2004 .......
12% Bond 2005 ...........
10-3/4% Bond 2005 .......
9-3/8% Bond 2006 ........
11-3/4% Bond 2009-14 ....
11-1/4% Bond 2015 ...... ,
10-5/8% Bond 2015 .......
9-7/8% Bond 2015 ........
9-1/4% Bond 2016 ........
7-1/4% Bond 2016 ....... ,
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
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
..... 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 ......
.. ... 8/15/04 ......
· .... 11/15/04 .....
........ do ........
..... 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 ......
6.933.861
7.127.086
7.955.901
7.318.550
8.446.058
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
13,346,467
14,373,760
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
5.599.301
4.397.326
5.010.301
3.419.350
6.689.258
18.156.043
17.716.410
8.774,437
7.790.036
7.344,329
8,014,428
6,723.387
8.688.246
6,930,075
8.191.623
6,722.303
8,166.344
7.785,160
9,065,033
6,081.830
8.029,926
8.690.482
9.355.2029.958.608
10,225.585
22,955,622
11,001. 037
23,447,815
23,534,851
27.855.828
12,955.077
14.440.372
13.346.467
14,373,760
5.093.806
2.725,808
8.408.113
4.754.764
1.703,184
5,152.439
1.728.796
2,171.859
6,126.854
18,287,551
I
I
I
I
I
I
I
I
I
I
I
I
I
1. 334.560
2.729.760
2.9·~ 600
3.899.200
1. 756.800
1. 929.600
2.542.400
1.146,800
1. 572.800
2.464.000
1.144,640
2.442.000
2,654.400
2,972,800
1. 528.000
3.324,800
1. 997 , 300
2.988,800
1. 608,000
4.414.400
3.050.720
2.829.200
1.957,600
2,439.475
2.113.600
1.270.480
713,360
411.200
27.840
155,200
-0-0-0-03,208.000
1. 534,950
861.600
1.152
4.302.400
7,515.360
5.421,120
4.728,000
1.140.000
536.000
II
II
II
II
II
II
II
II
II
II
II
II
II
II
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
I
II
II
II
II
II
II
II
II
4.800
112.480
38.000
99.200
158.400
116.800
-0-0-076.800
39,680
32,600
82,400
11. 200
174.400
-068.000
41.600
278,800
46,400
117,280
56.800
40.000
40.625
9.600
54,240
102.560
-0-0-0-0-0-0-0291. 200
38.400
227.200
-0245.600
898,240
139.520
11,200
110,400
221. 600
COMMITTEE ON FINANCE
UNITED STATES SENATE
SO-205 Dirksen Building
Washington, D.C. 20510
PRESS RELEASE #104-1
FOR IMMEDIATE RELEASE
January 6/ 1995
CONTACT: Eric Bolton
(202) 224-4515
FINANCE
COHM~TT~~
SETS CONFIRMATION HEARING
FOR ROBERT E. RUBIN
Washington, D.C. -- Senator Bob Packwood (R-OR)/
Chairman of the Committ.~~ on Finance, announced today
that the Committee will conduct a hearing on Tuesday/
January 10, 1995, on the nomination by President
Clinton of Robert E. Rubin/ of New York, to be
Secretary of the Treasury.
The hearing will immediately follow an Executive
Session of the Committee on Finance beginning at
9:30 a.m. in Room 5D-215 of the Dirksen Senate Office
Building.
Since J~nuQry 1993, Mr. Rubin ha$ been Assistont
to the President for Economic POlicy. From 1966 to
1992, he was with The Goldman Sachs Group, L.P.,
located in New York City.
Mr. Rubin received an A.B. from Harvard College
and a L.L.B. from Yale Law School. He also attended
the London School of Economics.
Written statements: Witnes6es who are not
scheduled to testify, and others who desire to present
their views to the Commi~~eef are urged to submit
written statements for inclusion in the hearing record.
Written statements must be typed and must not exceed 10
pages in length. One copy should be mailed to
Publication Section, United States Senate, Committee on
Finance, Washington, D.C. 20510, and also to Mr.
Lawrence O'Donnell, Minority Chief of Staff, United
States Senate, Committee on Finance/ Washington/ D.C.
20510.
These statements mU6L lJe LeC;8iv!;;!u nu ldt!;;!L than
close-ot-business, Tuesday, January lO, 1995. Please
indicate the date and SUbject of the hearing on the
first page of the statement.
The Committee urges those who submit statements to
provide a diskette containing the statement in a format
that can be read by personal computers. Plain ASCII
text is preferred, but other formats will also be
accepted.
###
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
January 9, 1995
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $13,473 million of 13-week bills to be issued
January 12, 1995 and to mature April 13, 1995 were
accepted today (CUSIP: 912794R55).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.86%
5.87%
5.87%
Investment
Rate
6.03%
6.04%
6.04%
Price
98.519
98.516
98.516
Tenders at the high discount rate were allotted 100%.
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
$55,519,226
Acce:gted
$13,472,570
$49,842,413
1,630,609
$51,473,022
$7,795,757
1,630,609
$9,426,366
3,136,520
3,136,520
909,684
$55,519,226
909,684
$13,472,570
An additional $72,616 thousand of bills will be
issued to foreign official institutions for new cash.
FN-18
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
January 9, 1995
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $13,574 million of 26-week bills to be issued
January 12, 1995 and to mature July 13, 1995 were
accepted today (CUSIP: 912794T95).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
6.41%
6.42%
6.42%
Investment
Rate
6.72%
6.73%
6.73%
Price
96.759
96.754
96.754
Tenders at the high discount rate were allotted 29%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$54,143,287
Accepted
$13,573,661 .
$47,529,249
1,416,922
$4 8 , 94 6 , 1 71
$6,959,623
1,416,922
$8,376,545
3,300,000
3,300,000
1,897,116
$54,143,287
1,897,116
$13,573,661
Type
Competitive
Noncompetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOTALS
An additional $151,284 thousand of bills will be
issued to foreign official institutions for new cash.
0-19
DEPARTMENT
OF
THE
TREASURY
NEWS
OFFICE OF PUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
For Release Upon Delivery
Expected at 2:00 p.m.
Ja.iuary 10, 1995
ORAL TESTIMONY OF LESLIE B. SAMUELS
ASSISTANT SECRETARY (TAX POLICY)
BEFORE THE
COMMITIEE ON WAYS AND MEANS
UNITED STATES HOUSE OF REPRESENTATIVES
Mr. Chairman and members cf the Committee:
I have a longer statement for the record and 1'd like to summarize it if I may.
I am pleased to appear before this Committee today to present the Administration's
views on the tax proposals in the series of bills referred to as the "Contract with America."
The Contract raises broad issues of public policy concerning the proper size and scope of
Federal government activity, the allocation of Federal budgetary resources, and the division
of responsibilities between tIle Federal and State governments. In addition, the Contract
contains several broad proposals~ such as the proposed balanced budget amendment, that
c0uld indirectly have a major impact on the Federal tax system. These broad issues a:e
beyond the scope of my testimony today, which will focus en the tax a.~d taX-related
provisions in the Contract and their tax policy implications.
We look for..,..ard to working with this Committee to develop and refine tax proposals
wat encourage economic .growth and improve the lives of working Americans. We are
particularly interested in crafting p~cposa!s that are affordable, simple, efficient and focused
vn middle-income families.
FN-20
(MORE)
2
We must build on the progress we have made over the past two years. We have
achieved a remarkable combination of high employment, high economic growth, and low
inflation. In the last Congress, we worked on a bipartisan basis with this Committee to pass
NAFT A and GAIT. There are a number of proposals in the Contract where there is
common ground. But we are particularly concerned about the capital gains and the cost
recovery proposal. These proposals, if enacted, would result in significant tax shelter
transactions and encourage investment in uneconomic activities. Nevertheless, we are
confident that together we can develop targeted proposals that are acceptable to the Congress,
the President and the American people.
There are fifteen tax and tax-related proposals in the Contract. They range from tax
credits for children and a savings incentive to capital gains preferences and a cost recovery
system. Before I discuss a few of these, I want to offer an overview of the tax policy
implications of the Contract.
We are very concerned about -the potential effect of the Contract on the deficit. This
Administration, with the assistance of the previous Congress, has made significant progress
in controlling Federal spending and reducing the deficit. In the last fiscal year the deficit
was at its lowest level relative to GDP in the past five years, and the second lowest in the
past thirteen years. Moreover, our unemployment rate has dropped to 5.4 % and inflation
last year was below 3 %.
We have prepared preliminary revenue estimates, shown in Table 1, that reflect
changes made to the Contract in bills introduced last week. Our preliminary analysis shows
that the proposed tax cuts in the Contract with America would lose $205.4 billion over the
period FY1995-FY2000. The revenue cost grows rapidly after FY2000, to almost $120
billion per year, raising the FY1995 - FY2005 revenue cost to $725.5 billion. Thus, the tax
provisions in the Contract would increase the deficit unless they are fully and permanently
offset by specific financing proposals. We learned an important lesson in the 1980s: The
responsible thing to do is to make certain that tax cuts and spending increases are paid for at
the outset.
Our evaluation of the tax proposals in the Contract is based on three basic principles
of tax policy: fairness, simplicity, and efficiency. We are concerned that several provisions
in the Contract do not fully satisfy these criteria. In particular, they would provide
disproportionate benefits to high income taxpayers, would make the tax law more
complicated, and would encourage unproductive tax shelter activity.
3
The first of these basic principles of tax policy is fairness. An important dimension
of tax fairness is the distribution of the tax burden among families at different income levels.
Fifty percent of the tax benefits from the Contract wQuld go to families with incomes over
$100,000. The most well off in America -- the richest Americans -- get half of the benefits
of the tax cuts contained in the Contract. That doesn't meet the fairness test. In fact, it
reduces the progressivity of the Federal tax system.
Simplicity is also a tax policy goal by which the Contract should be evaluated. To
the extent consistent with other tax policy goals, the income tax should be designed to
minimize the cost of compliance by taxpayers and the administrative costs of the Internal
Revenue Service. Several of the proposals may appear simple at first glance. But, as I will
point out in a moment, a great deal of complexity must be introduced in order to implement
the proposals and administer them. If this is not done, arbitrary and unfair distinctions are
created, which also provide opportunities for abuse.
Finally, the tax system should be efficient. It should interfere as little as possible in
the economic decisions of investors, workers, and consumers. The tax system should not
encourage investment in uneconomic activities. In the early 1980s, we experienced a
proliferation of tax shelter activity, with very adverse results both for investors and the tax
system. We must not repeat that experience.
I'd like now to go over some of the provisions in the Contract:
$500 Per Child Refundable Tax Credit
The Administration supports a $500 per child tax credit for middle income families.
And I would point out that Congress passed a child tax credit in 1992, but it was vetoed.
We believe the Contract proposal would be improved if modified along the lines of the
President's proposal. The Contract proposal provides benefits for families with AGI up to
$250,000 -- more than 99 percent of all families. The President's proposal is targeted to
middle income families.
Back-Loaded IRAs
American Dream Savings Accounts, or ADSAs, are designed to provide an incentive
to individuals to increase their savings. We support this goal for middle income families.
We believe the Contract proposal again would be improved if targeted to these families.
A quick word here on savings. Our national savings rate is abysmally low. If we
don't get the rate up, it will be hard to sustain private investment into the next century. That
could endanger the continued healthy growth of the economy.
4
We believe that expanding and improving the traditional deductible IRA is the most
effective way to promote new savings. In this regard, the President's proposal is similar to
the IRA bill passed by Congress in 1992. Back-loaded pr:oposals like the ADSA can
supplement expansion of deductible IRAs, but we do not believe that they are as effective
standing alone. I would also note that the Contract proposes penalty-free withdrawals from
ADSAs for first home purchases, education and other purposes. We feel that those same
benefits should be available for !RAs. Finally, the Contract proposal fails to target its
benefits to those most likely to increase savings. As a result, it is less cost effective than the
President's proposal.
Increased Expensing Limit for Small Business
The Administration supports an increase in the expensing limit for small business,
which the House passed in 1993 with the Administration's support.
Favorable Tax Treatment of Long-Term Care Insurance and Services, and
Tax-Free Accelerated Death Benefits Under Life Insurance Contracts
Last year the Administration proposed legislation on the tax treatment of long term
care insurance and services, as well as accelerated death benefits under life insurance. We
generally support these proposals but believe that they should be modified to protect
policyholders and to prevent tax abuse that could occur under the Contract proposals.
Neutral Cost Recovery System
The Administration opposes this cost recovery system. Its generous benefits could
divert investment dollars from investments that improve productivity to investments that yield
significant tax benefits.
.
The CRS could lead to a proliferation of tax shelters, like the "see-through" buildings
we experienced in the last decade. In addition, indexing the basis of assets for inflation and
a 3.5 percent return without also indexing debt, effectively allows businesses to earn tax-free
income and fully deduct the cost of funds used to produce that income. In essence, CRS
could revive the tax shelter abuses of the 1980s.
Let me give a simple example you can see on the chart in your material. A business
buys a machine for $1,000. Instead of depreciating the $1,000 cost as permitted under
current law, the taxpayer under the proposal would be entitled to total depreciation
deductions of $1380, assuming 3 percent inflation. In addition, the taxpayer will be allowed
to deduct all of the interest on money borrowed to buy the equipment. It is a better deal
than buying a tax-exempt bond -- the taxpayer has a negative income tax.
5
We are very concerned about the revenue loss from this proposal. While it is
structured to raise $18.4 billion through fiscal year 2000, it loses $138.8 billion over the
second 5 years. As a result of the CRS, some large corporations may not pay corporate
income tax or alternative minimum tax. This would be a major retreat from tax reform
enacted in 1986. I think Americans would be concerned if we gave such a large benefit to
business when it's middle income taxpayers who need our help.
Capital Gains Tax Preferences
With respect to capital gains tax, the Administration opposes the 50 percent exclusion
and indexing proposals. The combination of a 50 percent exclusion plus indexation is too
generous, too complex, and not well targeted. The Administration's 1993 capital gains
exclusion that would be repealed by the Contract is limited to new investments, and thus
does ·not provide a windfall benefit to existing investments. It is also limited to small
businesses, thus reducing the cost of equity capital to those businesses that are most likely to
fmd it difficult or costly to obtain financing. We believe that additional capital gains
preferences for new investment, if they are determined to be necessary, should likewise be
targeted, and should meet the tests of fairness, simplicity and efficiency.
I want to say just a quick word about indexing capital gains -- that is taxing only the
amount of profit that exceeds the cumulative inflation rate. Most Americans want to do less
paperwork, not more -- and that holds doubly so when we're talking about taxes. But that's
not what will happen if you start requiring people to keep new detailed records on every
home improvement. And the same holds true for people who ·own stock or mutual funds.
The record keeping burden really begins to pile up.
This could be a tax lawyer's and accountant's dream, and a homeowner's and
investor's nightmare.
On top of that, with quarterly inflation adjustments, investors will wait until the end
of each quarter to sell, looking for that little inflation "bump" to reduce the tax they owe.
You know, to keep that from happening you'd probably have to put out a figure more
frequently. Think about the record keeping problems and market inefficiencies this creates ..
The indexing proposal permits investors to claim a tax loss when their investment
does not keep up with inflation, even though they are able to sell it for more than the
original purchase price. In addition, since borrowings are not indexed· taxpayers would have
a tax incentive to finance the lots with debt. Overall, you can see how this indexing proposa..
would encourage tax shelter activity.
6
Phase Out of the 8S Percent Maximum Inclusion Rate for Social Security Benefits
The Administration opposes the phase out of the 85 percent maximum inclusion rate
for Social Security because it would reduce needed revenues for the HI Trust Fund.
Moreover, under current law Social Security benefits generally receive more favorable tax
treatment than do pension and other retirement income.
The OBRA 93 increase affected only 13 percent of taxpayers reporting Social Security
benefits -- those at the high end of the income distribution of beneficiaries. The OBRA 93
changes did not affect the other 87 percent of taxpayers receiving benefits.
Tax Credit to Reduce Marriage Penalties
The proposed tax credit to reduce marriage penalties lacks detail on the allocation of
benefits· and would be difficult to administer. The Administration would prefer to work with
the Congress to investigate other means of addressing the issue.
Income Tax Return Check-Off for Deficit Reduction
With respect to an income tax return check-off for deficit reduction, this
Administration has a strong commitment to deficit reduction and supports the goal of this
proposal. The idea is to impose discipline on spending by the federal government and, in
doing so, reduce the amount of outstanding Federal debt. But the Administration opposes
this particular proposal because of the impact it could have on the legislative process, the
budget process, and the economy.
The proposal would allow certain individuals effectively to override Congressional
choices by extending to those designating a transfer to the Trust Fund the right permanently
to reduce the level of federal spending. Those with high income tax liabilities would have a
greater say in how federal funds are spent. Those with low income tax bills or with only
payroll or excise tax liability WOUld, in effect, be disenfranchised. This proposal undermines
the fundamental tenet of our political system -- "one person, one vote."
Regulatory Reform
The Administration supports the goal of reducing regulatory burdens to the extent
compatible with responsible administration of the laws. Nevertheless, this Administration
and the prior two Administrations have recognized that a "one-size-fits-all" approach to
regulations is not in the best interests of the government or the public.
The Contract's provisions would apply to tax regulations. It is important to consider
the consequences. And we would like to work with the Committee on this important issue.
7
The Contract could have a very negative impact on the tax guidance and
administrative process. Without regulatory clarification of statutory issues, individuals and
businesses would be subject to uneven enforcement of the tax laws. They would be denied
the certainty they need to plan for long term investments and would be hesitant to engage in
productive economic activities. We strive in tax policy for uniform administration of the tax
laws, and regulatory standards are essential.
The prior Administration also recognized the critical role of tax regulations during the
1992 regulatory moratorium and allowed the IRS to continue to issue tax regulations on a
regular basis.
Conclusion
The Administration has serious reservations about some of the provisions in the
Contract. But we share the goals that would be advanced by other provisions. The
Administration is interested in crafting a set of tax cut proposals that are affordable, simple,
efficient and focused on middle-income families, as the President has done in the Middle
Class Bill of Rights. We look forward to working with the Committee to develop proposals
that meet these criteria and which are acceptable to the Congress, the President and the
American people.
-30-
Table 1
Preliminary Estimates */
CONTRACT WITH AMERICA
FISCal years
01/10/95
Proposal
12:27 PM
1 $500 per child tax credit
2 American Dream Savings Accounts
3 Favorable tax treatment of long-term care Insurance and services
4 Tax-free accelerated death benefits under life Insurance contracts
5 Increased expensing limit for small business
6 $5,000 refundable tax credit for adoption expenses
7 $500 refUndable tax credit for elderly care
8 Neutral cost recovery
9 Capital gains tax preferences
10 Phase-out of the 85 percent maximum Inclusion rate for social security benefits
11 Tax credit to reduce marriage penalties
12 Expansion of the home office deduction
13 Increase of the estate tax exemption to $750,000
1995
-.
3.3
0.2
3.5
1995-~
1996
1997
1998
1999
2000
2001
2002
($ billions)
2003
2004
2005
1995-00
-13.4
0.3
-0.9
-0.0
-0.8
-0.0
-0.1
10.0
-1.1
-0.5
-1.0
-0.0
0.0
-27.0
1.3
-1.1
-0.0
-1.3
-0.3
-0.3
13.4
-8.4
-1.9
-2.0
-0.1
-1.4
-27.2
1.9
-1.2
-0.0
-0.9
-0.3
-0.3
8.5
-15.0
-3.2
-2.0
-0.1
-1.6
-27.4
1.3
-1.3
-0.0
-0.7
-0.4
-0.3
-2.6
-17.4
• -4.2
-2.0
-0.1
-1.8
-28.9
0.2
-1.4
-0.0
-0.4
-0.4
-0.3
-14.1
-19.2
-5.2
-2.0
-0.1
-2.0
-30.4
-1.7
-1.6
-0.0
-0.3
-0.4
-0.3
-21.5
-20.9
-5.9
-2.0
-0.1
-2.2
-31.9
-3.6
-1.7
-0.1
-0.2
-0.4
-0.3
-26.0
-22.6
-6.3
-2.0
-0.1
-2.5
-33.4
-4.7
-1.9
-0.1
-0.1
-0.4
-0.3
-28.7
-24.4
-6.7
-2.0
-0.1
-2.8
-33.6
-5.9
-2.0
-0.1
-0.1
-0.4
-0.3
-30.4
-26.2
-7.0
-2.0
-0.1
-3.1
-35.1
-6.8
-2.2
-0.1
-0.0
-0.4
-0.3
-32.2
-28.2
-7.4
-2.0
-0.1
-3.5
-124.1
5.0
-5.9
-0.1
-4.2
-1.4
-1.2
18.4
-60.9
-15.0
-9.0
-0.4
-6.7
-288.
-17.
-15.
-0.
-5.
-3.
-2.
-120.
-183.1
-48.5
-19.0
-1.0
-20.7
-7.6
-29.0
-41.5
-57.0
-73.9
-87.5
-97.7
-105.5
-111.2
-118.3
-205.4
-725.5
Department of the Treasury
Office of Tax Analysis
., Estimates are preliminary. The Office of Tax Analysis has had only a short time to analyze the legislation In Its current form. There have been significant changes In some of the provisions since
the original legislation was released on September 27,1994.
~CRS, Debt Financing and Negative Taxable Income
$1,000 Investment. Ten-Year Property
Deductions
$1,500
$1,000
$500
$O~
NCRS
Current Law
Income
$1,000
$500
$O~
-$281
-$500 L...-----T--------r----Economic
Taxable
Source: Department of the Treasury
Office of Tax Analysis
Revenue Effect of Contract with America
Billions of Dollars
$50
$4
$0
-$8
-$29
-$50
-$42
-$74
-$88
-$100
-$98
-$106 -$111
-$118
-$1 50
L...--.L...---'------l_.....L..---'-_..L..-----'------'-_...L..-----"-_.L...--
1995
1997
1·999
5-year cost
1O-year cost
Source: Department of the Treasury
Office of Tax Analysis
2001
2003
-$205 billion
-$726 billion
2005
DEPARTMENT
OF
THE
TREASURY
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASIDNGTON, D.C.• 20220. (202) 622-2960
For Release Upon DeliveQ'
Expected at 2:00 p.m.
January 10, 1995
STATEMENT OF LESLIE B. SAMUELS
ASSISTANT SECRETARY (TAX POLICY)
BEFORE THE
COMMII'IEE ON WAYS AND MEANS
UNITED STATES HOUSE OF REPRESENTATIVES
Mr. Chairman and distinguished Members of the Committee:
I am pleased to appear before this Committee today to present the Administration's
views on the tax proposals in the series of bills collectively referred to as the "Contract with
America. "I The Contract raises broad issues of public policy concerning the proper size and
scope of Federal government activity, the allocation of Federal budgetary resources, and the
division of resp0risibilities betv.:een the FedcrcJ and State governments. In addition, the
Contract contains several broad proposals, such as the proposed balanced budget amendment,
which could indirectly have a major impact on the Federal tax system. These broad issues
are beyond the scope of my testimony today, which will focus on the tax and tax-related
provisions in the Contract and their tax policy implications.
There are fifteen tax and tax-related proposals in the Contract. The tax proposals are:
(1) a $500 per child refundable tax credit; (2) the" American Dream Savings Account;" (3)
favorable tax treatment for long-term care insurance and services; (4) tax-free accelerated
These bills include H.R. 2, the "Fiscal Responsibility Act," H.R. 3, the "Taking Back
Our Streets Act," H.R. 4, the "Personal Responsibility Act," H.R. 5. the "Unfunded
Mandate Reform Act," H.R. 6, the" American Dream Restoration Act." H.R. 7, the
"National Security Restoration Act," H.R. 8, the "Senior Citizens' Equity Act," H.R. 9, the
"Job Creation and "Vage Enhancement Act," H.R. 10, the "Common Sense Legal Reforms
Act," and H.R. 11, the "Family Reinforcement Act."
1
FN-21
-2-
death benefits under life insurance policies; (5) an increased expensing limit for small
businesses; (6) a $5,000 refundable tax credit for adoption expenses; (7) a $500 refundable
tax credit for elderly care; (8) the "neutral" cost recovery system; (9) capital gains tax
preferences; (10) phase out of the 85 percent maximum inclusion rate for Social Securit}benefits; (11) a tax credit to reduce marriage penalties; (12) expansion of the home office
deduction; and (13) an increase of the estate tax exemption to $750,000. 2 The two taxrelated proposals in the Contract are: (14) an income tax return check-off for deficit
reduction; and (15) regulatory reform. 3 Before addressing each of these proposals in detail,
I will provide an overview of the tax policy implications of the Contract.
We look forward to working with this Committee to develop and refine tax proposals
to encourage further economic growth and improve the lives of working Amencans. We are
particularly interested in crafting proposals that are affordable, simple, efficient, and focused
on middle-income families. '\\'e must build on the progress we have made in the last two
years. We have achieved a remarkable combination of high employment, high economic
growth, and low inflation. Over the course of the last two years we have worked on a
bipartisan basis with this Committee to pass NAFf A and GAIT. There are a number of
proposals in the Contract where there is common ground. But we are particularly concerned
about the capital gains and cost recovery proposals. These proposals, if enacted, could
stimulate the renewal of tax shelters and encourage investment in uneconomic activities.
Nevertheless, we are confident that together we can develop proposals that are targeted to
middle-income Americans and are acceptable to the Congress, the President, and the
American people.
One of our primary concerns relates to the potential effect of the Contract on the
deficit. This Administration, with the assistance of the previous Congress, has made
significant progress in controlling Federal spending and in reducing the Federal deficit,
which in the last fiscal year was at its lowest level relative to GDP in the past five years, and
the second lowest in the past thirteen years. Furthermore, the Administration is proposing
additional expenditure cuts that will fully pay for the tax cuts proposed in the President'S
"Middle Class Bill of Rights ...
We have prepared preliminary revenue estimates of the tax provisions in the Contract
based on the bills introduced on January 4, 1995. These estimates are preliminary because
we have had only a short time to analyze the bills in their current form, and there have been
Proposals 1,2, and 11 appear in H.R. 6, the "American Dream Restoration Act,"
proposals 3, 4, and 10 appear in H.R. 8, the "Senior Citizens' Equity Act," proposals 5, 8,
9, 12, and 13 appear in H.R. 9, the "Job Creation and Wage Enh:mcement Act," and
proposals 6 and 7 appear in H.R. 11, the "Family Reinforcement Act."
2
These two tax-related proposals appear in H.R. 9, the "Job Creation and Wage
Enhancement Act ...
3
-3-
significant changes in some of the provisions of the Contract since the original legislation
was released on September 27, 1994. According to these preliminary revenue estimates,
shown in Table 1, the tax cuts proposed in the Contract with America would lose $205.4
billion over the period FY1995 - FY2ooo. The revenue cost grows rapidly after FY2ooo, to
nearly $120 billion per year in FY2005, raising the FY1995 - FY2oo5 revenue cost to
$725.5 billion. Although the Contract proposes a balanced budget amendment, it does not
contain specific proposals for expenditure reductions or tax changes necessary to achieve that
balance or to offset the proposed tax cuts or pay for other provisions, such as increased
defense expenditures, that would further increase the deficit. Thus, the tax provisions in the
Contract would increase the deficit unless they are fully and permanently offset by specific
financing proposals.
We believe that the tax proposals in the Contract should be evaluated according to
three basic principles of tax policy: fairness, simplicity, and efficiency. Several provisions in
the Contract, in their present form, do not fully meet these criteria.
A basic principle of tax policy is fairness. One dimension of tax fairness is the
distribution of the tax burden among families at different income levels. Table 2 shows the
Treasury Department's estimates of the distributional effects of the tax provisions in the
Contract. The fourth column shows that of the $97.2 billion of annual tax cuts from the
Contract provisions when fully phased in, $48.5 billion, or 50 percent, would benefit
families with incomes over $100,000. These families would receive a disproportionately
large share of the tax cuts, thereby reducing the progressivity of the Federal tax system.
This reduction in progressivity can also be seen in the ratio of tax cuts to income (column six
in the table), which increases with income throughout the income distribution.
Another dimension of fairness may be characterized as the "equal treatment of
equals," or the imposition of similar tax burdens on taxpayers in similar circumstances. As
discussed more fully below, several provisions in the Contract would create disparities in the
tax burdens of similarly-situated taxpayers.
Simplicity is also a goal of tax policy by which the Contract should be evaluated. To
the extent consistent with other tax policy goals, the income tax should be designed to
minimize the cost of compliance by taxpayers and the administrative costs of the Internal
Revenue Service (IRS). Several of the proposals may appear simple at first glance, but, as
will be noted, a great deal of complexity must be introduced in order to implement these
proposals and to reconcile them with the rest of the Tax Code. If this is not done, arbitrary
and unfair distinctions are created, which also provide unintended opportunities for abuse.
Finally, the tax system should be efficient. We strongly believe the tax system should
not encourage investment in uneconomic activities and a renewal of tax shelter activities. In
the early 1980s, we experienced a proliferation of tax shelter activity, with very adverse
results for investors, the tax system, and the economy. We should not repeat that experience
-4-
by creating new opportunities for tax motivated transactions that distort economic and
investment decisions.
1.
$500 Per Child Refundable Tax Credit
Current Law
A tax exemption, in the form of a deduction, is allowed for each taxpayer and for
each dependent of a taxpayer. A dependent includes a child of the taxpayer who is supported
by the taxpayer and who has not attained the age of 19 at the close of the calendar year or
who is a student under age 24. The deduction amount is $2,500 for tax year 1995. This
amount is indexed annually for inflation.
In addition to an exemption for each child, three other tax benefits may accrue to
taxpayers because of dependent children: the earned income tax credit (BITC), the credit for
child and dependent care expenses, ~d the exclusion for employer-provided child and
dependent care benefits. The EITC is a refundable tax credit based on the earnings of the
taxpayer. The EITC is restricted to lower income taxpayers and phases out when earnings
exceed specified levels. Although the EITC is available for taxpayers without dependents,
the credit rate and income range of the credit are far greater when the taxpayer has one or
more dependent children. In addition, the rate and income range are higher for taxpayers
with two or more eligible dependent children than for taxpayers with only one eligible
dependent child.
Prqposal
The Contract with America would provide a $500 refundable tax credit for.each child
under age 18 for families with adjusted gross income (AGI) less than $200,000. The credit
would be phased out for families with AGI between $200,000 and $250,000. The amount of
the credit would be capped by the sum of the individual's income tax liability and any Social
Security taxes paid with respect to the individual's earnings (including an employer's share of
Social Security taxes). The $500 maximum amount would be indexed annually for inflation.
The credit would be effective for tax years beginning in 1996.
The proposal would reduce tax receipts by $124.1 billion over the five-year FYI996
FY2000 period, and by $288.5 billion over the ten-year FY1996 - FY2oo5 period.
Discussion
The Administration supports the concept of a $500 per child tax credit, but believes
the Contract proposal would be improved if targeted to middle-income taxpayers along the
lines of the President's proposal.
-5The Contract proposal provides benefits for families with AGI up to $250,000. This
income limitation denies the credit to only one percent of all otherwise eligible taxpayers.
2.
American Dream Savings Accounts
Current Law
Taxpayers can contribute up to $2,000 to an individual retirement account (IRA).
These contributions are deductible (so-called "front-loaded" IRAs), but the level of such
deductible contributions is phased out for single filers with AGI between $25,000 and
$35,000, and for joint filers with AGI between $40,000 and $50,000. If neither the taxpayer
nor the taxpayer's spouse is an active participant in an employer-sponsored pension plan,
then deductible contributions can be made, regardless of the taxpayer's income. No tax is
imposed on the earnings on IRA balances. Taxpayers, however, are required to pay income
tax on withdrawals. Penalty-free withdrawals from these front-loaded accounts are allowed
only after the taxpayer reaches the age of 59 112, or upon disability or death of the taxpayer.
PrQPOsal
The proposal would allow individuals, regardless of income and pension coverage,
and, in some cases, regardless of employment status, to contribute up to $2,000 a year into
an "American Dream Saving Account" (ADSA). ADSAs would be back-loaded, which
means that contributions would not be tax deductible, earnings would not be taxed, and no
tax would be imposed on withdrawals if certain conditions are satisfied. As with current-law
IRAs, penalties would apply to premature distributions. Penalty-free withdrawals would be
allowed after five years for the purchase of a first home, higher education expenses, or
medical expenses including purchases of long-term care insurance. In addition, as with
current-law IRAs, penalty-free withdrawals after five years would be allowed upon death or
disability, or when the individual reaches the age of 59 1/2. Individuals could continue to
contribute after age 70 1/2. The proposal would also allow individuals a one-time
opportunity to convert their current IRA accounts into ADSAs. Income tax would be due on
the total amount transferred, but the proposal would allow individuals to spread this tax
liability, interest free, over four years. The proposal would be effective for tax years
beginning in 1996.
Because of the addition of the one-time conversion feature, the proposal would
increase tax receipts by $5.0 billion over the five-year FY1996 - FY2000 period, but would
reduce receipts by $17.7 billion over the ten-year FY1996 - FY2005 period.
Discussion
The Administration supports the expansion of IRAs, but believes the President's IRA
proposal is more cost-effective than the ADSA proposal and provides taxpayers more with
more choice in selecting a tax-favored savings incentive.
-6-
The nation's saving rate has declined dramatically since the 1970s. During that
decade, net national saving averaged 7.2 percent of gross domestic product (GDP). Over the
past ten years, the saving rate has averaged only 2.8 percent of GDP. The Administration is
particularly concerned about the current level of national 'savings. We believe that the
savings rate is too low to sustain a sufficient level of private investment into the next
century. Without adequate investment, the continued healthy growth of the economy is at
risk. A continuation of our successful policies of the past two years to reduce the Federal
deficit is an essential element of any effort to improve the nation's savings rate. Increasing
the personal savings rate is an essential supplement to that effort.
ADSAs are designed to provide an incentive to individuals to increase their savings.
We support this goal. However, we do not believe that the Contract proposal as currently
drafted is the best mechanism for reaching this goal.
ADSA contributions are not deductible, so they do not reduce current income tax
liabilities. For many middle-income taxpayers, a major attraction of traditional IRAs is that
contributions are deductible and, therefore, provide immediate tax relief. By requiring that
contributions be made out of after-tax dollars, it is likely that ADSAs will be less attractive
to many middle-income taxpayers than the deductible, front-loaded, IRAs. Conversely,
ADSAs will appeal primarily to more sophisticated savers, who have sufficient income and
sufficient liquidity to make ADSA contributions out of after-tax dollars. Thus, the people
whose contributions to tax-preferred saving accounts are most likely to represent new
saving -- those with income of less than $100,000 -- are the ones more likely to contribute to
front-loaded IRA accounts than to ADSAs. That is why the President's proposal (and other
bipartisan IRA bills that have been introduced over the last few years) allow eligible
taxpayers the option of choosing a traditional front-loaded IRA or a new back-loaded special
IRA.
We also believe that broadening the tax incentives for saving for reasons other than
retirement is an important element in any proposal to increase the nation's saving rate. By
expanding incentives to include savings for first-time home purchases, higher education
expenditures, and catastrophic medical expenses, ADSAs should prove to be more attractive
to taxpayers than accounts limited to retire.ment savings. This should be particularly true for
individuals with moderate incomes and those below the age of 35, who are now doing little
saving. But these penalty-free withdrawal options should not be limited to ADSAs. They
should be made available for IRAs, as proposed by the President and should also include
penalty-free withdrawals for long-term unemployment and caring for an incapacitated parent.
In addition, the Contract proposal fails to target its benefits as well as the President's
proposal to expand IRA benefits and does not provide a range of choices to taxpayers. It is
thus less cost effective than the President's proposal in increasing net national saving. IRA
contributions by wealthy taxpayers are much more likely to be financed by diverting assets
from existing non-tax preferred accounts, while contributions by taxpayers with more
moderate incomes are more likely to represent increases in savings. Thus, providing high-
-7-
income taxpayers with the option of saving in tax-preferred accounts is unlikely to generate
much in the way of ~ saving.
3. Favorable Tax Treatment of Long-Term Care Insurance and Services
Current Law
A taxpayer is allowed an itemized deduction for unreimbursed expenses that are paid
by the taxpayer during any taxable year for medical care of the taxpayer, the taxpayer's
spouse, or a dependent of the taxpayer to the extent that such expenses exceed 7.5 percent of
the AGI of the taxpayer for such year. The cost of personal services, including custodial
care, is a medical expense if there is a direct connection between the service and a
recognized, specific medical condition, and the services are performed directly for the
individual. Old age is not a sufficiently specific medical condition. Regulations provide that
the entire amount of an expense may be treated as a medical expense if the expense is
incurred primarily to provide medical care.
To the extent that long-term care is not classified as medical care, employer-provided
care is taxable to the employee. Generally, benefits paid under a long-term care plan or
policy are not treated as amounts received through accident and health insurance on an
excluded basis unless the amounts received for long-term care represent reimbursement for
medical care expenses.
Proposal
Long-term care services. The proposal would allow expenses for qualified long-term
care services for the chronically ill to be deducted as an itemized medical expense (subject to
the 7.5 percent of AGI limitation). Qualified long-term care services would include services
required by a chronically ill individual in a qualified facility, including home care in certain
circumstances, under care prescribed by a licensed health care practitioner. A chronically ill
individual must require substantial assistance with at least two activities of daily living
(ADLs) for a period of at least 90 days or have a similar level of disability due to cognitive
impairment.
Long-term care insurance. The proposal provides that benefits could be received
tax-free from a long-term care insurance policy. Benefits could be paid on a "per diem"
basis without regard to the actual expenses incurred during the period to which the payments
relate. However, whether paid on a reimbursement basis or a per diem basis, any benefits in
excess of $200 per day (indexed for medical inflation care) for any single policy would be
taxable. Individuals would be allowed to deduct premiums paid to purchase long-term care
insurance as a medical expense (subject to the floor of 7.5 percent of AGI) to the extent the
premiums do not exceed specified annual limits.
-8-
The value of employer-provided coverage under a long-term care insurance contract
would not be included in an employee's income because the contract would be treated as
accident or health insurance. An exchange of a life insurance, endowment, or annuity
contract for a long-term care insurance contract would be treated as a tax-free exchange. In
addition, the proposal would allow a tax-free distribution to an individual from an IRA or a
401(k) plan for the payment of premiums on a long-term care insurance contract for the
benefit of the individual or the individual's spouse.
All provisions would be effective for taxable years beginning in 1996.
The proposal would reduce tax receipts by $5.9 billion over the five-year FY1996 FY2000 period, and by $15.3 billion over the ten-year FY1996 - FY2oo5 period.
Discussion
The Administration has developed similar proposals for the favorable tax treatment of
long-term care insurance and services, and therefore supports the goals of the provisions
included in the Contract. However, we believe a number of modifications are required to
ensure that the proposals reflect sound tax policy.
In particular, we believe that the Contract's provisions that (i) allow tax-free
withdrawals from lRAs and 401(k) plans to purchase long-term care insurance, (ii) allow taxfree exchanges of life insurance and annuity contracts for long-term care insurance contracts,
and (iii) permit unlimited tax-free long-term benefits by allowing the purchase of multiple
policies that provide a $200 per day benefit are too generous, and treat amounts paid for
long-term care insurance much more favorably than out-of-pocket expenses. These
provisions would allow individuals to purchase future long-term care insurance without being
subjected to the funding 'and/or benefit restrictions imposed on a long-term care insurance
policy.
4.
Tax-Free Accelerated Death Benefits Under Life Insurance Contracts
Current Law
Payments made under a life insurance contract other than by reason of an insured's
death are generally taxable. However, the tax treatment of payments made with respect to
terminally ill insureds in anticipation of death is not entirely clear. Proposed regulations
issued in 1992 would permit the tax-free receipt of accelerated death benefits in certain
circumstances, and would allow accelerated death benefit riders to be added to current life
insurance contracts without endangering such contracts from being disqualified as life
insurance.
Distributions (other than policy loans) from a life insurance policy are taxable to the
extent they represent income on the contract.
-9-
PrQposal
The Contract would exclude from gross income certain distributions received by an
individual under a life insurance contract if the insured under the contract is terminally ill.
An individual would be considered terminally ill if a licensed physician certified that the
individual's death was reasonably expected within 12 months of the certification.
The Contract would also permit tax-free payment of benefits from a life insurance
policy on the life of an insured who is chronically ill and confined to a qualified long-term
care facility (including home care).
The proposal would reduce tax receipts by $0.1 billion over the five-year FY1996 FY2000 period, and by $0.4 billion over the ten-year FY1996 - FY2oo5 period.
Discussion
The Administration generally supports this provision, although we believe it should be
modified. For example, policyholder safeguards should be added to ensure that the payment
of accelerated death benefits under a life insurance contract would not unduly lower the
remaining value of the policy's death benefits or its cash value.
s.
Increased Expensing Limit for Small Business
Current Law
The cost of business or income-producing property that provides service for more
than one tax year generally must be deducted over the recovery period of the property. A
taxpayer may elect, however, to deduct currently up to $17,500 of the cost of the property
(i.e., "expense" the property). However, this $17,500 maximum is reduced for each dollar
of the total cost of qualified property acquired during the year in excess of $200,000. Thus,
if the cost of qualified property placed in service during the year exceeds $217,500, no
expensing is allowed.
Proposal
The Contract with America would increase the maximum investment that may be
expensed from $17,500 to $25,000 for tax years beginning in 1996.
The proposal would reduce tax receipts by $4.2 billion over the five-year FY1996 FY2000 period, and by $5.0 billion over the ten-year FY1996 - FY2oo5 period.
-10-
Discussion
The Administration supports an increase in the maximum investment that may be
expensed for small businesses. The Omnibus Budget Reconciliation Act of 1993 (OBRA 93)
increased the maximum from $10,000 to $17,500. We supported this Committee's version
of OBRA 93 which, like the Contract, would have raised the maximum to $25,000.
Increasing the maximum to $25,000 would provide an incentive for small businesses to
increase their investment in capital assets. In addition, the proposal also would simplify tax
reporting for eligible small businesses.
6.
$5,000 Refundable Tax Credit for Adoption Expenses
Current Law
The Tax Reform Act of 1986 repealed a deduction of up to $1,500 for expenses
related to special needs adoptions and replaced it with an outlay program with several
components. States are required to reimburse families for costs associated with the process
of adopting special needs children. The Federal government shares 50 percent of the first
$2,000 of such costs. Some special needs adoptees are eligible for continuing Federal-State
Social Security assistance, including Medicare, under Title IV-E of the Social Security Act.
Other adoptees may be eligible for continuing assistance under state-only programs.
Proposal
The proposal provides a refundable tax credit of up to $5,000 for adoption expenses
in tax years beginning in 1996 and subsequent years. The credit would be allowed for all
adoptions, not solely for the adoptiori of a child with special needs.. The credit would be
phased out for taxpayers with AGI between $60,000 and $100,000.
The proposal would reduce tax receipts by $1.4 billion over the five-year FY1996 FY2000 period, and by $3.3 billion over the ten-year FY1996 - FY2oo5 period.
Discussion
We believe that it is generally more cost-effective to target federal support for
adoption to adoption of special needs children. By applying to all adoptions, this proposal
provides benefits for adoptions that would occur even without the credit. In addition,
administrative issues need to be addressed in the context of a refundable credit.
-11-
7.
$500 Refundable Tax Credit For Elderly Care
Current Law
Current law allows taxpayers who support their parents or grandparents to claim a
dependent exemption. In general, a taxpayer is entitled to an exemption of $2,500 in 1995
for each dependent. An elderly person may be claimed as a dependent of another taxpayer if
the taxpayer provides more than one-half of the support of the elderly person and the elderly
person has gross income below $2,500. In addition, single taxpayers can file as heads of
households if they provide over one-half the costs of maintaining a home in which their
dependent parents reside.
Current law also provides a nonrefundable tax credit for taxpayers 65 years of age or
older who receive moderate amounts of social security, railroad retirement, and other
pension annuity or disabiiity benefits and who have modest amounts of income from other
sources. The tax credit is an amount ,equal to 15 percent of an initial amount ($7,500 if a
joint return is filed and both spouses qualify, or $5,000 if single or only one spouse
qualifies), but reduced for certain nontaxable income and for AGI exceeding certain levels.
Taxpayers may also be eligible for the child and dependent care tax credit or the exclusion
for employer-provided child and dependent care benefits (see the "Current Law" description
for item 1).
Taxpayers would be eligible for a refundable tax credit if they maintain a household that
includes an elderly and disabled parent or grandparent. The tax credit would be equal to
$500 for each qualified person. A qualified person would include any parent or grandparent'
of the taxpayer whose principal place of abode is the taxpayer's home for more than one-half
of the year and who is not able to perform at least two activities of daily living (e.g., bathing
or dressing) or who suffers a similar level of disability due to cognitive impairment. The
credit is available regardless of the taxpayer's income. The credit amount is not indexed.
The provision would be effective for tax years beginning 1996.
The proposal would reduce tax receipts by $1.2 billion over the five-year FY1996 FY2000 period, and by $2.6 billion over the ten-year FYl996 - FY2005 period.
Discussion
The Administration is very concerned about the care of elderly and disabled
individuals. We believe that the Administration's long-term care proposals made in 1993, as
well as the President's IRA proposal, better address this issue and would provide many
taxpayers with greater assistance than would the tax credit contained in the Contract. The
President's proposals would also be easier to administer.
-12Under our long-term care proposals, taxpayers could deduct long-term care expenses
if such expenses exceeded 7.5 percent of AGI. In addition, taxpayers could exclude
employer contributions for long-term care insurance from their taxable income. Under the
President's "Middle Class Bill of Rights" proposal, taxpayers would be allowed to withdraw
funds, without penalty, from their lRAs in order to pay for nursing home and other longterm care expenses of their parents and grandparents.
8.
Neutral Cost Recovery System
Current Law
For regular tax purposes, depreciation deductions for most tangible personal property
are calculated using the 200-percent-declining-balance method over recovery periods of 3, 5,
7 and 10 years. Certain longer-lived types of property are depreciated using the 150-percentdeclining-balance method over recovery periods of 15 and 20 years. The straight-line
method is used over periods of 27.5 and 39 years for residential and nonresidential real
property, respectively. Certain other specified property (including property used by a taxexempt entity, property used predominantly outside the United States, and property financed
with tax-exempt bonds) is depreciated using the straight-line method over a prescribed
recovery period. Depreciation deductions are not indexed for inflation.
For purposes of the alternative minimum tax (AMT), property other than residential
or nonresidential real property is depreciated using the 150-percent-declining-balance method
over assigned class lives. These class lives are generally longer than regular tax recovery
periods. Real property is depreciated for AMT purposes using the straight-line method over
a 40-year recovery period.
Proposal
The proposed "neutral" cost recovery system (CRS) would replace the current
depreciation system for property placed in service after December 31, 1994. Taxpayers
would compute cost recovery allowances using the 150-percent-declining-balance method for
tangible personal property, and the straight-line method for real property, over the recovery
periods prescribed under current law. These recovery allowances would be adjusted upward
by multiplying them by "CRS ratios". For assets with recovery periods of 10 years or less
(most tangible personal property), the CRS ratios would adjust for actual inflation (based on
the GDP deflator) plus 3.5 percent per year for each year the property has been in service;
for all other depreciable assets (including real property), the CRS ratios adjust only for
inflation. Additional depreciation adjustments attributable to the CRS ratio would not reduce
the basis of assets or any interest in a pass-through entity holding these assets, and would not
affect recapture. The CRS ratios could not be less than one, and the sum of the adjusted cost
recovery allowances would exceed the original basis of the property if the property were held
for its full recovery period.
-13Depreciation deductions under the AMT system for CRS property would be calculated
in the same fashion. Allowances would be computed as under the AMT system prescribed
by current law, but would be adjusted upward for actual inflation, plus 3.5 percent for
.
property with recovery periods of 10 years or less.
Because of the slower depreciation method for some property, the proposal would
increase tax receipts by $18.4 billion over the six-year FY1995 - FY2000 period. However,
tax receipts would be reduced by $120.4 billion over the eleven-year FY1995 - FY2005
period.
Discussion
The Administration opposes this cost recovery system because it would encourage
uneconomic investment and tax shelter activity and would be very costly beyond the five-year
budget window. The CRS proposal would also add significant complexity to the tax system.
Table 3 provides an example of how CRS back-loads revenue losses. It compares
depreciation deductions for a property acquisition under current law and under CRS,
assuming a seven-year recovery period and 3.0 percent annual inflation. While deductions
are smaller for the first three years, total deductions increase by over 23 percent. The early
revenue gains accrue entirely from property with recovery periods of ten years or less. For
longer-lived property, CRS loses money after the first year.
For equipment, CRS is intended to provide taxpayers with deductions spread over a
period of years that have the same present value as expensing, thus reducing the effective tax
rate on the income for new investment to zero (as under a consumption-based tax). In a
consumption-based system, however, the return on all investments, and not solely
investments in equipment, wou~d be subject to an effective tax rate of zero. The proposal
does not achieve tax neutrality with respect to investment decisions.
Contrary to its title, this cost recovery system is clearly not "neutral." The difference
in treatment between short-lived tangible property and real and other property (including
certain intangibles), the difference in treatment of assets subject to CRS and assets subject to
the capital gains indexation provisions, and the ability of a taxpayer to elect out of CRS on a
property-by-property basis, all compel taxpayers to consider car.efully the tax impact on the
investment decision. Furthermore, the CRS proposal creates a bias against investment in
longer-lived depreciable property, in non-depreciable property, and in certain intangible
property.
The CRS subsidy is so large, especially when coupled with the Contract's capital gain
proposal, that it could lead to significant investment in uneconomic activities. Taxpayers will
have significant incentives to engage in transactions designed to use CRS deductions to
shelter other income from tax. Some businesses will even be able to "zero-out" their tax
liabilities (including their AMT liabilities). The net effect may well be to hurt, rather than
-14help, the economy, just as very accelerated depreciation allowances in the early 1980s
contributed to the proliferation of "see-through" buildings.
The policy justifications for these differences are far from clear. In fact, the
exclusion of real property from application of the full CRS adjustment may serve to
aggravate the existing controversy regarding classification of components of real property.
In addition, property subject to CRS is precluded from application of the capital gains
indexation provisions.
The CRS introduces substantial additional complexity to an already complex
depreciation system. Depreciable property placed in service after December 31, 1994 will be
subject either to CRS with the full CRS ratio, to CRS with an inflation adjustment only, or to
the current cost recovery system (i.e., for property not eligible for CRS or property that the
taxpayer elects to have excluded, which may be the case if the taxpayer intends to index for
purposes of capital gains). Moreover, property subject to CRS will have to be tracked by
quarter and year of acquisition. In addition, existing property will continue to be subject to
current depreciation provisions, including the AMT system.
In addition to these areas of complexity, there are a number of areas where the
interaction of the CRS provisions with related provisions of the Code is not addressed in the
statutory language. Issues such as the effect of additional CRS deductions on the
normalization rules, the operation of the CRS provisions with certain pass-through entity
provisions (e.g., election to adjust basis of partnership property), and the interaction of CRS
provisions with general asset accounts must be addressed. In addition, specific, detailed antichurning rules would be required to assure that only new property is being covered in the
CRS.
9.
Capital Gains Tax Preferences
Current Law
Under current law, nominal capital gains are fully included in taxable income upon
realization, and for taxpayers in the 15 percent and 28 percent brackets are taxed at ordinary
rates. In general, individual taxpayers in the 31, 36, and 39.6 percent tax brackets pay a
maximum capital gains rate of 28 percent. The 28 percent maximum rate effectively
provides exclusions of 10, 22, and 29 percent to taxpayers in the 31, 36, and 39.6 percent
tax brackets, respectively. Capital losses can be deducted against capital gains, and up to
$3,000 of net capital losses per year can be deducted against other income.
Capital gains on the sale of a principal residence can be deferred if the taxpayer
purchases a replacement residence of equal or greater value. Taxpayers age 55 and over are
eligible for a one-time exclusion of up to $125,000. Capital losses on principal residences
are not deductible.
-15OBRA 93 provided a 50 percent exclusion for gains on the sale of certain small
business stock that is purchased directly from the business (or through an underwriter) at the
time of issue and held for at least five years. Eligible corporations must have assets
(including the funds from the stock issue) of under $50 million and must meet certain other
conditions throughout the taxpayer's holding period. The amount of gain eligible for the 50
percent exclusion is limited to the greater of ten times the taxpayer's basis in the stock and
$10 million gain from the stock in that corporation. One half of the excluded gains are
treated as a preference for purposes of the Alternative Minimum Tax.
Pro.posal
The proposal would allow individuals and corpOrations to deduct 50 percent of net
long-term capital gains from gross income effective January 1, 1995. Only 50 percent of net
long-term losses would be deductible. These capital losses could offset ordinary income up
to the annual $3,000 limitation. The 28 percent maximum tax rate on taxable gains of
individuals and the targeted small business capital gains provision in OBRA 93 would be
repealed. In addition, individuals and corporations could prospectively index the basis of
corporate stock and certain tangible assets (including collectibles such as antiques) for
inflation after January 1, 1995 in computing gains and losses. The proposal also would
allow individuals to deduct any capital loss from the sale or exchange of a principal
residence, subject to the annual $3,000 limitation on the deduction of net capital losses.
The proposal would reduce tax receipts by $60.9 billion over the six-year FY1995 FY2000 period, and by $183.1 billion over the FY1995 - FY2005 period.
Discussion
The Administration opposes the 50 percent exclusion and indexing proposals. The
combination of these proposals is too generous, too complex, and not well targeted, both
with respect to the investors benefitted and the assets included. The OBRA 93 capital gains
exclusion (which would be repealed by the Contract) is limited to new investments, and thus
does not provide a windfall benefit to existing investments. It is also limited to small
businesses, thus reducing the cost of equity capital to those businesses that are most likely to
find it difficult or costly to obtain financing. We believe that additional incentives for new
investment, if they are determined to be necessary, should likewise be targeted and consistent
with the tax policy principles of fairness, efficiency, and simplicity.
SO Percent Exclusion. Proponents of a 50 percent capital gains exclusion argue that
this exclusion could reduce barriers to the sale of existing assets by taxpayers with unrealized
gains. But it would also increase the incentive to convert ordinary income to capital gains
and confer the largest benefits to the highest-income taxpayers. Consequently, the
Administration believes that the exclusion is too large and is not sufficiently cost effective.
-16-
Studies of the effects of capital gains tax cuts by the Treasury (1985), the
Congressional Budget Office (1990), and the Congressional Research Service (1990) have all
concluded that any effects on saving, investment and eco~omic growth are likely to be quite
small. This is because much of the income from savings is already tax favored, the
responsiveness of saving to changes in the after-tax return is uncertain, and only a fraction of
the additional savings will be used to fund new investment in domestic plant and equipment.
Increasing the preferential treatment of capital gains would create economic efficiency
losses and make the tax system more complex by encouraging taxpayers to convert ordinary
income into capital gains. One example of such tax arbitrage is contributing ordinary income
property to a corporation and then selling the stock of the corporation. Corporations used in
this way are referred to as "collapsible" corporations. The Code contains provisions aimed
at preventing abuse through the use of collapsible corporations, but these and other
provisions designed to prevent similar abuses are extremely complex. Such complexity
increases transaction costs to taxpayers and the costs of ensuring compliance for the IRS.
While incentives to engage in tax arbitrage, and thus some of the accompanying complexity,
already exist as a result of current law's limited preferences for capital gains, this proposal
would greatly increase taxpayers' incentives to engage in arbitrage transactions.
Indexing. Proponents of indexing of capital assets contend that it limits capital gains
taxes to "real" gains that increase a taxpayer's purchasing power as opposed to "nominal"
gains that result simply from inflation and do not increase the taxpayer's purchasing power.
The best approach to deal with inflation, however, is to keep the rate of inflation low. The
combination of the deficit reduction under this Administration and Federal Reserve policies
has achieved this goal -- inflation over the past year has been held to under 3 percent.
Even if some form of capital gains relief is considered desirable, providing both an
exclusion and indexation of basis clearly provides too large an adjustment for inflation.
Rather than taxing "real" gains, the combination of indexing and the 50 percent exclusion
would largely eliminate the capital gains tax. For example, for a taxpayer in the 28 percent
bracket who sells after one year a $1,000 capital asset that increased in value by 8 percent
while prices generally increased by 3 percent during the year, the capital gains tax would
decrease by 69 percent (from $22.40 to $7.(0), resulting in an effective tax rate on the
nominal gain of 8.75 percent.
.
Indexing the basis of capital assets for inflation would significantly increase
complexity and distortions in the tax system. This is one of the reasons this proposal has
been rejected, after careful consideration, in the past. Basis indexation has the potential to
affect every area of the Code. Addressing all of these aspects would add considerable
complexity to the Code, while ignoring them would leave the door open to tax avoidance
opportunities. Indexing basis would also place a great deal of strain on the Internal Revenue
Service's ability to administer the tax system.
-17-
The distinction between real and nominal gains is not limited to the assets that would
be indexed under the proposal. For example, interest payments on debt have inflationary
components, as do capital gains. Yet the Contract would not differentiate between real and
nominal interest income or deductions. Indexing the basis of capital assets without indexing
debt used to finance these assets would greatly expand the potential for tax arbitrage and tax
shelter opportunities. Without-complicated anti-arbitrage provisions, indexing capital gains
alone would make it possible for taxpayers to reduce their effective tax rates to zero.
For example, assume that a taxpayer purchases undeveloped land for $100,000,
giving a $20,000 cash down payment and borrowing $80,000. If the land were sold several
years later for $130,000, with the $30,000 gain representing an inflationary increase in the
value of the property the taxpayer could repay the $80,000 mortgage and retain $50,000 in
cash without being subject to taxation. However, only $6,000 (20,000/100,000 x $30,000)
of the taxpayer's total $30,000 gain from the transaction represents the inflationary gain on
the taxpayer's $20,000 investment; the remaining $24,000 of gain has been shielded from
taxation because the proposal would index the basis in the property but not the debt or the
interest adjustments used to finance it. 4
Unlike some previous indexing proposals considered by Congress, this proposal
would allow nominal capital gains to be turned into deductible capital losses. Under current
law, taxpayers already benefit from the fact that their capital gains are taxed only when
realized. They are thereby encouraged to claim losses when the losses are incurred, while
deferring the tax on gains. This proposal would even allow taxpayers with gains that have
not kept pace with inflation to claim losses on those nominal gains. Also, the use of
quarterly indicators to measure inflation could lead to a disruption of the normal operation of
markets as investors attempt to recognize their gains early in any given calendar quarter.
Rules would have to be developed to address the treatment of common investments
made by many individuals, such as dividend reinvestment plans in mutual funds and
investments in partnerships and other pass-through entities. Computation of the taxpayer's
income in each of these cases would require more than merely determining basis, holding
period, and the amount realized. Rather, these circumstances would require the development
of special indexing rules that coordinate entity level and investor level adjustments and
provide appropriate allocation of indexation benefits among investors. Rules would also have
to be developed for -complex transactions involving indexed assets where the date of sale or
acquisition may be unclear, such as sales pursuant to forward contracts, options, and sales
with contingent purchase prices. Similar issues arise with respect to a disposition pursuant to
a corporate or partnership distribution, or an installment sale. Adjusting the basis of
investments in foreign tangible property and certain foreign stocks for domestic inflation
Stated differently, because of indexation of gains, the taxable gain on the asset is
reduced from $30,000 to zero, but because of the failure to index liabilities, taxpayers escape
tax on the $24,000 real gain on the debt.
4
-18-
would generate additional complexities, especially under the tax rules that apply to foreign
currency. Complexity would also result from adjustments made to. basis over time as the
result, for example, of improvements to real property or contributions to the capital of a
corporation.
Any system of indexation would have to provide rules for all these cases. Every such
rule, however, would impose additional computational burdens of a magnitude far greater
than the single basis calculation now required. While certain simplifying assumptions could
be adopted, these simplifications would arbitrarily deny indexation benefits to some taxpayers
while providing planning opportunities to others.
Deduction of Losses on Principal Residences. We have some concerns about the
proposal to allow the deduction of losses on sales of principal residences. Generally, the tax
law does not allow capital losses arising from personal use assets. Under the proposal,
taxpayers in neighborhoods or sections of the country that experience general declines in real
estate prices would benefit, but the proposal would also benefit those whose homes have lost
value from anticipated real depreciation or other deterioration in the property.
10.
Phase Out of the 8S Percent Maximum Inclusion Rate for Social Security Benefits
Current Law
The amount of Social Security benefits included in income is determined by the
amount of income and benefits in excess of certain thresholds. The thresholds also determine
the maximum percentage of benefits included in AGI.
Under OBRA 93, people with income and Social Security benefits above the top
threshold must include up to 85 percent of Social Security Benefits in AGI, beginning in
1994. The top threshold is $34,000 for unmarried individuals and $44,000 for married
individuals. The amount of benefits subject to tax is: (1) 85 percent of income and benefits
over the threshold, plus (2) an adjustment for amounts below the threshold subject to
inclusion at the 50 percent rate. However, the total taxable amount does not exceed 85
percent of benefits. The OBRA 93 change does not apply to people with income and benefits
below the top threshold. The revenue from the OBRA 93 changes is earmarked for the
Hospital Insurance (HI) trust fund.
Proposal
The Contract with America would phase out the OBRA 93 changes in the taxation of
Social Security (and Railroad Retirement Tier I) benefits. As a result, not more than 50
percent of Social Security benefits would be subject to income tax, regardless of the level of
the beneficiary's total income. The phase out would occur between 1995 and 2000. This
change would affect only taxpayers with income above the second threshold ($34,000 for
single taxpayers and $44,000 for married taxpayers filing jointly).
-19The proposal would reduce tax receipts deposited in the Hospital Insurance (HI) Trust
Fund by $15.0 billion over the five-year FY1996 - FY2000 period, and by $48.5 billion over
the ten-year FY1996 - FY2005 period.
Discussion
The Administration opposes this proposal, because the OBRA 93 changes were
necessary to achieve consistent tax treatment of retirement income, and because it would
reduce revenues needed for the HI Trust Fund.
Even with the changes in OBRA 93, Social Security benefits generally receive more
favorable tax treatment than do pension and other retirement income. Generally, the portion
of pension payments representing previously untaxed income is included in gross income
when received, while the portion of pension payments representing previously taxed
contributions is excluded. Social Security benefits are treated more favorably. For those
with higher incomes, the portion of Social Security benefits subject to tax is phased in, based
on the recipient's total income level. However, even for the highest income retirees, no
more than 85 percent of benefits are taxed, even though over 90 percent of the benefits may
represent previously untaxed income.
The OBRA 93 increase affected only 13 percent of taxpayers reporting Social Security
benefits in 1994 -- those at the high end of the income distribution of beneficiaries. The
OBRA 93 changes did not affect the other 87 percent of taxpayers receiving benefits.
11.
Tax Credit to Reduce Marriage Penalties
Current Law
Couples in which both spouses have similar levels of income generally have a higher
tax liability than the combined tax liability of two single persons with the same levels of
income. This extra amount of tax is called a "marriage penalty." Conversely, where one
spouse has most or all of the couple's income, the tax liability of the couple is usually lower
than the combined liability of two single persons with the same levels of income. This lesser
tax liability is called a "marriage bonus." The extent of the marriage penalty or bonus
depends on the division of income, deductions, and credits between the spouses as well as on
the relative sizes of standard deductions, on the level of income tax rates, and on the relative
widths of income tax brackets for married and unmarried taxpayers.
If couples filed tax returns as two separate individuals, there would be neither
marriage penalties nor bonuses (except for those living in community property states). But
married couples with the same total income would then pay different amounts of tax,
depending on the division of income between them.
-20-
The proposal provides a tax credit in the amount of, but not more than, a married
couple's "marriage penalty." The dollar amount of the credit would be determined each year
by the Secretary of the Treasury so that the aggregate amount of credits for all taxpayers
would not exceed $2 billion for the year. The proposal would be effective for tax years
beginning after the date of enactment.
The proposal would reduce tax receipts by $9.0 billion over the five-year FY1996 FY2000 period, and by $19.0 billion over the ten-year FY1996 - FY2005 period.
Discussion
The Administration does not support this particular proposal because it lacks detail on
the allocation of benefits and would be difficult to administer. We would, however, be
willing to work with the Committee to consider other ways to address this issue.
Since the total amount of marriage penalties greatly exceeds the $2 billion a year limit
on the cost, this proposal would only partially reduce, but not fully eliminate, marriage
penalties. As a result, one major problem with the proposal is the lack of detail on how the
$2 billion of benefits would be allocated among families with marriage penalties. Another
problem is that marriage penalties intrinsically depend upon how people would live if they
were not married -- what housing arrangements they would make, how they would divide
their assets, etc. While a hypothetical calculation can be made, such a calculation may
overstate the actual penalty for some and understate it for others.
The proposal could also result in a married two-earner couple having a lower tax
liability than a one-earner couple with the same total income and deductions. Moreover, the
proposal does not address the treatment of heads of household. Any proposal that
significantly reduced marriage penalties while leaving marriage bonuses unchanged would
shift the overall tax burden away from families filing joint returns and would increase the
.
relative tax burden of heads of household and single persons. 5
12.
Expansion of the Home Office Deduction
Current Law
Under current law, home office expenses are deductible only if the home office is
used (1) as the principal place of business, (2) as a place of business used by patients, clients
As the result of complaints about tax penalties for single persons, in 1969 a separate
tax rate schedule was enacted for single taxpayers. Prior to that time, single taxpayers used
the same tax rate schedules as married taxpayers filing separate returns.
5
-21or customers in meeting or dealing with the taxpayer in the normal course of business, or (3)
in the case of a separate structure which is not attached to the dwelling unit, in connection
with the taxpayer's trade or business.
The principal place of business definition was interpreted by a recent Supreme Court
case. In Commissioner v. Soliman, 113 S. Ct 701 (1993) the Supreme Court held that the
principal place of business should be defined to include only the place of business where the
activities most crucial to the operation of the business occur. As a result of the decision, the
Internal Revenue Service set forth in Revenue Ruling 94-24 the factors to be applied in
determining whether a taxpayer's home office qualifies as a principal place of business. For
example, activities crucial to certain service businesses require personal contact with
customers outside the service provider's home office. In such cases, the home office would
not be regarded as the principal place of business, even if no other principal place of
business existed.
Proposal
The Contract with America proposal would loosen the standards under which home
office deductions would be allowed. The proposal would allow deductions for an office
where a taxpayer's essential administrative or management activities are conducted on a
regular basis provided the taxpayer has no other place to perform those activities. The
proposal would also allow a taxpayer to deduct costs attributable to the storage of product
samples in a residence if the taxpayer is engaged in the business of selling those products at
retail or wholesale and the residence is the sole fixed location of the taxpayer's business.
The proposal would reduce tax receipts by $0.4 billion over the five-year FYI996 FY2000 period, and by $1.0 billion over the ten-year FY1996 - FY2005 period.
Discussion
The Administration believes this proposal needs further review in order to minimize
potentials for abuse and. associated audit difficulties.
13.
Increase of the Estate Tax Exemption to $750,000
Current Law
Under current law, an exemption from estate tax is generally allowed for the first
$600,000 of a taxable estate. This is effected through a credit of $192,800 against estate tax,
which translates into an exemption for $600,000. The credit reduces the estate tax liability
of most decedents, but is phased out for estates that exceed $10 million. The credit is
referred to as the "unified credit" because it is also utilized (and reduced to the extent so
used) to offset gift tax.
-22Proposal
The proposal contained in the Contract with America would increase the amount of
the unified credit against estate tax. The increase would be to $700,000 for decedents dying
(and gifts made) in 1996, $725,000 in 1997, $750,000 for 1998, and would be indexed for
later years.
The proposal would reduce tax receipts by $6.7 billion over the five-year FY1996 FY2000 period, and by $20.7 billion over the ten-year FY1996 - FY2005 period.
Discussion
The Administration recognizes that this threshold has not been increased since 1987.
We are willing to work with the Committee to address this issue. However, we are
concerned about the cost of this proposal and the limited number of taxpayers it would
affect. Only one percent of all estates. are taxable with the current exemption, and only half
of one percent would be taxable under the proposed increase in the exemption.
14.
Income Tax Return Check-off for Deficit Reduction
Current Law
The Presidential Election Campaign Fund check-off is the only analogous federal
program. Section 9006 of the Internal Revenue Code establishes the Presidential Election
Campaign Fund (the Campaign Fund). Each taxpayer may designate, by checking the
appropriate box on his or her income tax return, that $3 be paid into the Campaign Fund.
The amount designated for the Campaign Fund does not affect the taxpayer's tax liability.
Monies in the Campaign Fund are used for three purposes: (1) payments to the national
committee of each major and minor political party for its nominating convention; (2)
payments to the eligible candidates of a political party for President and Vice-President; and
(3) payments to eligible candidates seeking the nomination of a political party to be
President.
Pro.posal
The Contract would allow individual taxpayers to designate on their federal income
tax returns up to ten percent of their tax liability to be earmarked for reducing the public
debt. The IRS would tabulate the amounts designated and the Treasury Department would
transfer those amounts into a "Public Debt Reduction Trust Fund" (the Trust Fund). The
amounts in the Trust Fund would be used to retire or purchase outstanding Treasury
securities, and therefore could not be used to fund federal programs.
The proposal also mandates a corresponding decrease in federal spending through an
essentially across-the-board sequestration. Social security payments, net interest payments on
-23federal debt, and funding for certain insurance funds established to resolve the savings and
loan problem are exempted from sequestration under the bill.
Sequestration reports under the Balanced Budget and Emergency Deficit Control Act
of 1985 would be expanded to include an estimate of the amount earmarked to the Trust
Fund. Budget authority for the new fiscal year would be cut by the "sequestration
percentage" (i&.., the total amount earmarked by taxpayers for debt reduction divided by all
government spending programs that are not explicitly exempted).
The provisions of this proposal would remain in effect until the entire outstanding
public debt is retired.
Discussion
This Administration has a strong commitment to deficit reduction and supports the
goal of this proposal, which is to impose discipline on spending by the federal government
and, in doing so, reduce the amount of outstanding Federal debt. The Administration
opposes the proposal, however, because of the potentially adverse effects it could have on the
legislative process, the budget process, and the economy. In addition, the proposal would
complicate tax returns and tax administration.
By requiring across-the-board spending cuts, the proposal could disrupt the orderly
development of a Federal budget and discourage the Administration and Congress from
making difficult budgetary choices. The proposal would allow certain individuals effectively
to override Congressional choices by extending to those designating a transfer to the Trust
Fund the right permanently to reduce the level of federal spending. Further, by
incorporating a "one dollar, one vote" concept into the budgetary process, the fundamental
"one person, one vote" tenet of our political system would be undermined. The proposal
would allow citizens with significant tax liabilities to have a potentially greater voice in the
way Federal funds are spent than those who incur little or no tax liability. The millions of
voters who have no income tax liability would, in a sense, be disenfranchised, even though
these individuals pay payroll and excise taxes. The role of government in society, and the
way in which Federal monies are raised ~d spent, clearly are questions that deserve to be
addressed by all citizens. These fundamental issues should be decided through the voting
process, not through the tax system.
Amounts designated to the Trust Fund reduce Congressional budget authority for the
following fiscal year, and in all future years. Thus, designations in successive years would
result in significant cumulative reductions. These spending cuts, which are required to be
spread equally across nearly all federal programs, would quickly have major, and in many
instances unanticipated, impacts on these programs.
-24-
15. Regulatory Refonn
The Administration supports the. goal of reducing regulatory burdens to the extent
compatible with responsible administration of the laws. Nevertheless, this Administration
and the prior two Administrations have recognized that a "one-size-fits-all" approach to
regulations is not in the best interests of the public or the government.
The IRS already must satisfy elaborate procedures before issuing regulations and
taxpayers have extensive safeguards in enforcement proceedings. If existing procedures and
safeguards need amendment, we would welcome the opportunity to work with this
Committee to achieve a satisfactory result.
We assume that many of the Contract's regulatory and enforcement reform provisions
were not intended to apply in the tax area. Nevertheless, the Contract would apply as
written, and it is important to consider the consequences.
Pro.posal
The Contract would establish many additional requirements for issuing tax
regulations. For example, a 23-point regulatory impact analysis would have to be prepared
for each regulation. This analysis would include an evaluation of the costs and benefits to be
derived from the regulation, a demonstration that the regulation adopted the least costly
approach, and a description of the alternative approaches that were considered but rejected.
In addition, no regulation could be issued unless the Office of Management and Budget
(OMS) certified, among other things, that the regulation was easily readable, employed
proper grammar, used short and well-organized sentences, and did not contain double
negatives, confusing cross-references, or words with multiple meanings.
Other provisions would grant those subjected to Federal investigative, enforcement or
official proceedings more rights.
Discussion
The Internal Revenue Code is extraordinarily complex and there inevitably are
questions as to the meaning of its provisions and the ways in which they interact with each
other. Without regulatory guidance interpreting the Code, taxpayers would be subject to
uneven enforcement of the tax laws, denied the certainty they need to plan for the long term,
and hesitant to engage in productive economic activities.
For these reasons, the Treasury is often requested to issue more tax guidance, more
promptly. The prior Administration also has recognized the critical role of tax regulations
and, therefore, did not apply the 1992 regulatory moratorium to those regulations.
-25By putting tax regulations on hold until the completion of a complex regulatory
impact analysis and other requirements, the Contract would bog down the guidance process
and increase compliance burdens on taxpayers. The Contract also would undermine the
ability of taxpayers to rely on published guidance by permitting any tax protestor to challenge
the validity of a regulation on procedural grounds. Congress has long recognized in the
Anti-Injunction Act and Declaratory Judgment Act that the tax collection system could not
function if taxpayers could so easily disrupt IRS operations.
II
II
These issues should be in the jurisdiction of the tax writing committees. We would
like to work with the Committee to insure that the tax regulatory process continues to
function in an orderly and efficient manner.
Conclusion
The Administration has serious reservations about some of the provisions in the
Contract, but it also shares goals that would be advanced by other provisions in the Contract.
The Administration is interested in crafting a set of tax cut proposals that are affordable,
simple, efficient, and focused on middle-income families. We look forward to working with
this Committee to develop proposals that meet these criteria and are acceptable to the
Congress, the President, and the American people.
Table t
Preliminary Estimates */
CONTRACT WITH AMERICA
01/10195
Proposal
09:41 AM
1 $500 per child tax Cfedlt
2 American Dream Savings Accounts
3 F811On1b1e tax treatment of Iong-tenn care Insurance and services
4 Tax-free accelerated death benefits under life Insurance contracts
5 Increased expensing Nmlt for small business
6 $5,000 refundable tax credit for adoption expenses
7 $500 refundable tax credit for elderly care
8 Neutral cost rec:ovwy
9 Capital gains tax preferences
10 Phaae-out of the 85 percent maximum inclusion rate for social security benefits
11 Tax credit to reduce marriage penalties
12 Expansion of the home office deduction
13 Increase of the estate tax exemption to $750,000
FIiCiI years
1995
1996
1997
1998
1999
2000
2001
2002
($ billlona)
2003
-
-13.4
0.3
-0.9
-0.0
-0.8
..0.0
..0.1
10.0
-1.1
-0.5
-1.0
-0.0
0.0
-'Z1.0
1.3
-1.1
-0.0
-1.3
-0.3
-0.3
13.4
-8.4
-1.9
-2.0
-0.1
-1.4
-'Z1.2
1.9
-1.2
-0.0
-0.9
..0.3
-0.3
-27.4
1.3
-1.3
-0.0
-0.7
-0.4
..0.3
-2.6
-17.4
-2.0
-0.1
-1.8
-28.9
0.2
-1.4
-0.0
-0.4
-0.4
-0.3
-14.1
-19.2
-5.2
-2.0
..0.1
-2.0
-30.4
-1.7
-1.6
-0.0
-0.3
..0.4
-0.3
-21.5
-20.9
-5.9
-2.0
-0.1
-2.2
-31.9
-3.6
-1.7
-0.1
-0.2
-0.4
-0.3
-26.0
-22.6
-6.3
-2.0
-0.1
-2.5
-7.8
-29.0
~1.5
-57.0
-73.9
-87.5
-97.7
2004
200S
1995-00
1995-2005
·-B3.4
-33.6
1~·7
,-1.9
-0.1
..0.1
..0.4
-0.3
-28.7
-24.4
-6.7
-2.0
-0.1
-2.8
-5.9
-2.0
-0.1
..0.1
..0.4
..0.3
-30.4
-26.2
-7.0
-2.0
..0.1
-3.1
-35.1
-6.8
-2.2
-0.1
-0.0
-0.4
-0.3
-32.2
-28.2
-7.4
-2.0
..0.1
-3.5
-124.1
5.0
-5.9
-0.1
-288.5
-17.7
-15.3
-0.4
-5.0
-3.3
-2.6
-120.4
-183.1
-1OS.S
-111.2
-118.3
-205.4
I
3.3
0.2
3.5
8.5
-15.0
-3.2
-2.0
..0.1
-1.8
~.2
Department of the Treasury
Office of Tax Analysis
./ Estimates are preliminary. The Office of Tax Analysis has had only a short time to analyze the legislation In Its current form. There ha.... been significant changes In some of the provisions since
the original legislation was released on September 27,1994.
~.2
-1.4
-1.2
18.4
-60.9
-15.0
-9.0
-0.4
-6.7
~.5
-19.0
-1.0
-20.7
-725.5
PRELIMINARY
Table 2
Tax Proposals in ·Contract with America- (1)
(1994 Income Lsvels)
Family Economic
Income Class (4)
(000)
0-10
10 - 20
20-30
3O-SO
SO -75
75 - 100
100 - 200
200 & over
Total (5)
Federal Taxes Under Current Law (2)
As a Percent As a Percent
of Pre-Tax
of After-Tax
Income
Income
Amount
(%)
($B)
(%1
Chantl9ln Federal Taxes (3)
As a Percent As a Percent
of Pre-Tax
of After-Tax
Income
Amount
Income
($B)
(%)
(%)
Total Federal Taxes After Change
As a Percent As a Percent
of Pre-Tax of After-Tax
Income
Income
Amount
($B)
(%)
(%)
6.4
25.8
54.7
152.3
204.1
175.2
244.5
275.0
7.5
9.4
13.8
17.3
19.1
20.5
21.3
23.3
8.1
10.3·
16.0
20.9
23.6
.25.8
27.1
30.3
-0.4
-1.8
-4.3
-12.4
-15.3
-14.2
-21.0
-27.5
-0.5
-0.7
-1.1
-1.4
-1.4
-1.7
-1.8
-2.3
-0.5
-0.7
-1.2
-1.7
-1.8
-2.1
-2.3
-3.0
6.1
24.0
SO.5
139.9
188.8
161.0
223.5
247.6
7.1
8.7
12.7
15.9
17.7
18.8
19.5
20.9
7.6
9.6
14.7
19.2
21.8
23.7
24.8
27.3
1,139.8
19.5
24.2
-97.2
-1.7
-2.1
1,042.5
17.8
22.1
Department of the Treasury
Office of Tax Analysis
January 10, 1995
(1) This table distributes the estimated change in tax burdens due to the tax provisions in the "Contract with America," as Introduced January 4, 1995
in H.R. 6, H.R. 8, H.R. 9, and H.R. 11. The effect of the prop<Sed change in the estate tax exemption is excluded.
(2) The taxes included are individual and corporate income, payroll (Social Security and unemployment), and excises. Estate and gift taxes and customs
duties are excluded. The indvidual income tax is assumed to be bome by payors, the corporate income tax by cap tal Income generally, payroll taxes
(employer and employee shares) by labor (wages and self-err:'ployment income), excises on purchases by indMduals by the purchcser, and excises
on purcha:;es by business in proportion to total comsumption expendtures. Taxes due to provisions that expire prior to the end of the Budget period
are excluded.
(3)
The change in Federal taxes is estimated at 1994 income levels but assumng fully phcsed In law and long-run behavior. The effect of the back-loaded
ADSA proposal is measured as the present value of tax savings on one year's contributions. The effect of the neutral cost recovery proposal is measured as the present
value of the tax savings from one year's investment. The effect of the pra;p8ctive captal gains indexing proposal is the fully phased in tax savings, multiplied by the
ratio of the sum of the present values of prospective indexing over 20 years to the sum of the present values of fully phcsed in indexing over 20 years, holding
realizations constant. The effect on tax burdens of the proposed capital gains exclusion and prospective indexing are based on the level of captal gains realizations
under current law. The incidence assumptons for tax changes is the same as for current law taxes (see footnote 2).
(4) Family Economic Income (FEI) is a broad-based income concept. FEI is constructed by addng to AGI unreported and underreported Income; IRA
and Keogh deductons; nontaxable transfer payments, such as Social Security and AFDC; employer-provided fringe benetts; Inside build-Up on
pensions, IRAs, Keoghs, and life insurance; tax-exempt interest; and imputed rent on owner-occupied housing. Cap tal gains are computed on
an accrual basis, adjusted for inflation to the extent reliable data allow. Inflationary losses of lenders are subtracted and of borrowers are added.
There is also an adjustment for accelerated depreciation of noncorporate bUSinesses. FEI is shown on a family, rather than on a tax return basis. The
economiC incomes of all members of a family unit are added to arrive at the farTily's economic income used In the clstribulons.
(5)
Families with negative Incomes are included in the total line but not shown separately.
TABLE 3
Comparison of Deductions Under Current Law
and the "Neutral" Cost Recovery System (CRS)
(Example of a $1,000 asset with a 7 year recovery period and 3% inflation)
~
Current Law
~
Differenc~
0
1
2
3
4
5
6
7
143
245
175
125
89
89
89
45
107
204
171
148
158
169
180
96
-36
-41
-4
23
69
80
91
51
Sum
1,000
1,233
233
DEPARTMENT
OF
THE
TREASURY
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIDNGTON, D..c~. 20220 -(202) 622-2960
January 10, 1995
Opening Statement of
Robert E. Rubin
Secretary of the Treasury Designate
Mr. Chairman and Members of the Committee, I appreciate the opportunity to appear
before you today, and I especially appreciate your willingness to schedule this hearing so
expeditiously.
I'd like to thank my two home state Senators from New York, Senators Moynihan
and D' Amato, for introducing me and for their kind words. And I'd like to thank Senator
Graham from Florida wnere I grew up for his kinci introduction.
I would also like to express my great respect far your long-time member and former
Chairman, my friend of many years and colleague of the last two years, Secretary Lloyd
Bentsen. He provided our Administration and our economic team witll extensive experience,
outstanding judgment, and consistent support for the spirit of teamwork. I look forward to
his advice and guidance. in the time ahead.
For the past two years, I have served in the White House as the Assistant to {he
President for Economic Policy ~nd Coordinator of the National EC.onomic Council, where a
truly outstanding group of Cabinet members and White House officials worked together on
the economic issues of the Nation.
Before that, I worked for 2.6 years at a major international financial institution
headquartered in New York, when: I had responsibility at various rimes for trading activities
in debt, equities, foreign exctaf!ge, and commodities, as well as involvement in various
domestic and interr.ational investment banking activities.
I welcomed the opporrunity to jam this Administration because I helieved that this
country was at a true economic cro.'\sroads, and that. with all of our natural advantages, our
economic future could be robust -- but only if we faced and dealt with the many problems
and issues before us in a rapidly changing global economy. Conversely, I felt that if we did
not face our economic problems, our economic ~rospects were likely to be mediocre as far
into the future as the eye could see.
I strongly identify with the President's comprehensive economic strategy to promote
investment-led economic growth with low intlation now, and to position the country for the
long term. That strategy has been ~onsist;;nt frum the beginning of the Administration. it
consists of deficit reduction; education, training, programs for economically-depressed areas,
and other public investments critical to future productivity; targeted tax reduction; refonmng
and reducing government and regulations; health care and welfare reform; and opening
markets.
W--22
Through this strategy, our country, over time, can achieve fiscal order, strong
productivity increases, and open markets, and so healthy long-term economic growth with
low inflation. and all Americans can have the opportunitY to share in that growth.
Much has been accomplished within this framework, often with bi-partisan support -but much remains to be done at this critical juncture, if our country is to prosper, both now
and for the long run. Thus, in my opinion, it is crucial that the Administration and Congress
work together effectively as we go forward. It is worth noting, in this regard, that this
Committee in particular has had major accomplishments on a bi-partisan basis, including
NAFTA and GATT.
Mr. Chairman, I am pragmatic, and I believe that differences can usually be resolved,
not always but usually, by being straight-forward and focusing on substance. If confirmed, I
will work with each Member of this Committee and with all Members of Congress in this
spirit. I also believe that there are no easy answers to the significant issues of economic
policy and that difficult trade-offs are almost always involved.
As we face the likely legislative agenda for the next two years, I would like to
suggest a few guiding principles.
1. Maintaining Fiscal Discipline. Tax cuts or spending programs must be paid for,
and we must sustain our efforts to continue reducing the deficit.
2. Promoting Productivity. We should endeavor to increase our national savings
rate. And, within the discipline of deficit reduction, we need to continue to reorder the
federal budget to emphasize education -- which had strong bipartisan support in the last
Congress -- training, programs for economically-depressed areas, and other essential public
investments. These investments in people are also key to equipping all Americans with the
tools to participate in the Nation's economic growth and, thereby, to reverse the greatly
increased income inequality that has developed over the last 20 years.
3. Supporting International Cooperation. In the new global economy, we need to
open markets, we need to sensibly but effectively regulate the vast global financial markets
that so critically affect all of the world's economies, and we need to help the developing and
transitional economies.
4. Modernizing Financial Markets. We can make American financial markets more
competitive and more efficient through modernizing regulatory structure and regulations, but
the issues are very complex and competing considerations must be weighed carefully and
thoughtfully.
2
Finally, if confinned, I would endeavor to carry forward the United States Treasury's
long and proud history of professional excellence and integrity, which I have admired from
the vantage points of both Wall Street and the White House for many years. Treasury has
been and should continue to be a reliable and trusted resource for Members of Congress and
the general public. I also want to emphasize my commitment to Treasury's important law
enforcement mission.
In conclusion, Mr. Chainnan, I would like to thank you again for bringing me before
this Committee so promptly. I hope my comments have been useful. Now I would be
pleased to respond to any questions which you or the Committee may have.
3
DEPARTMENT
OF
THE
TREASURY
NEWS
ornCE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASlDNGTON, D.C.• 20220. (202) 622·2960
TEXT AS PREPARED FOR DELIVERY
Embargoed for 1 p.m. (EST)
January 10, 1995
"AVOIDING DOUBLE TAXATION: TRANSFER PRICING AND THE OECD"
REMARKS BY JOSEPH H. GUTIENTAG
INTERNATIONAL TAX COUNSEL
EUROPEAN-AMERICAN CHAMBER OF COMMERCE
HOTEL WASHINGTON
The purpose of section 482 is to protect the U.S. tax base. It is applied when
income has been artificially shifted away from the U.S., whether to a tax haven country
or one whose tax burden might even be higher than in the United States. An increase of
tax by one country without an adjustment for tax imposed by another country will
normally lead to double taxation. The United States has consistently taken the position
that the appropriate administration of its transfer pricing and related rules requires that
there be a system in place for the avoidance of possible double taxation.
Decades ago, Treasury considered, and quickly rejected, a partial solution that
would have waived application of section 482 in situations in which the taxpayer paid an
"appropriate" amount of total tax to two or more taxing jurisdictions but not necessarily
the correct amount to each one. The U.S. strongly supports a system administered
through its tax treaty network by which the other taxing jurisdiction involved in an
allocation would make a correlative adjustment to taxable income and tax liability. In the
past several decades, there has been increasing transfer pricing enforcement using the
arm's length method to prevent tax avoidance by many countries throughout the world.
The U.S. and the other members of the OECD have continued over the years to
refine the arm's length concept. Such refinement and the increased attention to this
aspect of tax administration made it easier for tax authorities to accept the need for
correlative adjustments and related tax refunds. The U.S. and its partners in the OECD
recognized that the greater the similarity in the substance and procedure of the transfer
pnclllg
(more)
FN-23
-2-
rules in each of their countries, the easier it would be to administer such rules
internationally. The U.S. continues to have a deep commitment to ensuring avoidance of
double taxation in transfer pricing cases.
The latest chapter in this continuing saga of attempts to prevent tax avoidance,
protect the tax base, but also prevent double taxation is the focus of my remarks today. I
first want to remind you of what the Treasury and IRS did last year in this area and
demonstrate the importance of an OECD document entitled "Transfer Pricing Guidelines
for Multinational Enterprises and Tax Administrations - Discussion Draft of Part I."
Transfer pricing continues to attract a great deal of scrutiny from legislators, tax
administrators and taxpayers. I think that this additional focus is attributable to two
causes.
One cause is the increasing pressure to raise revenue in this country and elsewhere and
the concomitant rightful demand that all taxpayers pay their fair share of taxes.
The second cause is the fact that the system was not been working as well as it
should. From the government's perspective, we see two obvious flaws. First, there was
insufficient self-compliance by taxpayers. Second, the legal framework did not offer
taxpayers, tax administrators and courts adequate guidance in cases in which the
traditional transfer pricing methods are inadequate.
In 1993, Commissioner Richardson and Treasury Assistant Secretary Leslie
Samuels announced a program entitled "Tax Compliance in a Global Economy."
Transfer pricing was at the center of this initiative. The program acknowledged that a
better system had to be created under which the United States would collect its fair
share of revenue from taxpayers conducting cross-border transactions with related
parties. However, as I have noted, this revenue must be collected without forcing
taxpayers to pay tax on the same income more than once. Also, the system must not
create impossible administrative burdens for taxpayers and governments.
With these concerns in mind, we took the following actions last year. To ensure
that taxpayers report an appropriate amount of income to the United States, we issued
temporary penalty regulations in February and final regulations under section 482 in
July.
I will not delve into these measures except to make the following observation:
The penalty provisions are an essential component of our efforts to make the arm's
length standard work. They are fully consistent with a taxation system based on the
principle of self-compliance. In accordance with this principle, we believe that taxpayers
who make reasonable, good faith efforts to report arm's length results from their
intercompany transactions should not be penalized -- even if it is subsequently
demonstrated that they were wrong. But taxpayers who do not accept their responsibility
to attempt to file accurate tax returns should be penalized. We are sensitive to concerns
-3that the penalty rules could be administered so as to cause taxpayers to over allocate
income to the U.S. and away from foreign tax jurisdictions. The U.S. is committed to
obtaining its fair share of tax revenue -- but no more. It would be foolish and counterproductive for us or any country to create or permit a tax system which did otherwise.
We are committed to an appropriate and consistent application of the transfer pricing
penalties.
The Penalty Oversight Committee recently established by the Internal Revenue
Service is evidence of this commitment. The Committee consists of senior National
Office as well as field office personnel who will review, in advance, all proposals to
impose such penalties and ensure consitency. We are also going to make sure that all
taxpayer and practitioner comments are given full consideration before we finalize these
regulations. We are open to further suggestions as to how to alleviate taxpayers'
concerns with these rules. But there can be no turning back from the fundamental
principle that underlies these regulations. The high level of attention being paid to the
administration of the penalty regulations will ensure they achieve their intended purpose
-- but, as I previously said, no more.
I have given you a brief summary of what we have done and are doing in the
United States. Now let me turn to the recent work of the OECD complementary to our
internal efforts. This work has involved our active participation because we believe that
transfer pricing enforcement demands international cooperation, harmonization and
agreement as well as adherence to arm's length principles in both substantive and
procedural rules. A task force is revising the 1979 OECD Transfer Pricing Guidelines in
light of recent developments in this country and others. The Discussion Draft published
in July, is to be Part I of a complete revision of the OECD's 1979 Transfer Pricing
Guidelines. The OECD is making an extremely important contribution to tax
administration by revising a set of guidelines that in many ways is badly out of date. The
OECD has been considering public comments and intends to finalize this portion of the
report in June. Subsequent portions of the report will cover a number of additional
subjects relevant to transfer pricing -- penalties, documentation, cost-sharing, and
corresponding adjustments.
Today I would like to stress that the Treasury Department strongly supports
prompt finalization of Part I of the OECD report in June. and substantially in its current
form. and to urge all of you to support it as well.
It is difficult to overemphasize the importance of these guidelines. As the
consensus interpretation of the arm's length standard, the guidelines are the bridge
between each country's substantive rules during the competent authority process. They
also provide a framework for bilateral discussions leading to Advance Pricing
Agreements -- or AP As -- which are another critical component of our compliance
initiative. Common guidelines permit the competent authorities to resolve disputes
without having first to agree on basic principles. They therefore greatly facilitate the
-4-
smooth resolution of difficult cases in mutual agreement procedures and in the APA
process.
The impetus for revising the OECD's 1979 guidelines has been provided by
recognition of the reality that the traditional methods for applying the arm's length
standard are often inadequate to deal with important transfer pricing cases.
Indeed, the drafters of the 1968 482 regulations and the 1979 guidelines
recognized this problem when they expressly authorized the use of unspecified methods
in cases in which the traditional methods were inadequate. Congres~ '1.1so recognized the
problem in 1986 when it observed that the existing approaches to transfers of intangible
property were inadequate.
The United States is not alone in this regard. There has been a similar evolution
in many other countries. We have seen non-traditional applications of the arm's length
standard in competent authority proceedings and in AP As concluded with many of our
most significant trading partners. The global trading AP As are a prime example of this
trend.
Because this evolution has not occurred at the same rate, we have seen increasing
tension in the system. Different approaches in different countries have resulted in
disputes over the definition of the arm's length standard. This is very dangerous. It
creates potential for abuse by those taxpayers bent on reducing their overall tax burden
through inappropriate transfer pricing. At the same time it is difficult for taxpayers to
comply with the rules of each country if inconsistent approaches are adopted. This raises
the specter of double taxation.
This is why OECD guidelines are so important. They represent broad acceptance
by all Ollr major trading partners of the reality that the traditional methods are
appropriate when the data to apply them is adequate. But the traditional methods must
be supplemented and tested by new methods when the data is not adequate.
If the report is accepted in its current form, it will ensure the future viability of
the arm's length standard. A consensus interpretation of the arm's length standard will
go far to avoid the double taxation that would result if inconsistent approaches to
transfer pricing were adopted by different countries. At the same time, when the
approaches in various countries are reasonably consistent, it will be more difficult for
taxpayers to shift income inappropriately. And taxpayers interested in complying with
one country's rules will be able to do so without fear of violating another's.
Thus, the strengths of the report are both obvious and important. As I said, the
Treasury Department strongly supports prompt finalization of the report in its current
form.
-5-
*
*
*
*
*
There seems to be a wariness in certain quarters about revising the 1979
guidelines. This wariness reflects the interests of two groups at opposite poles from one
another. One group suspects that attempts to revise the guidelines are thinly veiled
attempts to overturn the arm's length standard. They reject virtually any application of
methods other than those specifically sanctioned in the 1979 guidelines. The other group
draws an opposite conclusion from the report -- they see it as endorsing and perpetuating
the arm's length standard, which they view as obsolete and unworkable.
To the group that suspects a plot to undermine the arm's length standard, I say
that it is necessary to update the OEeD guidelines -- not to overturn the arm's length
standard, but to save it.
Inflexible adherence to dogma would forfeit one of the chief advantages of the
arm's length standard. That advantage is flexibility. Its ability to adopt different
approaches depending on the available data permits a variety of applications -- all of
which are intended to achieve the same economically desirable result of treating related
and unrelated taxpayers similarly. Formulary apportionment, based on a predetermined
formula that disregards individual facts and circumstances, does not enjoy this important
advantage. If we do not permit taxpayers and tax administrators to employ the method
that is most likely to yield an arm's length result, then the results achieved under the
arm's length standard will begin to look as arbitrary as those achieved under formulary
apportionment.
Moreover, even the opponents of new methods should consider the fact that from
their point of view the draft report represents an improvement over the 1979 guidelines.
Those guidelines provided that so-called profit methods "normally" should be used only
as pointers to further investigation. This language leaves open the possibility to use such
methods in cases that are not "normal." Since the guidelines do not distinguish normal
cases from those that are not, the 1979 guidelines created substantial ambiguity as to the
scope of these methods. The draft report, on the other hand, provides extensive
guidance on the proper scope and -- equally important, the appropriate application -- of
these methods. The overwhelming majority of taxpayers and tax administrators recognize
the need to reflect our experience over the last fifteen years and define approaches,
suggested, but only vaguely and incompletely, in the old Report.
We need further definitions of how and when new methods should be used, all
within the framework of the arm's length standard. This has been done with a view to
maximizing the similarities of worldwide transfer pricing rules, while at the same time
recognizing the differing economies and political and administrative structures of the
member countries. We must not retreat from this reality by rejecting the draft report.
Such rejection would contribute to lack of consensus and an increase in double taxation
and related problems. More fundamentally, lack of consensus over the definition of the
-6arm's length standard endangers the unanimous commitment to the arm's length
standard represented by the draft report.
*
*
*
*
*
There is a second group that opposes the report. Like the Treasury Department,
this group has closely observed the turmoil in the area of transfer pricing over the last
decade. But it has proposed a very different solution to the problem. It has concluded
that the arm's length standard cannot be saved, and a new standard is required;
formulary apportionment being the leading candidate. Most authorities, including
supporters of a formulary method, agree that neither the United States nor any country
should attempt to adopt any method of allocating income of multinational enterprises
unilaterally. There is a current overwhelming consensus internationally not only in favor
of the arm's length principle in general, but also on its interpretation and application.
Formulary apportionment is not accepted on the international level. For those who
doubt my conclusion, I refer you to the draft report which, while forcefully rejecting
formulary apportionment, supports a newly defined arm's length methodology.
As I have indicated, we support and anticipate final approval of this report later
this year, after some extremely useful modifications reflecting comments from the private
sector and others, but without major changes. The report enumerates a number of
seriolls problems that would be encountered if formulary apportionment were adopted
on the international level. Many of these problems would exist even if the international
community decided that a formulary approach made sense as a theoretical matter. I
would also add that the report is not an isolated list of concerns by a group of stubborn
bureaucrats. Much of the scholarly literature on this subject, including that written by
proponents of the approach, identifies difficult problems that would have to be resolved
before the approach could be introduced internationally. I refer you to that literature
for a detailed exposition of these problems, and only can briefly outline them today.
I
The choice of the formula and the definition of the factors in the formula are
obvious areas where basic agreement would be necessary. This process would not be
easy. and in my opinion would not be successful in today's international environment.
\Vhile most U.S. states employ formulary apportionment, even they do not all use the
same formula.
The economic and political differences between states in the U.S. that result in
differing formulae are much more pronounced between countries: while the corporate
tax accounts for less than 4% of U.S. state-raised revenue, it measures about 10% in
OEeD countries on the national level. Another key requirement for a workable
formulary system is an internationally agreed upon tax base. Every country has unique
accounting and tax rules. These rules regulate definitions of income, timing of income
recognition, as well as deductions for everything from depreciation to pension
contributions.
-7The differences in these rules reflect choices arising out of each country's unique
set of cultural, political and economic characteristics. But they would need to be
standardized throughout the world to arrive at a uniform definition of the tax base
subject to apportionment. Of course in the United States where we have nationally
accepted accounting systems and a nationwide uniform tax base provided by the federal
corporate tax system, this issue does not arise. Some U.S. supporters of a formulary
system seem to overlook these basic differences when they urge adoption of a formulary
system internationally.
In addition, the three factor formula used by many states would not likely be
acceptable on the international level, or at least it would not be acceptable to the United
States. Significant income generated by US multinationals is attributable not to the
three factors of property, payroll and sales, but to intangible property. Congress
recognized this fact when it amended section 482 in 1986.
Obviously, reaching agreement on these and other important issues would require
a great deal of coordination among tax administrations. At the state level the forum for
resolution of this type of issue is the Multistate Tax Commission. The MTC does an
outstanding job of developing common guidelines for use by its members. Having to deal
with only one currency, one language, one accounting system, and no economically
distorting cross border restrictions also help. Determination of tax under a formulary
system requires access by each member of the unitary group to all the key financial data
of the group. Enforcement of such systems obviously not only require the data to be
available, but that it be verifiable. The amount of and need for this cross border data is
a multiple of that required for the arm's length system.
All these advantages and more attached to our domestic formulary system would
be lost on the international level, because the MTC has no counterpart at the
international level. Some new multinational organization would have to be created to
perform its function. Composed of all the countries that would sign on to a formulary
system, a new Multinational Tax Commission would have to be delegated the authority
to resolve issues such as the definition of the taxable base, the definition of the factors in
the formula, and the other issues that I have described.
This delegation of authority to this Multinational Tax Commission might prove
quite troublesome. For the system to work, the United States effectively would have to
agree that the Internal Revenue Code (and of course all of our tax treaties) would be
modified to achieve a worldwide standardized definition of taxable income. Along with
the rest of the world, we effectively would forfeit control over a major portion of our
domestic tax policy. I think you will agree that Congress would be very reluctant to
permit our tax policy to be developed in this way.
-8-
*
*
*
*
*
Transfer pricing rules, in conjunction with our tax treaties, serve two principal
purposes. First, they divide the income of multinationals among the jurisdictions in
which the multinationals do business. Second, they seek to avoid either double taxation
or no taxation of such income. These purposes can be achieved only with consensus.
For this reason alone formulary apportionment is not a feasible alternative at this time
or in the foreseeable future.
Nevertheless, although highly unlikely, it is theoretically conceivable that at some
undetermined point in the future most of the world could decide to move to formulary
apportionment. None of these problems is insoluble as a theoretical matter, although
solving them would be a very painful process that would entail difficult choices. If these
problems could be resolved in a practical way, a system of formulary apportionment
could achieve a consistent allocation of income among the jurisdictions that sign on to
the international agreement. It would not achieve an allocation of income that
resembles the allocation achieved under the arm's length standard. But it could allocate
income on an objective basis and might not give rise to either double taxation or no
taxation.
Nevertheless, it must be emphasized that even with consensus, a shift to formulary
apportionment would be irresponsible without resolution of the kinds of issues I have
descrihed as well as the many others described in the literature on this subject. And it is
important to remember that the inflexible results obtained under a predetermined
formula would not resemble the results under the arm's length standard, where the
method used is tailored to the individual facts and circumstances.
All of this theoretically could happen, but there is no assurance that it ever will.
Nor do I believe that it necessarily should. If the arm's length standard can be made to
operate effectively, then the wrenching changes and compromises of autonomy
necessitated by a shift to formulary apportionment or any other system would be
unnecessary.
*
*
*
*
*
In their obsession with the details of the draft report, both groups that question
the report overlook the need for broad international acceptance of any approach to
transfer pricing. Without this consensus, no approach, regardless of its theoretical purity,
can he seriously considered. The report represents a possibly unique opportunity to
achieve this consensus.
, The primary advantage that the arm's length standard currently enjoys in relation
to tormu lary apportionment is the simple fact that most of the world agrees that it
-9-
should be the international norm. The report sets forth a common understanding of how
the arm's length standard is to be applied. If the report is rejected or shelved, the arm's
length standard loses a major advantage over formulary apportionment. Without the
common bond represented by the report, there is a risk that the major countries in the
world would drift apart in their applications of the arm's length standard. Cases of
double and under taxation would proliferate. It would be ironic indeed if those who
present themselves as the truest believers in the arm's length standard were a chief cause
of its downfall. For this reason every taxpayer and government that is interested in
improving the arm's length standard should support the finalization of the report as soon
as possible and in its current form.
I would ask those who prefer formulary apportionment to recognize that it can be
a realistic alternative only if the problems I have described can be resolved and if there
is a consensus in favor of its adoption. If we were to move to formulary apportionment
before these conditions were satisfied, we would find that the cure would be worse than
the disease. On the other hand, if we cannot fix the system and make the arm's length
standard work in a reasonable way, the sickness will worsen, and we will have to consider
our alternatives.
I am, however, optimistic that we can improve on the arm's length standard and
that the OEeD's draft report will be finalized. At that point the international
community can be proud that it is facilitating international trade and investment without
undue concern over double taxation.
Thank you.
-30-
DEPARTMENT
OF
THE
TRE.ASURY
b
-!lI]WS
N
'IREASURY
~' '
I
OFFICE OF PUBliC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.• 20220. (202) 622-2960
Adv 3 p.m. EST
No wire movement until 3 p.m.
January 10, 1995
STATEMENT OF ACTING TREASURY SECRETARY FRANK NEWMAN
FIN~NCIAL SERVICES AGREEMENT WITH JAPAN
The United States and the Government of Japan announced today that we have
reached a comprehensive financial services agreement under the U.S.- Japan Framework
Agreement of July 1993 that will further open Japan's financial markets to foreign
competition.
We are very pleased with this agreement. It represents the most comprehensive
set of market-opening actions in the Japanese financial sector in a decade. It is a major
accomplishment for both governments, and it demonstrates how we can work together
effectively to resolve the economic challenges in our relationship.
The agreement will ensure that U.S. financial institutions. which are world-class
competitors, have the opportunity to compete more effectively in the Japanese financial
market.
FN-24
o
The agreement opens the $1 trillion Japanese pension market to effective
participation by foreign fund managers.
o
It creates greater opportunities for foreign financial firms to participate in
the $500 billion Japanese corporaie securities market by permitting greater
scope for the introduction of new financial instruments.
o
It will promote the further integration of Japan's capital market with the
global capital markets, and that will create significant opportunities for
competitive foreign financial institutions to help the Japanese invest abroad
and Japanese firms to offer securities in offs~ore markets.
(MORE)
2
o
It provides greater transpa;-ency and procedural protections for foreign
financial institutions operating in what has always been a challenging
regulatory environment.
o
It includes a comprehensive set of qualitative and quantitative criteria to
allow us to assess progress made under the agreement.
o
It also provides a means to encourage further liberalization and
deregulation in the Tokyo market to ensure that, as markets evolve and
priorities change, foreign firms will continue to be able to compete fairly
with the domestic industry.
This is an import2.nt agreement for the United States. We have a large stake in
maintaining an open and competitive financial market. The financial services industry
accounts for nearly 7 percent of our GD?, and over $400 billion in revenues each year.
The United States has devoted a significant amount of effort over the years to
gaining access to global financial markets. And opening financial markets on a
multilateral basis in the Uruguay Round remains an important objective for this
Admimstration.
But this also is an important agreement for other countries with a stake in the
international financial system and the multilateral trading sy~tem.
This agreement with Japan improves the prospects for an MFN-based agreement
in the financial sector in the World Trade Organization, although much remains to be
done to get there. The United States will not be prepared to remove our MFN
exemption in financial services in the \\'TO unless we receive adequate commitments
from a number of key emerging m~rket countries to open their financial markets over
time.
This month in Geneva we will begin a more concentrated negotiating effort
focused on those markets where U.S. financial firms are still denied the opportunity to
compete effectively. We hope to be abie to build on this agreement with Japan to
achieve a more ccmprehensive multilateral agreement on the principles of MFN,
national treatment, and market access.
This agreement makes it clear that we are prepared to extend MFK and national
treatment commitJ.nents to countries that give us the opportunity to compete in their
financiJ.I markets. We hope that by doing so in this context with Japan we will
encourJ.ge other countries to commit in the negotiations in Geneva over the next several
months to eliminate the remaining restrictions they place on foreign financial institutions
in theii' markets.
3
I would also like to make reference to the important contribution former
Secretary Lloyd Bentsen made to this agreement. He did the heavy lifting early on, and
at critical points in the negotiations. And Under Secretary Larry Summers was also a
key participant in the development of this agreement.
In addition, I would like to compliment Finance Minister Masayoshi Takemura
and his negotiators for concluding what is a very good agreement.
-30-
Financial l\1arket Deregulation and Market Access Measures Agreed
to by the United States and Japan
Japanese commitments to liberalization and deregulation of the fInancial market" include:
Asset Management
*
Complete, unrestricted access to the $200 billion public pension fund market for
foreign investment advisory companies (lACs).
*
Substantial expansion in access for foreign IACs to the private pension market.
$130 billion in new assets opened to management by lACs.
*
Elimination of balanced fund requirements on bulk of pension assets open to IACs,
thus enabling foreign IACs and foreign trust banks to sell specialized fund
management services.
*
Commitment to move toward market value accounting for pension liability
calculations and disclosure of fund manager performance on a market value basis.
*
Deregulation of the investment trust (mutual fund) business to reduce entry and
operating costs, pennit greater flexibility in investment instruments, require increased
disclosure of performance data and relax restrictions of sales of foreign funds into
Japan.
Corporate Securities
*
Liberalization of restrictions on the introduction of new fmancial instruments, and
commitment to future liberalization to allow introduction of products developed in
other major financial centers.
*
Commitment to introduce a domestic asset-backed securities market to Japan and to
eliminate restrictions on offshore securitization of Japanese assets.
*
Transparency and procedural protections analogous to the U.S. Securities and
Exchange Commission "no action" procedure for new financial instruments.
Cross Border Financial Services
*
Elimination of restrictions on securities offerings by residents and non-residents, and
elimination of the seasoning period on non-resident Euroyen issues.
-2-
'"
Unlimited access by resident corporate investors to virtually all financial instruments
available outside Japan.
.
'"
Elimination of restrictions on specific cross border transactions, such as offshore
issuance of derivatives on Japanese stock indices and offshore securitization of
Japanese assets.
'"
Expanded scope for foreign securities companies to engage directly in foreign
exchange related business.
Transparency and Procedural Protection
*
Comprehensive obligations, building on the new Japanese Administrative Procedures
Law (APL), to provide transparency in flOancial regulations and protection from
administrative abuse.
The agreement also includes a commitment to regular consultations between Treasury and the
Ministry of Finance to monitor implementation of the accord and to address other issues
affecting foreign financial institutions in the U.S. and Japanese financial markets.
uNEWS
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIAA~NPE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622·2960
CONTACT:
FOR RELEASE AT 2:30 P.M.
January 10, 1995
Office of Financing
202/219-3350
.
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of T~easury bills
totaling approximately $26,800 million, to be issued January 19,
1995. This offering will result in a paydown for the Treasury of
about $13,125 million, as maturing bills total $39,926 million
(including the 16-day cash management bills issued January 3,
1995, in the amount of $14,009 million).
Federal Reserve Banks hold $6,572 million of the maturing
bills for their own accounts, which may be refunded with~n the
offering amount at the weighted average discount rate of accepted
competitive tenders.
Fede~al Reserve Banks hold $4,543 million as agents for
foreign and international monetary authorities, which may be
. refunded within the offe~i~g amount at the weighted average
discount rate of accepted competitive tenders. Additicnal
amounts may be issued for such accounts if the aggregate amount
of new bids exceeds the aggregate amount of maturin~ 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 CPR 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
FN-2S
HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED JANUARY 19, 1995
January 10, 1995
Off~ring ~ount
.
pescription of Offering:
Term and type of security
CUSTP number
Auction dF.l.te
Issue date
Maturity date
Original issue date
Currently outstanriing
Minimum bid amount
Multiples .
$13,400 million
$13,400 million
91-day bill
912794 R6 3
January 17, 1995
January 19, 1995
April 20, 1995
October 20, 1994
$13,128 million
$10,000
$ 1,000
182-day bill
912794 U2 8
January 17, 1995
January 19, 1995
July 20, 1995
January 19, 1995
$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
MaxilLlum Award .
35% of public offering
Receipt of Tenders:
Noncompetitive tenders
competitive tenders
Payment Terms
Prior to 12:00 noon Eastern Standard time
on auction day
Prior to 1:00 p.m. Eastern Standard 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
NEWS
IREASURY
omCE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
January 10, 1995
STATEMENT BY TREASURY SECRETARY ROBERT E. RUBIN
I consider it a great privilege and honor to have been confirmed today by the United
States Senate as Secretary of the Treasury.
I would like to thank: President Clinton for nominating me to this position, and for his
confidence in my ability to serve the American public. I promise him, the Congress and,
most of all, the American people that I will do my utmost to live up to that confidence.
I am also grateful to the members of the Senate Finance Committee, Chairman
Packwood, Senator Moynihan, and Senate Majority Leader Dole, Minority Leader Daschle
for their Willingness to act so expeditiously on my nomination. I look forward to working
with all Members of Congress in a productive, bipartisan fashion.
As Treasury Secretary, I look forward to continuing to promote the spirit of
teamwork that has defmed the National Economic Council. This teamwork and cooperation
economic prosperity that.
has promoted the President's comprehensive strategy to create
can be shared by all Americans.
an
-30RR-01
DEPARTMENT
OF
THE
TREASURY
NEWS
omCE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.• 20220. (202) 622-2960
Contact: Michelle Smith
(202) 622-2960
FOR IMMEDIATE RELEASE
January 11, 1995
TREASURY, STATE TO BRIEF ON FINANCING INSTITUTIONS
FOR ECONOMIC DEVELOPMENT IN THE MIDDLE EAST
Treasury Under Secretary for International Affairs Lawrence Summers and Joan
Spero, Under Secretary of State for Economic, Business and Agricultural Affairs, will brief
on-the-record at 3:30 p.m. TODAY, Wednesday, January 11, in the State Department press
briefing room, Room 2118.
The briefing will focus on the January 10-11 meeting "Financing Institutions for
Economic Development in the Middle East." This meeting was a key element of the followup to the October 1994 Middle East/North Africa Economic Summit in Casablanca,
Morocco, which called for a group of experts to examine different funding mechanisms to
support the peace process, including the creation of a Middle East Bank for Economic
Cooperation and Development.
Press without State Department press credentials should call the State press office at
(202) 647-2492 for clearance into the building.
-30-
RR-02
PUBLIC DEBT NEWS
)epartment of the Treasury • Bureau of the Public Debt • Washington, DC 20239
Contact: Peter Hollenbach
(202) 219-3302
FOR IMMEDIATE RELEASE
January 11, 1995
BUREAU OF THE PUBLIC DEBT AIDS SAVINGS BONDS OWNERS
AFFECTED BY FLOODS IN CALIFORNIA
The Bureau of Public Debt took action to assist victims of the flooding that struck California
by expediting the replacement or payment of United States Savings Bonds for owners in the
affected areas. The emergency procedures are effective immediately for paying agents and
owners in those areas of California hit by floods. These procedures are effective
immediately and will remain in effect through February 28, 1995.
Public Debt's action waives the normal six-month minimum holding period for Series EE
savings bonds presented to authorized paying agents for redemption by residents of the
affected area. Most financial institutions serve as paying agents for savings bonds.
The counties included in the initial declaration are Butte, Colusa, Contra Costa, Del Norte,
Glenn, Humboldt, Lake, Lassen, Los Angeles, Mendocino, Monterey, Napa, Orange, Placer,
Plumas, San Luis Obispo, Santa Barbara, Santa Clara, Santa Cruz, Sonoma, Tehama,
Ventura, Yolo, and Yuba. Should additional counties be declared disaster areas the
emergency procedures for savings bonds owners will go into effect for those areas.
The replacement of bonds lost or destroyed will also be expedited by Public Debt. Bond
owners should complete form PD-I048, available at most financial institutions or the
Federal Reserve Bank. Bond owners should include as much information as possible about
the lost bonds on' the form. This information should include how the bonds were inscribed,
social security number, approximate dates of issue, bond denominations and serial numbers
if available. The completed form must be certified by a notary public or an officer of a
financial institution. Completed forms should be forwarded to Public Debt's Savings Bonds
Operations Office located at 200 Third St., Parkersburg, West Virginia 26106-1328. Bond
owners should write the word "Floods" on the front of their envelopes to help expedite the
processing of claims.
000
PA-171
(RR-03)
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: 42
Author(s):
Title:
Date:
Senate Finance Committee Confirmation Hearing of Robert Rubin, Presidential Economic
Policy Adviser, As Treasury Secretary, Chairman: Senator Bob Packwood
1995-01-10
Journal:
Volume:
Page(s):
URL:
Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
PUBLIC DEBT NEWS
)epartment of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
January 12, 1995
Contact: Peter Hollenbach
(202) 219-3302
DECEMBER SAVINGS BONDS SALES TOTAL $ 784 MILLION
Savings Bonds sales for December totaled $784 million, pushing the value of U.S. Savings
Bonds held by Americans to $180.5 billion, up 5 percent over a year ago.
Series EE Savings Bonds issued on or after March 1, 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 Nov. 1, 1994, through April 30, 1995, is
5.92 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(RR-04)
PA-172
STATISTICAL SUMMARY
Series EE and HH U. S. Savings Bonds
Month of December 1994
ISSUES, REDEMPTIONS AND
OUTSTANDING
December
1994
Deceinber
1993
(In millions of dollars)
Sales:
Series EE
$ 784
$ 983
735
730
970
807
Accrued Discount (Interest
earned and added to Amount
Redemptions (Including
Accrued Discount)
All Series
Cash Adjustments from Series
HH Savings Bonds Exchanges
1
Amount Outstanding
Net Decrease December
550
Total outstanding
4
910
1994
1993
Series E & EE
Series H & HH
$ 169,038
11,431
$ 160,752
11,168
Total All Series
$ 180,469
$ 171,920
000
o
m
<0
~
N
federal financing bankNE
WASHINGTON, D.C. 20220
FEDERAL FINANCING BANK
Charles D. Haworth, Secretary, Federal Financing Bank (FFB),
announced the following activity for the month of November 1994.
FFB holdings of obligations issued, sold or guaranteed by
other Federal agencies totaled $105.7 billion on November 30,
1994, posting a decrease of $1,273.6 million from the level on
October 31, 1994. This net change was the result of a decrease
in holdings of agency debt of $1,092.4 million, in holdings of
agency assets of $157.6 million, and in holdings of agencyguaranteed loans of $23.6 million. FFB made 20 disbursements
during the month of November, and 7 buydown transactions were
executed on behalf of REA-guaranteed borrowers. FFB also
received 69 prepayments in November.
Attached to this release are tables presenting FFB November
loan activity and FFB holdings as of November 30, 1994.
~
N
1.9•. ~
N
o N
I
N
0
<J)
<J)
co
~
.n.
January 17, 1995
RR-05
N
0
L()
~
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LL
LL
Page 2 of
FEDERAL FINANCING BANK
NOVEMBER 1994 ACTIVITY
BORROWER
DATE
AMOUNT
OF ADVANCE
FINAL
MATURITY.
INTEREST
RATE
AGENCY DEBT
u.s.
u.s.
Postal Service
Postal Service
11/7
11/15
$300,000,000.00
$300,000,000.00
2/15/95
2/15/95
5.541% S/A
5.582% S/A
GOVERNMENT - GUARANTEED LOANS
GENERAL SERVICES ADMINISTRATION
HCFA Headquarters
Foley Square Courthouse
HCFA Services
Foley Services Contract
HCFA Services
Memphis IRS Service Cent.
HCFA Headquarters
Foley Services Contract
11/8
11/10
11/10
11/15
11/18
11/18
11/21
11/22
$17,301.46
$6,958,810.00
$78,117.00
$190,950.00
$78,117.00
$4,772,784.90
$5,181,235.00
$210,196.37
7/1/25
12/11/95
6/30/95
12/11/95
6/30/95
1/3/95
6/30/95
12/11/95
8.330%
6.565%
6.162%
6.677%
6.350%
5.623%
6.346%
6.857%
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
,11/4
11/14
11/15
11/18
$300,000.00
$300,000.00
$9,745,841.67
$300,000.00
11/2/26
11/2/26
11/2/26
11/2/26
8.287%
8.321%
8.258%
8.323%
S/A
S/A
S/A
S/A
11/9
11/10
11/10
11/10
11/10
11/10
11/10
11/10
11/21
11/22
11/23
11/29
11/29
$71,000.00
$2,144,661.38
$1,671,481.38
$6,902,734.87
$5,576,374.40
$44,348,484.76
$14,153,417.62
$15,117,737.17
$2,394,000.00
$40,000,000.00
$98,000.00
$1,120,000.00
$1,500,000.00
1/3/28
12/31/15
12/31/15
12/31/14
12/31/14
12/31/15
12/31/15
12/31/15
6/30/95
12/31/96
12/31/96
12/31/13
3/31/04
8.186%
8.122%
8.122%
8.104%
8.104%
8.122%
8.122%
8.122%
6.293%
7.395%
7.382%
7.957%
7.897%
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
GSA/PADC
ICTC
ICTC
ICTC
ICTC
Building
Building
Building
Building
RURAL UTILITIES SERVICE
Amelia Telephone #394
@Plains Elec. #149
@Plains Elec. #149
@Plains Elec. #158
@Plains Elec. #158
@Plains Elec. #158
@Plains Elec. #158
@Plains Elec. #158
citizens utilities #387
Oglethorpe Power #335
United Farmers Tele. #392
Beaver Creek Coop. #391
Tex-La Electric #389
S/A is a Semi-annual rate:
@ interest rate buydown
Qt~.
is a Quarterly rate.
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*
Agency Assets:
FmHA-ACIF
FmHA-RDIF
FmHA-RHIF
DHHS-Health Maintenance Org.
DHHS-Medical Facilities
Rural utilities Se~vice-CBO
Small Business Administration
sub-total*
Government-Guaranteed Loans:
DOD-Foreign Military Sales
DHUD-Community Dev. Block Grant
DHUD-Public Housing Notes
General Services Administration +
DOl-Virgin Islands
DON-Ship Lease Financing
Rural utilities Service
SBA-Small Business Investment Cos.
SBA-State/Local Development Cos.
DOT-Section 511
sub-total*
grand-total*
*figures may not total due to rounding
+does not include capitalized interest
November 30. 1994
October 31. 1994
$
$
664.7
3,926.4
24,328.8
3,200.0
8.073.1
40,193.0
664.7
3,926.4
25,721.2
3,200.0
7.773.1
41,285.4
Net Change
11/1/94-11/3Q/9t
$
0.0
0.0
-1,392.4
0.0
3QQ.Q
-1,092.4
FY '94 Net Change
lQ/1/94-11/3Q/94
$
0.0
0.0
-2,190.3
-200.0
-~QQ.Q
-3,290.3
6,063.0
3,675.0
23,981.0
18.4
33.8
4,598.9
L.2
38,371.1
6,063.0
3,675.0
24,131.0
25.3
34.5
4,598.9
1.Q
38,528.7
0.0
0.0
-150.0
-6.9
-0.7
0.0
-.JhQ
-157.6
0.0
0.0
-410.0
-6.9
-1.9
0.0
-Q.l
-418.9
3,761.3
105.1
1,688.5
2,099.3
21.9
1,479.6
17,364.6
48.8
514.4
3,778.9
106.4
1,746.5
2,079.0
21.9
1,479.6
17,321.8
53.8
518.9
It.§
27,121.4
=========
$106,935.6
-17.6
-1.3
-58.0
20.3
0.0
0.0
42.8
-5.0
-4.5
-Q.4
-23.6
-24.1
-4.8
-58.0
69.7
0.0
0.0
48.0
-7.8
-8.6
-Q.t
14.0
-=======
$-3,695.2
lil~
27,097.8
=========
$105,661. 9
========
$-1,273.6
UBLIC DEBT NEWS
Department of the Treasury - Bureau of the Public Debt - Washington, DC 20239
FOR IMMEDIATE RELEASE
January 17, 1995
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $13,453 million of 13-week bills to be issued
January 19, 1995 and to mature April 20, 1995 were
accepted today (CUSIP: 912794R63).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.77%
5.78%
5.77%
Investment
Rate
5.94%
5.95%
5.94%
Price
98.541
98.539
98.541
Tenders at the high discount rate were allotted 6%.
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
RR-06
Received
$70,942,884
AcceQted
$13,452,915
$65,535,539
1,549,285
$67,084,824
$8,045,570
1 1 549.285
$9,594,855
3,221,760
3,221,760
636 1 300
$70,942,884
636 1 300
$13,452,915
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
January 17, 1995
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $13,499 million of 26-week bills to be issued
January 19, 1995 and to mature July 20, 1995 were
accepted today (CUSIP: 912794U28).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
6.18%
6.19%
6.19%
Investment
Rate
6.47%
6.48%
6.48%
Price
96.876
96.871
96.871
Tenders at the high discount rate were allotted 36%.
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
RR-07
Received
$47,321,886
Acce12ted
$13,498,766
$40,716,966
1,692,420
$42,409,386
$6,893,846
1,692,420
$8,586,266
3,350,000
3,350,000
1,562,500
$47,321,886
1,562,500
$13,498,766
DEPARTMENT
OF
THE
TREASURY
NEWS
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASIDNGTON, D.C .• 20220. (202) 622-2960
FOR RELEASE AT 2:30 P.M_
January 17, 1995
CONTACT:
Office of Financing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $26,800 million, to be issued January 26,
1995. This offering will provide about $525 million of new cash
for the Treasury, as the maturing bills are outstanding in the
amount of $26,277 million.
Federal Reserve Banks hold $6,282 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 $2,907 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 glven ln the
attached offering highlights.
000
Attachment
RR-08
HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED JANUARY 26, 1995
January 17, 1995
Offering Amount .
$13,400 million
$13,400 million
Description of Offering:
Term and type of security
CU8IP number
Auction date
Issue date
Maturity date
Original issue date
Currently outstanding
Minimum bid amount
Multiples .
91-day bill
912794 R7 1
January 23, 1995
January 26, 1995
April 27, 1995
October 27, 1994
$13,670 million
$10,000
$ 1,000
182-day bill .
912794 89 6
January 23, 1995
January 26, 1995
July 27, 1995
July 28, 1994
$16,963 million
$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 Standard time
on auction day
Prior to 1:00 p.m. Eastern Standard 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
NEWS
OFFICE OF PUBUC AFFAIRS .1500 PENNSYLVANIA AVENUE, N.W.• WASIllNGTON, D.C .• 20220. (202) 622-2960
Contact:
FOR IMMEDIATE RELEASE
January 18, 1995
Jon Murchinson
(202) 622-2960
PRESIDENT TO ADDRESS MEXICAN FINANCIAL SITUATION AT TREASURY
President Clinton and Treasury Secretary Robert E. Rubin will discuss the U. S.
response to the financial situation in Mexico at the Treasury Department today, Wednesday,
January 18, at 3:30 p.m.
The event, with Washington representatives of trade associations and businesses, will
take place in the Cash Room, Main Treasury, 1500 Pennsylvania Avenue NW.
Cameras should set up between 1 and 1: 30 p. m. Media without Treasury, White
House, State, Defense or Congressional credentials wishing to attend should contact the
Office of Public Affairs at (202) 622-2960, with the following information: name, social
security number and date of birth, by noon today. This information may be faxed to (202)
622-1999.
-30RR-09
DEPARTMENT
OF
THE
TREASURY
NEWS
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C. • 20220. (202) 622-2960
FOR RELEA.SE AT 2:30 P.M.
January 18, 1995
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 $15,841 million of
publicly-held securities maturing January 31, 1995, and to raise
about $12,400 million new cash.
In addition to the public holdings, Federal Reserve Banks
hold $737 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 $934
million held by Federal Reserve Banks as agents for foreign
and international monetary authorities. Amounts bid for these
accounts by Federal Rese!ve 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 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
RR-IO
HIGHLIGHTS OF TREASURY OFFERINGS TO THE PUBLIC OF
2-YEAR AND 5-YEAR NOTES TO BE ISSUED JANUARY 31, 1995
January 18, 1995
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 .
$17,250 million
$11,000 million
2-year notes
Z-1997
912827 S5 2
January 24, 1995
January 31, 1995
January 31, 1995
January 31, 1997
Determined based on the
highest accepted bid
Determined at auction
July 31 and January 31
$5;000
$1,000
5-year notes
G-2000
912827 S6 0
January 25, 1995
January 31, 1995
January 31, 1995
January 31, 2000
Determined based on the
highest accepted bid
Determined at auction'
July 31 and January 31
$1,000
$1,000
None
Determined at auction
None
Determined at auction
The followinq ru~es apQlx to all securities mentioned above:
Submission of Bids:
Noncompetitive bids
. Accepted in full up to $5,000,000 at the highest accepted yield
Competitive bids
(I) 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.
Maximum Recognized Bid
at a Single Yield
. 35% of public offering
35% of public offering
Maximum Award .
Receipt of Tenders:
Noncompetitive tenders
Prior to 12:00 noon Eastern Standard time on auction day
Competitive tenders
Prior to 1:00 p.m. Eastern Standard 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
DEPARTMENT
OF
......
THE
TREASURY
L:N!EWS
•••.
..........
~~
'
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
TEXT AS PREPARED FOR DELIVERY
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January 18, 1995
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.1
REMARKS BY U.S. TREASURER MARY ELLEN WITHROW
TEACHERS' SEMINAR - THE MONEY STORY
UTICA, NY
It's a pleasure for me to be back among teachers to talk about money. I was the first
woman to be president of my school board back in my home state of Ohio. As Ohio State
Treasurer I placed $100 million in education bonds, established a conservative investment
fund for teachers, and was custodian of the teachers' pension fund. So I feel like I'm back
among colleagues talking about a familiar subject. It's a good feeling.
It says a lot about someone when they choose a career jn education. I don't know
whether a good teacher is made or born. But I do know that once you've been a teacher.
you're never quite anything else. Whatever other job you go into after teaching, you're
always looking for a way to teach.
Two federal agencies I oversee -- the Mint and Bureau of Engraving & Printing -- also
'have a commitment to educating the public. That's how we got involved in the Money Story.
To my knowledge, it's the largest public education project in the history of my two agencies,
and it's certainly one of the most worthy. We're inviting all of you to help make it even
more worthy by using it in your classrooms.
We're also asking you to make financial education in a child's early years the priority
it should be. For children who are exposed to its lessons, the video is truly lasting, lifetime
education.
I know you'll be impressed with the quality, usefulness, and comprehensiveness of
these materials. We're offering teachers the video itself, the teacher's guide, and a raft of
classroom aids. It's a self-contained educational module that you can insert into your
curriculum as you need it.
The money story is not only curriculum-approved -- it's kid-approved. Two hundred
grade schoolers who attended the premier at the Treasury Department in Washington last
January said it was the highlight of the school year. We think it can be the highlight of your
school year, too.
(more)
RR-Oll
I want to close by thanking First Source for its role in sponsoring your ownership of
the Money Story. It's one thing for a member-owned credit union to accept deposits and
make loans. But it's a different and higher level of involvement for a credit union to make
this kind of investment in its members, in its communities, and in the educational future of is
children. Thank you all.
-30-
2
DEPARTMENT
OF
THE
TREASURY
NEWS
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
January 19, 1995
SUMMERS TO SPEAK ON MEXICO AT GEORGETOWN LAW CENTER
Treasury Under Secretary for International Affairs Lawrence Summers will speak on
Mexico's fmancial situation at a symposium at 12:30 p.m. tomorrow, Friday, January 20 in
the 12th floor reception room of the Gewirz Student Center, 120 F Street, NW.
The symposium is sponsored by "Law and Policy in International Business," a journal
published by Georgetown University Law Center.
-30Treasury contact:
Georgetown contact:
RR-12
Michelle Smith
John Wilson
(202) 622-2960
(202) 662-9693
DEPARTMENT
OF
THE
TREASURY
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIUNGTON, D.C. ~ 20220. (202) 622-2960
AS PREPARED FOR DELIVERY
Our Mexican Challenge
Remarks by
Lawrence H. Summers
Under Secretary of the Treasury
Georgetown University Law Center
January 20, 1994
Introduction
When people talk about this period in history, they highlight the end of the Cold War. That
means that some of the principle threats we face are no longer to our military security, but to
our economic security. That suggests that the task of creating prosperity is to our foreign
policy today, what containment was to our foreign policy of a few years ago.
When people talk about this period in history, they talk about the capitalist revolution
sweeping the world. They see what is happening in Russia, and in Poland. But they also
see the changes underway in China, in South Africa, in India, in Argentina, in Mexico, and
in Brazil. They witness a growing awareness worldwide that states cannot direct economic
activity, but must rely on private markets and competition to find the way forward.
People will continue to speak with tremendous optimism about this period. They will marvel
at how, if this capitalist revolution continues, this will have been the era during which 3
billion people got on a rapid escalator to modernity. When the history books are written that
change will rank with the industrial revolution, and with the renaissance, in terms of its
1
RR-013
significance to human affairs.
The issue that I want to talk about today, the fmancial problem in Mexico, and the American
response to it, brings together these elements. It is an issue of economic security.
Because the Mexican model has been so widely watched, and so widely emulated, and is so
salient in the minds of investors, what happens in Mexico has implications that go far beyond
Mexico, or even Latin America. Indeed all you have to do is sit at a Reuters screen, and see
that the Thai baht has done such and such because of changing views about investor
confidence in Mexico, or that South African interest rates have moved thus and so, or that
Argentine bank stocks have performed a certain way -- to see that the stakes involved in what
happens in Mexico go far beyond Mexico, and go far beyond Latin America.
Responding to a New International Era
The problem we face is in many ways a defining problem of a new international era, in
which foreign policy and economic policy are joined together. That is why I think the rather
remarkable response of the American political system to Mexico's difficulties is so
appropriate. Once the gravity of the situation became clear, the President of the United
States called on the Majority Leader and the Minority Leader of the Senate, and the Speaker
and the Minority leader of the House of Representatives. He explained the situation to them,
and arranged for them to be briefed by the Chairman of the Federal Reserve and the
Secretary of the Treasury. Within 60 hours, he brought them together at the White House,
to announce a common bi-partisan commitment, to put politics aside, and to deal with a
fmancial issue of profound importance.
That was of course the proposal now being considered by the Congress to make available
loan guarantees, to assure liquidity in the context of Mexico's fmancial difficulties.
2
If anyone doubted the systemic importance of our response, they need only have watched
markets around the world over the last few days, and observed the co-movements of markets
in other countries with markets in Mexico, as perceptions about this program have fluctuated.
What I'd like to do tonight is talk for a few minutes about our stake in assisting Mexico, a
few minutes about what's happening in Mexico, and then talk about the guarantees in a little
bit more detail. I will conclude with why I think this episode is so important.
Our Stake in Mexico
I've spoken in abstract tenns so far about the importance of our proposal to the fmancial
system and to the capitalist model. Let me emphasize that America's stake in Mexico's
financial health is clear.
Working Americans are important investors in Mexico. No finn data is available, but
experts believe that as much as 90 percent of short-term Mexican debt held by foreigners is
held by Americans. That includes millions of Americans with interests in pension funds or
mutual funds that have emerging market holdings.
Mexico is our third largest trading partner. In relative size, our exports to Mexico are 8
times as important as Japan's exports to Mexico, and 16 times as important as Europe's
exports to Mexico. Exports to Mexico support 700,000 American jobs. The existence of
those exports depends upon a growing Mexican economy, upon a reasonable price for
American goods in Mexico, and upon a Mexican economy that can attract finance in order to
import.
The flow of immigration from Mexico to the United States is inevitably responsive to
economic conditions. We all know what the effect of a weaker economy in Mexico and a
3
weaker peso will be on those immigration flows.
And if devaluation were to spread to many markets, we can only imagine what the
consequences would be for our economy's capacity to export, and to prosper.
That is not to mention the important security implications for this country of maintaining
steady, stable growth in our nearest neighbor, with whom we share a 2,000 mile border.
What Happened in Mexico?
The stake then is clear. What is it that happened in Mexico? I think the observers who have
watched the Mexican economy over the last 6 or 7 years have seen profound change. They
have seen the bulk of state enterprises transferred to the private sector. They have seen
tariffs slashed back enormously, to zero on more than half of u.s. exports. They have seen
all sorts of quantitative restrictions cut way back, openness to foreign investment, and a
budget balanced last year -- giving Mexico the smallest budget deficit in the OEeD.
They've seen real and profound change that makes the Mexico of today a very different
Mexico from the Mexico of 5 or 10 years ago.
Mexico, to be sure, made what in retrospect were critical errors in macroeconomic policy -in maintaining an exchange rate that ultimately proved not to be defensible, and perhaps in
some of the macroeconomic policies pursued in recent months. In retrospect, the Mexican
authorities have made it clear that they would have handled the devaluation of the peso
differently from how it was in fact handled.
But fundamentally, Mexico is a solvent country, with a strong foundation for growth. There
is no question that it has the capacity to grow and to meet its obligations. The problem
Mexico faces is that in the context of the attempt to defend the peso that I referred to,
Mexico's reserves were drawn down, and Mexico issued a substantial quantity of short-term,
4
foreign-currency indexed securities. That creates the possibility for what might be called
self-fulfilling prophecies, or what might be called virtuous circles and vicious cycles.
With confidence, confidence is justified. If investors' capital continues to flow into Mexico,
Mexico can build on that foundation of growth, and confidence will prove to have been
warranted.
Unfortunately, lack of confidence can also prove to be a self-fulfilling prophecy. The
common expectation that no capital will flow, that no securities will be rolled over, that very
difficult economic circumstances will result -- that expectation also can prove to be selffulfilling.
The Administration's Package
The world has a very strong stake in which kind of expectation proves to be self-fulfilling.
That is why the United States is going to take the extraordinary step of making available a
sufficient quantity of loan guarantees, so that there can be no doubt about Mexico's ability
to meet its short-term obligations, and so that self-fulfilling confidence will prevail.
This action would be a grievous error if Mexico were not solvent. If Mexico could not in
fact meet its obligations, this would be the wrong policy. But we are convinced -- as I
believe economists around the world, and businessmen around the world are convinced -that if this liquidity problem can be addressed Mexico can grow, and can service its
obligation.
Certainly -- and this is a critical point -- any and all loan guarantees that the United States
extends will be predicated on Mexico's compliance with strict macroeconomic conditions.
These will involve fiscal policy, monetary policy, the extension of credit, and structural
policy. They will ensure the attraction of private capital.
5
Protecting the United States Budget
What about the guarantee program? Even with the gravity of this situation, President Clinton
made it very clear that he would not be prepared to widen our current budget deficit in order
to meet this problem. A mechanism had to be found that would not enlarge the current
American budget deficit. The mechanism that has been selected to avoid any impact on the
current budget deficit, and to maximize private sector participation, is the provision by the
U.S. of loan guarantees financed by an up front fee to be paid by the Mexican government.
That up front fee will be set in accordance with the judgement of what the cost of that
guarantee is, as assessed by the technicians at the Office of Management and Budget, and the
Congressional Budget Office. It will be supplemented by a substantial extra fee, in order to
give Mexico every incentive to return to the market for private sector finance.
The maturity of the guarantee is not specified precisely in the legislation, but it is
anticipated to be between 5 to 10 years. The size of the fee for the guarantee of course will
vary with the guarantees' maturity.
This mechanism, if successful, will actually lead to a profit for taxpayers, because we will
collect the fee, and Mexico will meet its obligations.
The United States government has at many times in the past and in many different contexts
extended official credit to Mexico. For reasons that should be clear enough, to Mexico the
United States is not just another creditor. And while the Mexican economy over the last 50
years has had its ups and its downs, Mexico's obligations to the United States have always
been paid in full.
We will rely on an up front fee. We will impose strict conditions. And we will rely on
other devices to ensure that we have access to revenue streams that can fmance payments, in
6
the extremely unlikely event that Mexico fails to service its obligations.
I think it is clear from the market's response that this program is providing the kind of
assurance that investors need if they are to be prepared to rollover paper, and thereby enable
Mexico to do what any troubled debtor must do, and extend the maturity of its debt.
As you are aware from reports in the press, this program is the subject of active discussion
in the Congress, in both the House and the Senate. There will be those who will say that the
United States should not do something like this for another country. Make no mistake -- this
program is grounded in the self-interest of the United States. It is grounded in a judgement
about what kind of world we want to live in. Do we seek a world of prosperous, opening,
growing democracies that can fmance greater and greater interaction with the United States?
Or do we choose a world of frustrated economies, unable to attract fmance, and suffering the
inevitable political ramifications.
I think the a policy that calls for no expenditure of taxpayers' money, and yet can make a
difference and lead to the self-fulfilling prophecy of confidence, rather than despair -- I think
that policy is the right choice.
I am convinced that this will be the Congress' choice as well. As someone said to me today,
this will be a difficult vote, but it will not be a difficult choice, for those who want to do
what is in the interest of this country.
NAFTA
1'd like to say a word here about NAFI'A. I know that there are a number of people out
there using Mexico's difficulties to revive old attacks on NAFrA. Let's be perfectly clear
on one point. The challenge we face today is not a referendum on NAFfA. Whatever you
thought about NAFfA, none of us want to see a falling peso, a shrinking Mexican market,
7
and a drying up of finance for the purchase of American goods.
I think the NAFTA critics have the argument precisely backwards. Without NAFI'A
Mexico's problems would be much worse, both for Mexico and the United States. NAFrA
ensures that Mexico can never again close its borders to American products. NAFfA
ensures that Mexico must continue to provide safeguards for our investors. NAFI'A bolsters
investor confidence, helping to contain Mexico's difficulties.
In short, NAFrA is what ultimately will protect the capitalist revolution underway in
MexicO. NAFrA has and will continue to consolidate the progress Mexico has made. And
NAFfA will ensure that Mexico remain a dynamic model for other developing nations, once
Mexico's short-term difficulties have passed.
A Unique Challenge
You know, important though this situation is, significant though the risks of financial
problems can be, this situation is very special. The United States cannot be, and will not be
any kind of general lender of last resort. What compels action in this special situation is the
fact that Mexico is a country with which we share a 2,000 mile border. And the fact is that
the Mexican situation raises unique systemic issues, because Mexico seems to be so powerful
an example for investors in many other nations.
I think that this experience then is not a precedent for American action. But I hope it will
serve as a wake-up call for thinking about our institutions of international fmance. At the
Naples summit of last summer, President Clinton led the G-7 leaders' call for a review of the
international economic and financial architecture. If ever there was any question as to
whether such a review was needed, I think that this experience has answered it. I think it
has revealed with crystal clarity the need for thlnking about what kind of institutional
mechanisms we can forge to deal with problems of this kind in the future, and much more
8
importantly, to prevent problems of this kind from arising in the future. That has to be at
the top of the agenda. It must be a top priority for all those from the private and the public
sector, concerned with maintaining the momentum of these tremendous changes that we've
seen in the post-cold war world.
The last two years have in many ways been the two most productive years for United States
international economic policy in decades. We have seen the NAFfA, and we have seen the
GAIT. We have seen the commencement of a process leading beyond the NAFfA, in the
Summit of the Americas. And we have seen a coming together of nations to address
commercial concerns in the context of APEC. We have certainly done more over the last
two years to open this world to trade and finance, than in any two years since the Second
World War.
If we are going to build forward on the momentum of that, there is, I would suggest to you,
no alternative. Thank: you.
I
9
luary 20, 1995
Mexico Fact Sheet
If we do not act now, Mexico faces a protracted economic crisis that would have severe
consequences for the United States.
o
Such a crisis would hit the U.S. economy hard. Mexico is our third largest export
destination.
o
Nearly 700,000 U.S. jobs depend directly on sales to Mexico.
o
California sells $5 billion dollars worth of goods to Mexico yearly. Michigan
sells $6 billion, nearly 20 percent of its export sales. Arizona and New
Mexico also sell near 20 percent of their export sales to Mexico. Texas sells
Mexico $13 billion worth of products, more than 113 of its export sales.
These and other states which rely heavily on trade with Mexico could see
declines in income, as well as job losses.
A Mexican crisis would cause severe immigration and social problems along our southern
border.
o
We estimate that illegal immigration could rise by more than 30 percent "'- an ,
additional half-million economic refugees could come into the United States this year.
o
California could see some 330,000 additional illegal Mexican immigrants flood into
the state, while 100,000 might go to Texas.
A Mexican crisis could spread to other emerging market economies, which are the fastestgrowing customers for U.S. products, thereby hindering the U.S,£economic recovery.
o
Investors in other developing countries could withdraw the Nnds that are
fueling growth in these new markets. Because Mexico is a prototype for
developing markets, the risks in this case are unique.
o
Annual U.S. exports of manufactured products to developing countries rose by
about 65 percent -- adding more than 1 million new U. S. jobs -- between 1989
and 1993.
o
Recession in these countries would be a major blow to U.S. and world growth
prospects over the next decade. Slowed demand for exports could cause the United
States to lose 1 percentage point of real GDP by the end of 1996.
RR-014
1
A protracted Mexican economic crisis is preventable because Mexico is currently facing a
financial loss of confidence -- not fundamental problems in its economy.
o
Mexico's economy is fundamentally strong. The Mexicans are pursuing disciplined
economic and fiscal policies. Their ratio of debt to national income is moderate, at
about 40 percent.
o
Mexico has taken substantial steps over the past several years to reform its economy.
Mexico has slashed government spending, moving from a budget deficit to a surplus.
Tariffs were reduced substantially when Mexico joined GAIT, and are being phased
out on U.S. products as part of NAFfA. Substantial portions of the economy have
been privatized, including banking and telecommunications. Many barriers to foreign
investment have been removed.
o
The new measures announced by Mexico -- including wage restraint, more budget
cuts, tight monetary policies, and faster privatization -- will help keep Mexico's
economy healthy once confidence is restored.
~ ,,~c,';~:~L"; .", ·.:.~.·I~-j2oiS0~~,~:!;;~;~:~~~L:S.~~ftC~(.~W:~~.;~!k~
Mexico's main problem is a credit squeeze, or loss of liquidity. brought on because fearful
investors have halted new lending to Mexico.
.
,.
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. . . <;. -~}};~i;;~r '.' ~;.~.--.~~~~t~~:l//":··f.f(.:3; :.;~.,':~~~~-;,,~,::;;-~ 'C{ ~"::"':·:;t:{;~:~:c:r~~-:T~;~:
.
o-
'MeXicO has been- deperiding ori monefbroughtin by' fOfclgrf IDveStmetlt t<fliclp rover-';
its current account deficit -- r~)Ughly the amount Mexico earns on exports minus what
it spends on foreign goods, services and interest payments.
o
Under Mexico's ambitious reform program and NAFTA prospects, flows sufficient to
cover this modest deficit seemed likely. However, political problems and growing
concerns about the size of the deficit caused these flows to taper off last year.
o
As investment tapered off, demand for Mexico's currenc~ the peso, also declined.
This undermined investor confidence further, and generated concerns that Mexico
could not afford to payoff some $40 billion worth of short-term obligations -including dollar-indexed bonds, CDs, and bank credits -- coming due over the next 6
months.
o
As long as investors and lenders stay out of Mexico, it will not be able to pay its
bills. However, if the United States backs loans to Mexico to stretch out maturities,
renewed confidence should be sufficient to soon bring investors back without
guarantees.
.
2
.
To help Mexico through its liquidity crisis. the Administration is working with Congressional
leadership and Chairman Greenspan on a loan ~uarantee of up to $40 billion.
o
Under the program, the United States will guarantee up to $40 billion of new
borrowing by Mexico.
o
The U.S. guarantee will convince investors to resume lending to Mexico, and restore
confidence in Mexico's prospects.
o
Mexico will use the money raised to payoff the loans falling due over the next 12 to
18 months, helping to avert a default and a protracted economic crisis.
The United States guarantee is designed to have no effect on the current U.S. budget.
United States may even make a profit on the transaction.
The
o
Mexico will pay the United, States government up front and in cash for the right to
use our guarantee.
o
The Mexican government:will provide backing in the form of proceeds from Mexico's
petroleum .sales, to help ensure that the United States is repaid.
The United States is imposin~ veO' strict conditions for Mexican use of a guarantee':facility:
o
The U. S. will set strict conditions on Mexico's use of funds obtained through the
guarantee facility.
o
The guarantee will also be conditioned on Mexico's pursuing disciplined economic
and fiscal policies.
o
o
Mexico will speed up the process of refonning its econom~, by selling off more state
industries and giving even greater access to U.S. and other foreign investors.
Steps like these will keep Mexico's economy strong, and restore market confidence
quickly. They will also ensure that Mexico pays off the funds it borrows with our
guaran tees.
3
The international financial institutions and other countries will also provide support for
Mexico.
o
Canada is already providing about $1 billion dollars in swap credits. Other countries'
central banks are offering $5 billion through the Bank for International Settlements.
o
President Clinton has called on the International Monetary Fund, the World Bank, and
the Inter-American Development Bank to develop a multilateral package of support
for Mexico.
o
Because the United States has the greatest stake in Mexico, we are leading the world
effort.
This support package is a one-time event -- not a precedent.
o
Mexico's difficulties represent exceptional circumstances for the United States -. because of our 2,000 mile border with Mexico, and because of our two countries'
large trade and economic ties.
4
Mobilizing Private Resources to
Restore Financial Stability to Mexico through a Guarantee Program
America has a vital interest in Mexico's economic future. A protracted economic
crisis in Mexico would decrease U.S. exports, increase illegal immigration to the U.S. and,
potentially, spread to other emerging markets.
The Administration and the Congressional Leadership have agreed to "do what is
necessary to restore financial confidence in Mexico without affecting the current budget at
home."
We are now discussing a proposal designed to mobilize private resources that will
have no effect on the current U.S. budget.
Under this proposal, the Government of Mexico will pay up front the budget costs of
up to $40 billion of loan guarantees issued by the United States.
These guarantees will allow Mexico to go to the private capital markets to raise
longer tenn loans to payoff its snort-term financial obligations, which will' help restore
financial stability and prevent Mexico's ,problems from spreading to other .markets.
This is not foreign aid. This is not a loan. The Mexicans will pay for the cost of
program.
the
The United States will impose strict conditions on the issuance of guarantees to help
ensure that Mexico is able to generate the resources necessary to meets its obligations, and
that our economic interests in Mexico are protected and advanced.
The Mexican Government will be required to provide adequate security to
insure against any potential future budget costs to tfie United States.
\
The Mexican Government will commit to implement an economic and financial
program to contain inflation, reduce Mexico's external deficit, res~ore stability
to the peso, and prevent further reduction in Mexican wages.
The Mexican Government will commit to adopt other economic policies to
protect and advance U.S. economic interests in a strong Mexico.
The guarantees will be issued for a series of separate transactions, each requiring the
approval of the President, which will enable us to ensure that Mexico is complying with the
conditions.
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Number of Pages Removed: 24
Author(s):
Title:
Date:
ABC "This Week With David Brinkley" with Host: David Brinkley, Joined By: Sam Donaldson
and George Will, Guest: Representative Dick Armey (R-TX), House Majority Leader
1995-01-18
Journal:
Volume:
Page(s):
URL:
Federal Reserve Bank of St. Louis
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DEPARTMENT OF THE TREASURY
WASHINGTON, D.C.
ECRETARY OF THE TREASURY
MEXICO BRIEFING FOR SENIOR EXECUTIVES
Wednesday, January 18, 1995
Department of Treasury
Cash Room
WELCOME AND INTRODUCTION
Secretary Robert Rubin
United States Department of the Treasury
Ambassador Mickey Kantor
United States Trade Representative
The President of the United States
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Title:
"Questions, Answers About a Crisis That Hits Home"
Date:
1995-01-14
Journal:
The Washington Post
Volume:
Page(s):
URL:
Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
Mobilizing Private Resources to
Restore Financial Stability to Mexico through a Guarantee Program
America has a vital interest in Mexico's economic future. A protracted economic
crisis in Mexico would decrease U.S. exports, increase illegal immigration to the U.S. and,
potentially, spread to other emerging markets.
The Administration and the Congressional Leadership have agreed to do what is
necessary to restore financial confidence in Mexico without affecting the current budget at
home.
If
If
We are now discussing a proposal designed to mobilize private resources that will
have no effect on the current U.S. budget.
Under this proposal, the Government of Mexico will pay up front the budget costs of
up to $40 billion of loan guarantees issued by the United States.
These guarantees will allow Mexico to go to the private capital markets to raise
longer term loans to payoff its short-term financial obligations, which will help restore
financial stability and prevent Mexico's problems from spreading to other markets.
This is not foreign aid. This is not a loan. The Mexicans will pay for the cost of the
program.
The United States will impose strict conditions on the issuance of guarantees to help
ensure that Mexico is able to generate the resources necessary to meets its obligations, and
that our economic interests in Mexico are protected and advanced.
The Mexican Government will be required to provide adequate security to
insure against any potential future budget costs to the United States.
The Mexican Government will commit to implement an economic and fmancial
program to contain inflation, reduce Mexico's external deficit, restore stability
to the peso, and prevent further reduction in Mexican wages.
The Mexican Government will commit to adopt other economic policies to
protect and advance U.S. economic interests in a strong Mexico.
The guarantees will be issued for a series of separate transactions, each requiring the
approval of the President, which will enable us to ensure that Mexico is complying with the
conditions.
Mexico Fact Sheet
If we do not act now, Mexico faces a protracted economic crisis that would have severe
consequences for the United States.
o
Such a crisis would hit the U.S. economy hard. Mexico is our third largest export
destination.
o
Nearly 700,000 U.S. jobs depend directly on sales to Mexico.
o
California sells $5 billion dollars worth of goods to Mexico yearly. Michigan
sells $6 billion, nearly 20 percent of its export sales. Arizona and New
Mexico also sell near 20 percent of their export sales to Mexico. Texas sells
Mexico $13 billion worth of products, more than 1/3 of its export sales.
These and other states which rely heavily on trade with Mexico could see
declines in income, as well as job losses.
A Mexican crisis would cause severe immigration and social problems along our southern
border.
o
We estimate that illegal immigration could rise by more than 30 percent -- an
additional half-million economic refugees could come into the United States this year.
o
California could see some 330,000 additional illegal Mexican immigrants flood into
the state, while 100,000 might go to Texas.
A Mexican crisis could spread to other emerging market economies, which are the fastestgrowing customers for U.S. products. thereby hindering the U.S. economic recovery.
o
Investors in other developing countries could withdraw the funds that are
fueling growth in these new markets. Because Mexico is a prototype for
developing markets, the risks in this case are unique.
o
Annual U.S. exports of manufactured products to developing countries rose by
about 65 percent -- adding more than I million new U.S. jobs -- between 1989
and 1993.
o
Recession in these countries would be a major blow to U.S. and world growth
prospects over the next decade. Slowed demand for exports could cause the United
States to lose 1 percentage point of real GDP by the end of 1996.
1
A protracted Mexican economic crisis is preventable because Mexico is currently facing a
financial loss of confidence -- not fundamental problems in its economy.
o
Mexico's economy is fundamentally strong. The Mexicans are pursuing disciplined
economic and fiscal policies. Their ratio of debt to national income is moderate, at
about 40 percent.
o
Mexico has taken substantial steps over the past several years to reform its economy.
Mexico has slashed government spending, moving from a budget deficit to a surplus.
Tariffs were reduced substantially when Mexico joined GAIT, and are being phased
out on U.S. products as part of NAFfA. Substantial portions of the economy have
been privatized, including banking and telecommunications. Many barriers to foreign
investment have been removed.
o
The new measures announced by Mexico -- including wage restraint, more budget
cuts, tight monetary policies, and faster privatization -- will help keep Mexico's
economy healthy once confidence is restored.
Mexico's main problem is a credit squeeze. or loss of liquidity. brought on because fearful
investors have halted new lending to Mexico.
o
Mexico has been depending on money brought in by foreign investment to help cover
its current account deficit -- roughly the amount Mexico earns on exports minus what
it spends on foreign goods, services and interest payments.
o
Under Mexico's ambitious reform program and NAFTA prospects, flows sufficient to
cover this modest deficit seemed likely. However, political problems and growing
concerns about the size of the deficit caused these flows to taper off last year.
o
As investment tapered off, demand for Mexico's currency, the peso, also declined.
This undermined investor confidence further, and generated concerns that Mexico
could not afford to payoff some $40 billion worth of short-term obligations -including dollar-indexed bonds, CDs, and bank credits -- coming due over the next 6
months.
o
As long as investors and lenders stay out of Mexico, it will not be able to pay its
bills. However, if the United States backs loans to Mexico to stretch out maturities,
renewed confidence should be sufficient to soon bring investors back without
guarantees.
2
To help Mexico through its liquidity crisis. the Administration is working with Congressional
leadership and Chairman Greenspan on a loan guarantee of up to $40 billion.
o
Under the program, the United States will guarantee up to $40 billion of new
borrowing by Mexico.
o
The U.S. guarantee will convince investors to resume lending to Mexico, and restore
confidence in Mexico's prospects.
o
Mexico will use the money raised to payoff the loans falling due over the next 12 to
18 months, helping to avert a default and a protracted economic crisis.
The United States guarantee is designed to have no effect on the current U.S. budget.
United States may even make a profit on the transaction.
The
o
Mexico will pay the United States government up front and in cash for the right to
use our guarantee.
o
The Mexican government will provide backing in the form of proceeds from Mexico's
petroleum sales, to help ensure that the United States is repaid.
The United States is imposing very strict conditions for Mexican use of a guarantee facility.
o
The U. S. will set strict conditions on Mexico's use of funds obtained through the
guarantee facility.
o
The guarantee will also be conditioned on Mexico's pursuing disciplined economic
and fiscal policies.
o
Mexico will speed up the process of reforming its economy, by selling off more state
industries and giving even greater access to U.S. and other foreign investors.
o
Steps like these will keep Mexico's economy strong, and restore market confidence
quicldy. They will also ensure that Mexico pays off the funds it borrows with our
guarantees.
3
The international financial institutions and other countries will also provide support for
Mexico.
o
Canada is already providing about $1 billion dollars in swap credits. Other countries'
central banks are offering $5 billion through the Bank for International Settlements.
o
President Clinton has called on the International Monetary Fund, the World Bank, and
the Inter-American Development Bank to develop a multilateral package of support
for Mexico.
o
Because the United States has the greatest stake in Mexico, we are leading the world
effort.
This support package is a one-time event -- not a precedent.
o
Mexico's difficulties represent exceptional circumstances for the United States -because of our 2,000 mile border with Mexico, and because of our two countries'
large trade and economic ties.
4
DEPARTMENT
OF
THE
TREASURY
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
January 21, 1995
Contact: Michelle Smith
(202) 622-2960
NEARLY 770,000 U.S. JOBS DEPEND ON EXPORTS TO MEXICO
Nearly 770,000 U.S. workers have jobs that depend on exports to Mexico, according
to an analysis released Saturday by the U.S. Treasury Department.
"This study demonstrates how important it is to the American people that the U. S.
government act decisively to restore confidence in the Mexican economy," Treasury
Secretary Robert E. Rubin said. "A robust Mexican economy provides a large market for our
exports, which translates into jobs for American workers."
The Treasury Department study indicates that from 1987 to 1993 exports to Mexico
increased by over 180 percent. Nearly 770,000 workers in 1993, the most recent annual
figures available, owed their jobs to exports to Mexico.
Export-related jobs are relatively high-wage, typically paying between 10 and 20
percent more than the average U.S. wage, according to various estimates.
The Treasury analysis, based on Commerce Department figures, reports that in 1993
exports from the United States to Mexico were more than $41 billion.
"If Mexico's problems continue, Mexicans won't be able to afford as many of our
products and our workers will lose out," Rubin said. "The loan guarantees are clearly in our
national interest and would help protect hundreds of thousands of American jobs. In
addition, stabilizing the Mexican economy now will help prevent spillover effects in other
emerging markets which buy U.S. goods."
Copies of the Treasury Department analysis are available from the Public Affairs
Office by calling the 24-hour automated fax service at (202) 622-2040 and requesting
document number 015, or by calling the office at (202) 622-2960.
- 30RR-015
America's Stake in the Mexican Loan Guarantee
Program:
A State-by-State Analysis
The Problem:
• The u.s. and Mexican economies are closely linked. We have a unique
economic stake in Mexican stability. Nearly 770,000 Americans are
employed producing and distributing products destined for Mexico. A
protracted crisis would harm Mexican demand for products made by
American workers.
• The Mexican economy faces a short-run liquidity squeeze: a substantial
amount of dollar-denominated short-term obligations comes due in the
near future, and Mexico is having a hard time borrowing additional funds.
• Mexico's economy is fundamentally strong. Over the long term its
prospects are good.
The Solution:
• lfthe U.S. guarantees loans to Mexico, Mexico will be able to refinance
its debt.
• Once confidence is restored, Mexico should regain its normal access to
capital markets, and the liquidity crisis should end.
• Mexico will pay the U.S. government up front and in cash for the right to
use our guarantees.
• The Mexican government will provide full backing in the form of proceeds
from petroleum sales.
What's at Stake:
• If the loan guarantee program is not adopted, it is unlikely that Mexico
will sustain strong demand for products made by American workers.
• Nearly 770,000 U.S. workers are now employed producing and exporting
products to Mexico. A prolonged crisis would threaten continued demand
for the products made by American workers.
If the Problem Spreads:
• U.S. exports to Mexico are only one-quarter of total U.S. exports to
emerging markets.
• If the problem spreads, it will harm other emerging market economies.
They would then buy less U.S. machinery and capital goods. Many more
U.S. export-sector jobs would be affected.
• Stopping the liquidity squeeze now--while it is confined to Mexico-should prevent it from spreading to other emerging markets.
The United States and the Mexican Economy
Exports to Mexico from the United States
• The Commerce Department reports that in 1993 exports from the United
States to Mexico were some $41.1 billion.
• The 1993 figures represented a 184 percent boost in exports to Mexico
since 1987, as Mexico's economic reform program has led to double-digit
rates of growth of U.S. exports to Mexico.
• Results from 1994 are not yet completely in, but so far nationwide results
are running more than ten percent above the 1993 pace.
Exports to Mexico and Employment in the United States
• At the 1993 pace of exports to Mexico, some 769,800 workers in the
United States were employed producing products ultimately destined for
Mexico.
• The bulk of these 769,800 jobs in the United States are relatively bighwage jobs. Depending on the estimate, typical export-sector jobs pay
between 10 and 20 percent more than the average American job.
• The number of workers in the United States employed producing and
distributing exports to Mexico has grown by 184 percent since 1987.
Since 1987, the expansion of U.S . exports to Mexico has led to the
employment of an additional 498,300 in the export sector in the United
States.
• A serious economic crisis in Mexico would limit its ability to continue
purchasing American goods and services at its current pace, placing the
United States export-related jobs at risk.
U. S Treasury
January 20, 1995
What If the Crisis Spreads?
• Over the last five years, U. S. exports to emerging markets have grown by
more than sixty percent: U. S. manufactured goods exports to emerging
markets are more than $60 billion a year greater than in the late 1980s.
Growth 1989-1993 in U.S. Manufactures Exports to
Emerging Markets
50
42.5
40
., 30
c
~
iii
20
10
3
4.9
0
Machinery
Other
Manufactures
Chemicals
Manufactured
Materials
• U.S. exports to other emerging markets are almost three times the size of
U. S. exports to Mexico.
• A spread of the Mexican peso crisis would. damage.the.economies of other
emerging markets, and reduce their demand for U.S. exports.
U.S Treasury
January 20, 1995
America's 'Stake in the Mexican Loan Guarantee Program
State
United States
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Exports to
Mexico, 1987
{millionsl
Exports to
Mexico, 1993
{millionsl
Export
Growth,
19871993*
Employment
Supported by
Exports to
Mexico, 1987
Employment
Supported by
Exports to
Mexico, 1993
Employment
Growth
1987 to 1993
$14,505
$41,130
184%
271,500
769,800
498,300
$64
$202
$.7
$1,185
$75
$5,578
$659
$365
$173
$838
$353
$.3
$39
$1,487
$1,273
$85
$204
$207
$67
$32
$105
$408
$6,138
$250
$27
$589
$1.4
215%
25%
108%
298%
147%
158%
195%
66%
149%
480%
56%
834%
337%
93%
305%
104%
259%
111%
3664%
108%
296%
487%
59%
24%
132%
1250%
1,200
3,800
2,600
(a)
(a)
(a)
10,700
300
42,200
4,800
2,300
1,900
6,300
1,100
22,200
1,400
104,400
12,300
6,800
3,200
15,700
6,600
11,500
1,100
62,200
7,500
4,500
1,300
9,400
5,500
$.5
$569
$19
$2,256
$255
$124
$105
$337
$61
$.2
$4
$340
$659
$21
$100
$58
$32
$1
$50
$103
$1,046
$158
$22
$254
$.1
(a)
(a)
(a)
100
6,400
12,300
400
1,900
1,100
500
1,000
1,900
19,600
3,000
400
4,700
700
27,800
23,800
1,600
3,800
3,900
1,200
600
2,000
7,600
114,900
4,700
500
11,000
600
21,400
11,500
1,200
1,900
2,800
700
600
1,000
5,700
95,300
1,700
100
6,300
(a)
(a)
(a)
(a)
State
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Puerto Rico
Exports to
Mexico, 1987
Imillions!
Exports to
Export
Mexico, 1993 Growth,
1987-1993
Imillions!
Employment
Supported by
Exports to
Mexico, 1987
Employment
Supported by
Exports to
Mexico, 1993
Employment
Growth
1987 to 1993
$14
$4
$7
$200
$6
$666
$67
$6
$363
$23
$17
$249
$13
$27
$1
$113
$5,830
$37
$2
$44
$83
$22
$72
$1
$67
$14
$44
$860
$116
$1,277
$398
$3
$999
$172
$119
$684
$40
$319
$4
$708
$14,022
$33
$13
$329
$227
$23
$314
$5
387%
237%
493%
331%
1734%
92%
492%
-48%
175%
646%
607%
175%
220%
1070%
731%
524%
141%
-11%
731%
647%
173%
4%
333%
346%
200
100
100
3,700
(a)
12,500
1,200
100
6,800
400
300
4,700
300
500
(a)
2,100
109,100
700
(a)
900
1,500
400
1,400
(a)
1,200
300
800
16,100
2,200
23,900
7,400
100
18,700
3,200
2,200
12,800
800
6,000
100
13,200
262,400
600
200
6,200
4,200
400
5,900
100
1,000
200
700
12,400
2,200
11,400
6,200
(a)
11,900
2,800
1,900
8,100
500
5,500
100
11,100
153,300
$33
$141
326%
600
2,600
2,000
·Computed from unrounded data.
(a) Less than 100.
(8)
200
5,300
2,700
(8)
4,500
100
PUBLIC DEBT NEWS
lepartment of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
January 23, 1995
Contact: Peter Hollenbach
(202) 219-3302
PUBLIC DEBT STREAMLINES SUBSCRIPTION PROCEDURES
FOR STATE AND LOCAL GOVERNMENT SERIES SECURITIES
Treasury's Bureau of the Public Debt moved to improve customer service by streamlining the
procedures for purchasing State and Local Government Series Securities (SLGS). Public Debt
announced that investors in these special securities, available only to State and local
government entities, will now have a single service center for subscriptions and other
transactions at the Bureau's operations center in Parkersburg, West Virginia. Subscriptions for
SLGS requesting issue dates of January 30, 1995 or later should be sent directly to Public Debt
in Parkersburg.
For the first time, investors will be able to telefax their subscriptions directly to the Bureau's
Division of Special Investments in Parkersburg instead of delivering their subscriptions to one
of 12 Federal Reserve Offices that are now designated to process SLG purchases. The
introduction of the telefax option makes SLG purchase more convenient for investors while
allowing Public Debt staff to process securities issues more promptly.
Investors will pay for the securities by directing their financial institutions to transfer the funds
by FedWire directly to Public Debt. This change eliminates a process where payment was
effected by charge to the Reserve account of a financial institution.
State and local governments hold more than $132 billion of these special non-marketable
securities. State and Local Government Series securities are designed to allow State and local
government entities to invest excess funds with the U.S. Government while complying with IRS
arbitrage rules. The new procedures are described in 31 CFR Part 344 and appear in today's
Federal Register.
000
PA 173
(RR-016)
UBLIe DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
January 23, 1995
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $13,410 million of 13-week bills to be issued
January 26, 1995 and to mature April 27, 1995 were
accepted today (CUSIP: 912794R71).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.77%
5.80%
5.80%
Investment
Rate
5.94%
5.97%
5.97%
Price
98.541
98.534
98.534
Tenders at the high discount rate were allotted 69%.
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
RR-G17
Received
$46,332,111
Acce12ted
$13,409,896
$40,894,912
1,266,499
$42,161,411
$7,972,697
1,266,499
$9,239,196
3,181,500
3,181,500
989,200
$46,332,111
989,200
$13,409,896
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
January 23, 1995
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $13,465 million of 26-week bills to be issued
January 26, 1995 and to mature July 27, 1995 were
accepted today (CUSIP: 912794S96).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
6.23%
6.24%
6.24%
Investment
Rate
6.52%
6.53%
6.53%
Price
96.850
96.845
96.845
$1,250,000 was accepted at lower yields.
Tenders at the high discount rate were allotted 77%".
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
RR-018
Received
$55,337,045
Acce:gted
$13,465,456
$49,746,808
1,284,137
$51,030,945
$7,875,219
1,284,137
$9,159,356
3,100,000
3,10"0,000
1,206,100
$55,337,045
1,206,100
$13,465,456
Ne'-Vs
W(ls/lingtQn. D.C. 20220
From lhe Qt.fiCt' q.f Public I\(f(lirs
FOR IMMEDIATE RELEASE
JANUARY 24, 1995
FOR FURTHER INFORMATION:
DONALD R. NICHOLS (202) 874-6450
MINT CUSTOMER SERVICE CENTER INTRODUCES
AUTOMATED VOICE RESPONSE TELEPHONE SYSTEM
- New Telephone Number for Mint Customers - Is (202) 283-COIN On January 30 the u.S. Mint will activate a new voice response telephone
system at its Customer Service Center in Lanham, MD, as part of what Mint Director
Philip N. Diehl calls "a continuing wave of customer service improvements that started iast
year." The new phone number will be (202) 283-COIN.
"Customers will discover two things," said Director Diehl. "One, we have a
new phone number. Two, they will encounter a more sophisticated level of interaction. "
Beginning January 30, customers can use touch-tone telephones for 24-hour
access to a five-option main menu on Mint's automated voice response system.
Callers may press [1] for general information about the Mint; [2] for
information regarding annual Proof, Uncirculated, Silver Proof, American Eagle Bullion
Coin Programs or medals; [3] to hear information about current commemorative coin
programs; [4] to update or add their names to the Mint's mailing list using an interactive
voice-address fonn; and [5] to receive literature or an order fonn for a particular coin.
Customers also will have the option of speaking with a customer service
specialist during nonnal business hours or leave a call-back request if they phone after
normal business hours or if all specialists are attending other callers.
"Upgrading our telephone system is a top priority, and we plan to shift this
system to an 800 number by the end of 1995," Mr. Diehl added. "Last year we pledged to
make major improvements in customer service, and better phone service won't be the only
changes we're making this year to honor that pledge."
- over RR-019
-2Among customer ·service improvements implemented in 1994, he cited:
o Reducing turnaround time for filling order.s- from 50 percent filled in eight
weeks to more than 95 percent in four weeks
o Liberalizing cancellation and return policies
o Implementing one-stop customer service at Matland
###
DEPARTMENT
OF
THE
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE,
TREASURY
N.W
.• WASHINGTON,
D.C.• 20220. (202) 622-2960
t""· -,.
' ,
: .. G ,
J)
i
,,'! ,;
,)' ,()"0
i
J
January 24~ 1995
,
-' -
,
Monthly Release of U.S. Reserve' Assets '
The Treasury Department today released U.S. reserve assets data for the month of
December 1994.
As indicated in this table, U.S. reserve assets amounted to $74,335 million at the end
of December 1994, up from $74,000 million in November 1994.
End
of
Month
Total
Reserve
Assets
Gold
Stock 1/
Special
Drawing
Rights 2/3/
Foreign
Currencies
4/
Reserve
Position in
IMF2/
1994
November
74,000
11,052
10,017
40,894
12,037
December
74,335
11,051
10,039
41,215
12,030
1/
Valued at $42.2222 per fine troy ounce.
2/ 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.
3/ Includes allocations of SDRs by..:.the IMF plus transactions in SDRs.
4/ Valued at current market exchange rates.
DEPARTMENT
OF
THE
TREASURY
NEWS
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
January 24, 1995
TREASURY'S OFFICE OF FOREIGN ASSETS CONTROL IMPLEMENTS EXECUTIVE
ORDER #12947(List of Terrorist organizations and Individuals
whose Assets has been blocked)
RR-021
DEPARTMENT OF THE TREASURY
WASHINGTON. D.C. 20220
Treasury's Office of Foreign Assets control Implements B.O. 12947
The following bulletin was sent out by Fedwire to all online financial institutions before the opening of business on
January 24, 1995 and electronically echoed across the united
states through various Clearing Houses, banking organizations,
and computer bulletin boards between 06:30 a.m. Eastern Standard
Time and 08:30 a.m. Eastern Standard Time:
["FOR IMMEDIATE ATTENTION--A BULLETIN FROM THE OFFICE OF FOREIGN
ASSETS CONTROL"
PRES. CLINTON HAS SIGNED AN EXECUTIVE ORDER "PROHIBITING
TRANSACTIONS WITH TERRORISTS WHO THREATEN TO DISRUPT THE MIDDLE
EAST PEACE PROCESS." TREASURY'S OFFICE OF FOREIGN ASSETS CONTROL
HAS, THEREFORE, ADDED VARIATIONS ON THE NAMES OF 12 MIDDLE EAST
TERRORIST ORGANIZATIONS AND 18 INDIVIDUALS TO ITS LISTING OF
SPECIALLY DESIGNATED NATIONALS AND BLOCKED PERSONS AS U[SDT]s"-SPECIALLY DESIGNATED TERRORISTS. ALL OF THEIR PROPERTY AND
PROPERTY INTERESTS, INCLUDING ACCOUNTS AND FUNDS TRANSFERS, ARE
BLOCKED.
FINANCIAL INSTITUTIONS SHOULD URGENTLY CHECK USUAL
COMPUTER BULLETIN BOARDS FOR DETAILS. THE INFORMATION HAS ALSO
BEEN FILED WITH AND WILL BE AVAILABLE IN PRINTED FORMAT IN THE
FEDERAL REGISTER.
QUESTIONS, CALL OFAC COMPLIANCE AT 202/6222490.
COMPL 95300]
The actual listings follow:
(SDT] Organizations
ABU NIDAL ORGANIZATION (a.k.a. ANO; a.k.a. BLACK SEPTEMBER;
a.k.a. FATAH REVOLUTIONARY COUNCIL; a.k.a. ARAB REVOLUTIONARY
COUNCIL; a.k.a. ARAB REVOLUTIONARY BRIGADES; a.k.a. REVOLUTIONARY
ORGANIZATION OF SOCIALIST MUSLIMS) Libya; Lebanon; Algeria;
Sudan; Iraq [SDT]
AL-GAMA'A AL-ISLAMIYYA (a.k.a. ISLAMIC GAMA'ATi a.k.a. GAMA'ATi
a.k.a. GAMA'AT AL-ISLAMIYYA; a.k.a. THE ISLAMIC GROUP), Egypt
[SOT]
AL-JIHAD (a.k.a. JIHAD GROUP; a.k.a. VANGUARDS OF CONQUEST;
a.k.a. TALAA'AL AL-FATEH), Egypt [SOT]
ANO (a.k.a. ABU NIDAL ORGANIZATION; a.k.a. BLACK SEPTEMBER;
a.k.a. FATAH REVOLUTIONARY COUNCIL; a.k.a. ARAB REVOLUTIONARY
-
2 -
COUNCIL; a.k.a. ARAB REVOLUTIONARY BRIGADES; a.k.a. REVOLUTIONARY
ORGANIZATION OF SOCIALIST MUSLIMS), Libya; Lebanon; Algeria;
Sudan; Iraq [SDT]
ANSAR ALLAH (a.k.a. PARTY OF GOD; a.k.a. HIZBALLAH; a.k.a.
ISLAMIC JIHAD; a.k.a. REVOLUTIONARY JUSTICE ORGANIZATION; a.k.a.
ORGANIZATION OF THE OPPRESSED ON EARTH; a.k.a. ISLAMIC JIHAD FOR
THE LIBERATION OF PALESTINE; a.k.a. FOLLOWERS OF THE PROPHET
MUHAMMAD), Lebanon [SDT]
ARAB REVOLUTIONARY BRIGADES (a.k.a. ANO; a.k.a. ABU NIDAL
ORGANIZATION; a.k.a. BLACK SEPTEMBER; a.k.a. FATAH REVOLUTIONARY
COUNCIL; a.k.a. ARAB REVOLUTIONARY COUNCIL; a.k.a. REVOLUTIONARY
ORGANIZATION OF SOCIALIST MUSLIMS), Libya; Lebanon; Algeria;
sudan; Iraq [SDT]
ARAB REVOLUTIONARY COUNCIL (a.k.a. ANO; a.k.a. ABU NIDAL
ORGANIZATION; a.k.a. BLACK SEPTEMBER; a.k.a. FATAH REVOLUTIONARY
COUNCIL; a.k.a. ARAB REVOLUTIONARY BRIGADES; a.k.a. REVOLUTIONARY
ORGANIZATION OF SOCIALIST MUSLIMS), Libya; Lebanon; Algeria;
Sudan; Iraq [SDT]
BLACK SEPTEMBER (a.k.a. ANO; a.k.a. ABU NIDAL ORGANIZATION;
a.k.a. FATAH REVOLUTIONARY COUNCIL; a.k.a. ARAB REVOLUTIONARY
COUNCIL; a.k.a. ARAB REVOLUTIONARY BRIGADES; a.k.a. REVOLUTIONARY
ORGANIZATION OF SOCIALIST MUSLIMS), Libya; Lebanon; Algeria;
Sudan; Iraq [SDT]
DEMOCRATIC FRONT FOR THE LIBERATION OF PALESTINE (a.k.a.
DEMOCRATIC FRONT FOR THE LIBERATION OF PALESTINE - HAWATMEH
FACTION; a.k.a. DFLP) , Lebanon; Syria; Israel [SDT]
DEMOCRATIC FRONT FOR THE LIBERATION OF PALESTINE - HAWATMEH
FACTION (a.k.a. DEMOCRATIC FRONT FOR THE LIBERATION OF PALESTINE;
a.k.a. DFLP) , Lebanon; Syria; Israel [SDT]
DFLP (a.k.a. DEMOCRATIC FRONT FOR THE LIBERATION OF PALESTINE HAWATMEH FACTION; a.k.a. DEMOCRATIC FRONT FOR THE LIBERATION OF
PALESTINE), Lebanon; Syria; Israel [SDT]
FATAH REVOLUTIONARY COUNCIL (a.k.a. ANO; a.k.a. ABU NIDAL
ORGANIZATION; a.k.a. BLACK SEPTEMBER; a.k.a. ARAB REVOLUTIONARY
COUNCIL; a.k.a. ARAB REVOLUTIONARY BRIGADES; a.k.a. REVOLUTIONARY
ORGANIZATION OF SOCIALIST MUSLIMS), Libya; Lebanon; Algeria;
Sudan; Iraq [SDT]
FOLLOWERS OF THE PROPHET MUHAMMAD (a.k.a. PARTY OF GOD; a.k.a.
HIZBALLAH; a.k.a. ISLAMIC JIHAD; a.k.a. REVOLUTIONARY JUSTICE
ORGANIZATION; a.k.a. ORGANIZATION OF THE OPPRESSED ON EARTH;
a.k.a. ISLAMIC JIHAD FOR THE LIBERATION OF PALESTINE; a.k.a.
ANSAR ALLAH), Lebanon [SOT]
-
3 -
GAMA'AT (a.k.a. ISLAMIC GAMA'AT; a.k.a. GAMA'AT AL-ISLAMIYYA;
a.k.a. THE ISLAMIC GROUP; a.k.a. AL-GAMA'A AL-ISLAMIYYA), Egypt
[SOT]
GAMA'AT AL-ISLAMIYYA (a.k.a. ISLAMIC GAMA'AT; a.k.a. GAMA'AT;
a.k.a. THE ISLAMIC GROUP; a.k.a. AL-GAMA'A AL-ISLAMIYYA), Egypt
[SOT]
HAMAS (a.k.a. ISLAMIC RESISTANCE MOVEMENT), Gaza; West Bank
Territories; Jordan [SDT]
HIZBALLAH (a.k.a. PARTY OF GOD; a.k.a. ISLAMIC JIHAD; a.k.a.
REVOLUTIONARY JUSTICE ORGANIZATION; a.k.a. ORGANIZATION OF THE
OPPRESSED ON EARTH; a.k.a. ISLAMIC JIHAD FOR THE LIBERATION OF
PALESTINE; a.k.a. ANSAR ALLAH; a.k.a. FOLLOWERS OF THE PROPHET
MUHAMMAD), Lebanon [SDT]
ISLAMIC GAMA'AT (a.k.a. GAMA'AT; a.k.a. GAMA'AT AL-ISLAMIYYA;
a.k.a. THE ISLAMIC GROUP; a.k.a. AL-GAMA'A AL-ISLAMIYYA), Egypt
[SOT]
ISLAMIC JIHAD (a.k.a. PARTY OF GOD; a.k.a. HIZBALLAH; a.k.a.
REVOLUTIONARY JUSTICE ORGANIZATION; a.k.a. ORGANIZATION OF THE
OPPRESSED ON EARTH; a.k.a. ISLAMIC JIHAD FOR THE LIBERATION OF
PALESTINE; a.k.a. ANSAR ALLAH; a.k.a. FOLLOWERS OF THE PROPHET
MUHAMMAD), Lebanon [SOT]
ISLAMIC JIHAD FOR THE LIBERATION OF PALESTINE (a.k.a. PARTY OF
GOD; a.k.a. HIZBALLAH; a.k.a. ISLAMIC JIHAD; a.k.a. REVOLUTIONARY
JUSTICE ORGANIZATION; a.k.a. ORGANIZATION OF THE OPPRESSED ON
EARTH; a.k.a. ANSAR ALLAH; a.k.a. FOLLOWERS OF THE PROPHET
MUHAMMAD), Lebanon [SDT]
ISLAMIC JIHAD OF PALESTINE (a.k.a. PIJ; a.k.a. PALESTINIAN
ISLAMIC JIHAD - SHIQAQI; a.k.a. PIJ SHIQAQI/AWDA FACTION; a.k.a.
PALESTINIAN ISLAMIC JIHAD), Israel; Jordan; Lebanon [SDT]
ISLAMIC RESISTANCE MOVEMENT (a.k.a. HAMAS), Gaza; West Bank
Territories; Jordan [SDT]
JIHAD GROUP (a.k.a. AL-JlHAD; a.k.a. VANGUARDS OF CONQUEST;
a.k.a. TALAA'AL AL-FATEH), Egypt [SDT]
KACH; Israel [SDT)
KAHANE CHAI, Israel [SDT]
ORGANIZATION OF THE OPPRESSED ON EARTH (a.k.a. PARTY OF GOD,
a.k.a. HIZBALLAH; a.k.a. ISLAMIC JIHAD; a.k.a. REVOLUTIONARY
JUSTICE ORGANIZATION; a.k.a. ISLAMIC JIHAD FOR THE LIBERATION OF
PALESTINE; a.k.a. ANSAR ALLAH; a.k.a. FOLLOWERS OF THE PROPHET
MUHAMMAD), Lebanon [SDT]
- 4 -
PALESTINE LIBERATION FRONT (a.k.a. PALESTINE LIBERATION FRONT ABU ABBAS FACTION; a.k.a. PLF-ABU ABBAS; a.k.a. PLF) , Iraq [SOT]
PALESTINE LIBERATION FRONT - ABU ABBAS FACTION (a.k.a. PLF-ABU
ABBAS; a.k.a. PLF; a.k.a. PALESTINE LIBERATION FRONT), Iraq [SOT]
PALESTINIAN ISLAMIC JIHAD - SHIQAQI (a.k.a. PIJ; a.k.a. ISLAMIC
JIHAD OF PALESTINE; a.k.a. PIJ SHIQAQIjAWDA FACTION; a.k.a.
PALESTINIAN ISLAMIC JIHAD), Israel; Jordan; Lebanon [SOT]
PARTY OF GOD (a.k.a. HIZBALLAH; a.k.a. ISLAMIC JIHAD; a.k.a.
REVOLUTIONARY JUSTICE ORGANIZATION; a.k.a. ORGANIZATION OF THE
OPPRESSED ON EARTH; a.k.a. ISLAMIC JIHAD FOR THE LIBERATION OF
PALESTINE; a.k.a. ANSAR ALLAH; a.k.a. FOLLOWERS OF THE PROPHET
MUHAMMAD), Lebanon [SOT]
PFLP (a.k.a. POPULAR FRONT FOR THE LIBERATION OF PALESTINE),
Lebanon; Syria; Israel [SOT]
PFLP-GC (a.k.a. POPULAR FRONT FOR THE LIBERATION OF PALESTINE GENERAL COMMAND), Lebanon; Syria; Jordan [SOT]
PIJ (a.k.a. PALESTINIAN ISLAMIC JIHAD - SHIQAQI; a.k.a. ISLAMIC
JIHAD OF PALESTINE; a.k.a. PIJ SHIQAQI/AWDA FACTION; a.k.a.
PALESTINIAN ISLAMIC JIHAD), Israel; Jordan; Lebanon [SOT]
PIJ SHIQAQI/AWDA FACTION (a.k.a. PIJ; a.k.a. PALESTINIAN ISLAMIC
JIHAD - SHIQAQI; a.k.a. ISLAMIC JIHAD OF PALESTINE; a.k.a.
PALESTINIAN ISLAMIC JIHAD), Israel; Jordan; Lebanon [SOT]
PLF (a.k.a. PLF-ABU ABBAS; a.k.a. PALESTINE LIBERATION FRONT ABU ABBAS FACTION; a.k.a. PALESTINE LIBERATION FRONT), Iraq [SOT]
PLF-ABU ABBAS (a.k.a. PALESTINE LIBERATION FRONT - ABU ABBAS
FACTION; a.k.a. PLF; a.k.a. PALESTINE LIBERATION FRONT), Iraq
[SOT]
POPULAR FRONT FOR THE LIBERATION OF PALESTINE (a.k.a. PFLP) ,
Lebanon; Syria; Israel [SDT]
POPULAR FRONT FOR THE LIBERATION OF PALESTINE - GENERAL COMMAND
(a.k.a. PFLP-GC), Lebanon; Syria; Jordan [SDT]
REVOLUTIONARY JUSTICE ORGANIZATION (a.k.a. PARTY OF GOD; a.k.a.
HIZBALLAH; a.k.a. ISLAMIC JIHAD; a.k.a. ORGANIZATION OF THE
OPPRESSED ON EARTH; a.k.a. ISLAMIC JIHAD FOR THE LIBERATION OF
PALESTINE; a.k.a. ANSAR ALLAH; a.k.a. FOLLOWERS OF THE PROPHET
MUHAMMAD), Lebanon [SOT]
REVOLUTIONARY ORGANIZATION OF SOCIALIST MUSLIMS (a.k.a. ANO;
a.k.a. ABU NIDAL ORGANIZATION; a.k.a. BLACK SEPTEMBER; a.k.a.
FATAH REVOLUTIONARY COUNCIL; a.k.a. ARAB REVOLUTIONARY COUNCIL;
- 5 -
a.k.a. ARAB REVOLUTIONARY BRIGADES), Libya; Lebanon; Algeria;
Sudan; Iraq [SDT]
TALAA'AL AL-FATEH (a.k.a. JIHAD GROUP; a.k.a. AL-JIHAD; a.k.a.
VANGUARDS OF CONQUEST), Egypt [SDT]
THE ISLAMIC GROUP (a.k.a. ISLAMIC GAMA'AT; a.k.a. GAMA'AT; a.k.a.
GAMA'AT AL-ISLAMIYYA; a.k.a. AL-GAMA'A AL-ISLAMIYYA), Egypt [SDT]
VANGUARDS OF CONQUEST (a.k.a. JIHAD GROUP; a.k.a. AL-JIHAD;
a.k.a. TALAA'AL AL-FATEH), Egypt [SDT]
-------------------[SDT] Individuals ABBAS, Abu (a.k.a. ZAYDAN, Muhammad); Director of PALESTINE
LIBERATION FRONT - ABU ABBAS FACTION; DOB 10 Dec 1948
(individual) [SOT]
AL BANNA, Sabri Khalil Abd Al Qadir (a.k.a. NIDAL, Abu); Founder
and Secretary General of ABU NIDAL ORGANIZATION; DOB May 1937 or
1940; POB Jaffa, Israel (individual) [SDT]
AL RAHMAN, Shaykh Umar Abd; Chief Ideological Figure of ISLAMIC
GAMA'AT; DOB 03 May 1938; POB Egypt (individual) [SDT]
AL ZAWAHIRI, Dr. Ayman; Operational and Military Leader of JIHAD
GROUP; DOB 19 Jun 1951; POB Giza, Egypt; Passport No. 1084010
(Egypt) (individual) [SDT]
AL-ZUMAR, Abbud (a.k.a. ZUMAR, Colonel Abbud); Factional Leader
of JIHAD GROUP; Egypt; POB Egypt (individual) [SDT]
AWOA, Abd Al Aziz; Chief Ideological Figure of PALESTINIAN
ISLAMIC JIHAD - SHIQAQI; DOB 1946 (individual) [SDT]
FADLALLAH, Shaykh Muhammad Husayn; Leading Ideological Figure of
HIZBALLAH; DOB 1938 or 1936; POB Najf Al Ashraf (Najaf), Iraq
(individual) [SDT]
HABASH, George (a.k.a. HABBASH, George); Secretary General of
POPULAR FRONT FOR THE LIBERATION OF PALESTINE (individual) [SOT]
HABBASH, George (a.k.a. HABASH, George); Secretary General of
POPULAR FRONT FOR THE LIBERATION OF PALESTINE (individual) [SOT]
HAWATMA, Nayif (a.k.a. HAWATMEH, Nayif; a.k.a. HAWATMAH, Nayif;
a.k.a. KHALID, Abu); Secretary General of DEMOCRATIC FRONT FOR
THE LIBERATION OF PALESTINE - HAWATMEH FACTION; DOB 1933
(individual) [SOT]
-
6 -
HAWATMAH, Nayif (a.k.a. HAWATMA, Nayif; a.k.a. HAWATMEH, Nayif;
a.k.a. KHALID, Abu); Secretary General of DEMOCRATIC FRONT FOR
THE LIBERATION OF PALESTINE - HAWATMEH FACTION; DOB 1933
(individual) [SDT]
HAWATMEH, Nayif (a.k.a. HAWATMA, Nayif; a.k.a. HAWATMAH, Nayif;
a.k.a. KHALID, Abu); Secretary General of DEMOCRATIC FRONT FOR
THE LIBERATION OF PALESTINE - HAWATMEH FACTION; DOB 1933
(individual) [SDT]
ISLAMBOULI, Mohammad Shawqi; Military Leader of ISLAMIC GAMA'AT;
DOB 15 Jan 1955; POB Egypt; Passport No. 304555 (Egypt)
(individual) [SDT]
JABRIL, Ahmad (a.k.a. JIBRIL, Ahmad); Secretary General of
POPULAR FRONT FOR THE LIBERATION OF PALESTINE - GENERAL COMMAND;
DOB 1938; POB Ramleh, Israel (individual) [SDT]
JIBRIL, Ahmad (a.k.a. JABRIL, Ahmad); Secretary General of
POPULAR FRONT FOR THE LIBERATION OF PALESTINE - GENERAL COMMAND;
DOB 1938; POB Ramleh, Israel (individual) [SDT]
KHALID, Abu (a.k.a. HAWATMEH, Nayif; a.k.a. HAWATMA, Nayif;
a.k.a. HAWATMAH, Nayif); Secretary General of DEMOCRATIC FRONT
FOR THE LIBERATION OF PALESTINE - HAWATMEH FACTION; DOB 1933
(individual) [SOT]
MUGHNIYAH, Imad Fa'iz (a.k.a. MUGHN I YAH , Imad Fayiz); Senior
Intelligence Officer of HIZBALLAH; DOB 07 Dec 1962; POB Tayr
Dibba, Lebanon; Passport No. 432298 (Lebanon) (individual) [SOT]
MUGHNIYAH, Imad Fayiz (a.k.a. MUGHNIYAH, Imad Fa'iz); Senior
Intelligence Officer of HIZBALLAH; DOB 07 Dec 1962; POB Tayr
Dibba, Lebanon; Passport No. 432298 (Lebanon) (individual) [SOT]
NAJI, Talal Muhammad Rashid; Principal Deputy of POPULAR FRONT
FOR THE LIBERATION OF PALESTINE - GENERAL COMMAND; DOB 1930; POB
Al Nasiria, Palestine (individual) [SDT]
NASRALLAH, Hasan; Secretary General of HIZBALLAH; DOB 31 Aug 1960
or 1953 or 1955 or 1958; POB Al Basuriyah, Lebanon; Passport No.
042833 (Lebanon) (individual) [SOT]
NIDAL, Abu (a.k.a. AL BANNA, Sabri Khalil Abd Al Qadir); Founder
and Secretary General of ABU NIDAL ORGANIZATION; DOB May 1937 or
1940; POB Jaffa, Israel (individual) [SDT]
QASEM, Talat Fouad; Propaganda Leader of ISLAMIC GAMA'AT; DOB 02
Jun 1957 or 03 Jun 1957; POB Al Mina, Egypt (individual) [SDT]
SHAQAQI, Fathi; Secretary General of PALESTINIAN ISLAMIC JIHAD SHIQAQI (individual) [SOT]
- 7 -
TUFAYLI, Subhi; Former Secretary General and Current Senior
Figure of HIZBALLAH; DOB 1947; POB Biqa Valley, Lebanon
(individual) [SOT]
YASIN, Shaykh Ahmad; Founder and Chief Ideological Figure of
MAMAS; DOB 1931 (individual) [SOT]
ZAYDAN, Muhammad (a.k.a. ABBAS, Abu); Director of PALESTINE
LIBERATION FRONT - ABU ABBAS FACTION; DOB 10 Dec 1948
(individual) [SOT]
ZUMAR, Colonel Abbud (a.k.a. AL-ZUMAR, Abbud); Factional Leader
of JIHAD GROUP; Egypt; POB Egypt (individual) [SDT]
[01-24-95]
###
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
January 24, 1995
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 Z-1997,
to be issued January 31, 1995 and to mature January 31, 1997
were accepted today (CUSIP: 912827S52).
The interest rate on the notes will be 7 1/2%. All
competitive tenders at yields lower than 7.57% were accepted in
full.
Tenders at 7.57% were allotted 77%. All noncompetitive and
successful competitive bidders were allotted securities at the yield
of 7.57%, with an equivalent price of 99.872. The median yield
was 7.55%; that is, 50% of the amount of accepted competitive bids
were tendered at or below that yield.
The low yield was 7.52%;
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
$50,277,411
Accepted
$17,257,214
The $17,257 million of accepted tenders includes $2,165
million of noncompetitive tenders and $15,092 million of
competitive tenders from the public.
In addition, $998 million of tenders was awarded at the
high yield to Federal Reserve Banks as agents for foreign and
international monetary authorities. An additional $375 million
of tenders was also accepted at the high yield· from Federal
Reserve Banks for their own account in exchange for maturing
securities.
RR-022
DEPARTMENT
OF
THE
TREASURY
NEWS
OFFICE OF PUBUC AFFAIRS .1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C. • 20220 • (202) 622-2960
FOR RELEASE AT 2:30 P.M.
January 24, 1995
CONTACT:
Office of Financing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $26,800 million, to be issued February 2,
1995. This offering will provide about $300 million of new cash
for the Treasury, as the maturing bills are outstanding in the
amount of $26,498 million.
Federal Reserve Banks hold $6,973 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 $1,985 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
RR-023
HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED FEBRUARY 2, 1995
January 24, 1995
Offering Amount .
$13,400 million
$13,400 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 R8 9
January 30, 1995
February 2, 1995
May 4, 1995
May 5, 1994
$30,643 million
$10,000
$ 1,000
182-day bill
912794 U3 6
January 30, 1995
February 2, 1995
August 3, 1995
February 2, 1995
$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 Standard time
on auction day
Prior to 1:00 p.m. Eastern Standard time
on auction day
Full payment with tender or by charge to a funds
account at a Federal Reserve Bank on issue date
Monthly Treasury Statement
I
'B F .~
... t
• II'
')' I f ' () ,., "
I
I
J!:I 2"i Jj
,. ' J
11
r- 1 .. (
,).J
B>~Ji~t<t!i
til
of Receipts and Outlays
the United States Government
'8a'S 1995 Through
December 31, 1994, and Other Periods
Highlight
Military active duty pay, veterans benefits, and supplemental security income payments for January 1,
1995 were accelerated to December 30, 1994.
This issue includes the semi-annual interest payment to trust funds investing in government securities.
RECEIPTS, OUTLAYS, AND SURPLUS/DEFICIT
THROUGH DECEMBER 1994
B
I
L
L
I
400
Contents
350
Summary, page 2
300
Receipts, page 6
250
Outlays, page 7
Means of financing, page 20
Receipts/outlays by month, page 26
o
Federal trust funds/securities, page 28
N
S
50
O-l4=L2.i.J!:::::::E;;;;;; ~~~9
Receipts by source/outlays by
function, page 29
Explanatory notes, page 30
-50
-1
Compiled and Published by
Department of the Treasury
Financial Management Service
Introduction
of receipts are. treated as deductions from gross receipts; revotving lind manag.
ment fund receipts, reimbursements and refunds of monies previouslyexPElllded
treated as deductions from gross outlays; and interest on the public debt ~
Issues) .IS recognized on the accrual basis. Major information sources include
accounting data reported by Federal entities, disbursing officers, and Federal
Reserve banks.
The Monthly Treasury Statement of Receipts and Outlays of the United States
Government (MTS) IS prepared by the Financial Management Service, Department of
the Treasury, and after approval by the Fiscal Assistant Secretary of the Treasury, is
normally released on the 15th workday of the month fotlowing the reporting month.
The publicatlOl1 is based on data provided by Federal entities, disbursing officers,
and Federal Reserve banks.
Triad of Publications
The MrS is part of a triad of Treasury financial reports. The Daily T~
Statement is published each working day of the Federal Govemment. It PfOVides
data on the cash and debt operations of the Treasury based upon reporting ol1he
Treasury account balances by Federal Reserve banks. The Mrs is a report 01
Govemment receipts and outlays, based on agency reporting. The U.S. GovernmslII
Annual Report is the official publication of the detailed receipts and outlays ol1he
Govemment. It is published annually in accordance with legislative mandates !1Itn
to the Secretary of the Treasury.
Audience
The MTS is published to meet the needs of: Those responsible for or interested
In the cash position of the Treasury; Those who are responsible for or interested in
the Government's budget results; and individuals and businesses whose operations
depend upon or are related to the Govemment's financial operations.
Disclosure Statement
This statement summarizes the financial activities of the Federal Govemment
and off-budget Federal entities conducted in accordance with the Budget of the U.S.
Govemment, i.e., receipts and outtays of funds, the surplus or deficit, and the means
of financing the deficit or disposing of the surplus. Information is presented on a
modified cash basis: receipts are accounted for on the basis of collections; refunds
Data Sources and Information
The Explanatory Notes section of this publication provides information COf1Cem.
ing the flow of data into the MrS and sources of information relevant to the MTS.
Table 1. Summary of Receipts, Outlays, and the Deficit/Surplus of the U.S. Government, Fiscal Years 1994 and 1995,
by Month
[$ millions]
Period
Outlays
Receipts
Deficit/Surplus (-)
FY 1994
October
............................... ,
November ............................... .
December ............................... .
January .................................. .
February ................................. .
March ................................... .
April ..................................... .
May ..................................... .
June ..................................... .
July ...................................... .
August .................................. .
September .............................. .
78,662
83,102
125,403
122,961
73,186
'93,107
141,321
83,541
138,119
84,822
97,333
135,895
124,085
121,483
133,108
107,713
114,752
'125,422
123,867
115,597
123,269
118,020
121,617
132,133
45,422
38,381
7,705
-15,248
41,566
32,315
-17,454
32,057
-14,850
33,198
24,284
-3,762
Year-to-Date .......................... .
1,257,452
1,461,067
203,615
FY 1995
October ................................. .
November ............................... .
December ............................... .
89,024
87,673
130,810
121,480
125,131
134,874
32,457
37,458
4,063
Year-to-Date .......................... .
307,507
381,485
73,979
'The receipts and outlays in March 1994 have been decreased by $1 million to reflect the
reclasSification of intrabudgetary transactions previously reported as governmental receipts for the
. Wildlife Conservation and Appreciation FUnd".
?
Table 2. Summary of Budget and Off-Budget Results and Financing of the U.S. Government, December 1994 and
Other Periods
[$ millions]
Current
Fiscal
Year to Date
This
Month
Classification
Budget
Estimates
Full Fiscal
Year'
Prior
Fiscal Year
to Date
(1994)
Budget
Estimates
Next Fiscal
Year (1996)'
Total on-budget and off-budget results:
Total receipts ...........................................
130,810
307,507
1,354,333
287,167
1,425,699
On-budget receipts ...................................
Off-budget receipts ..................................
103,860
26,950
231,327
76,179
1,000,459
353,874
214,262
72,905
1,052,086
373,613
Total outlays ............................................
134,874
381,485
1,521,447
378,676
1,604,939
...................................
...................................
123,491
11,382
318,262
63,224
1,229,419
292,028
318,707
59,969
1,298,044
306,895
........................
-4,063
-73,979
-167,114
-91,509
-179,240
................
................
-19,631
+15,568
-86,934
+12,956
-228,960
+61,846
-104,445
+12,936
-245,958
+66,718
.. . . . . . . . . . . .
4,063
73,979
167,114
91,509
179,240
Means of financing:
Borrowing from the public ...........................
Reduction of operating cash, increase (-) .........
By other means ......................................
-13,316
476
16,904
59,669
9,362
4,948
175,699
88,731
2,783
-6
192,078
On-budget outlays
Off-budget outlays
Total surplus (+) or deficit (-)
On-budget surplus (+) or deficit (-)
Off-budget surplus (+) or deficit (-)
Total on-budget and off-budget financing
'These figures are based on the Mid-Session Review of the FY 7995 Budget, released by the
Office of Management and Budget on July 14, 1994.
-8,585
... No Transactions.
Note: Details may not add to totals due to rounding.
Figure 1. Monthly Receipts, Outlays, and Budget Deficit/Surplus of the U.S. Government, Fiscal Years 1993 and 1994
$ billions
,,.
,,
,
,
,,
,
,
--_ .... ,
,,
,
'
\.
'\
,,' ""
''
,
,,
"
Receipts
Defic~( -)/Surplus
Oct.
Dec.
Feb.
Jun.
Apr.
Aug.
Oct.
FY
95
FY
94
3
Dec.
-12,838
Figure 2.
Monthly Receipts of the U.S. Government, by Source, Fiscal Years 1994 and 1995
$ billions
1~~--------------------------------------------~
1
Dec.
Oct.
Feb.
Jun.
Apr.
Aug.
Dec,.
FY
95
FY
94
Figure 3.
Oct.
Monthly OuUays of the U.S. Government, by Function, Fiscal Years 1994 and 1995
$ billions
14~r-------------------------------------------~
1
1
FY
FY
95
94
4
Table 3. Summary of Receipts and Outlays of the U.S. Government, December 1994 and Other Periods
[$ millions]
Classification
This Month
Current
Fiscal
Year to Date
Comparable
Prior Period
Budget
Estimates
Full Fiscal Year'
Budget Receipts
individual income taxes ......................................... .
Corporation income taxes ....................................... .
Social insurance taxes and contributions:
Employment taxes and contributions (off-budget) ........... .
Employment taxes and contributions (on-budget) ............ .
Unemployment insurance ..................................... .
Other retirement contributions ................................ .
[.<cise taxes ..................................................... .
Estate and gift taxes ........................................... .
Customs duties .................................................. .
Miscellaneous receipts ........................................... .
53,736
31,915
2134,809
236,468
129,497
32,604
603,065
143,950
26,950
8,758
230
420
4,587
1.092
1,747
1,375
76,179
24,578
4,552
1,122
214,377
23,513
5,421
6,486
72,905
21,332
4,078
1,150
13,101
3,475
4,980
34,046
353,874
103,063
27,756
4,578
55,975
14,706
21,986
25,380
Total Receipts ................................................ .
130,810
307,507
287,167
1,354,333
(On-budget) ................................................. .
103,860
231,327
214,262
1,000,459
(Off-budget) ................................................ .
26,950
76,179
72,905
353,874
333
303
26
732
5.506
304
25,178
2,553
3,888
1,743
903
656
61
5,463
19,938
909
64,294
7,848
8,159
4.756
787
568
53
5,713
18,449
823
70,695
7,614
7,697
4,925
2,931
3,078
197
11,143
61,277
3,690
258,894
31,159
30,302
15,663
30,127
27,141
2,394
558
749
2,471
664
3,056
79.826
79,817
7,723
2,025
2,475
6,507
1,993
9,999
79,420
76,007
7,368
1,633
2,427
10,003
1,908
9,463
341,677
331,313
27,755
7,306
11,641
32,720
5,394
37,495
57,320
1,336
4,253
538
462
1,203
3,460
64
101,964
1,062
9,265
1,450
451
3,190
9,988
274
92,611
956
10,412
1,394
134
3,484
9,293
209
324,235
16,970
37,737
6,658
895
14,439
40,437
752
Budget Outlays
Legislative Branch ............................................... .
The Judiciary .................................................... .
Executive Office of the President .............................. .
Funds Appropriated to the President ........................... .
Department of Agriculture ....................................... .
Department of Commerce ...................................... .
Department of Defense-Military ............................... .
Department of Defense-Civil .................................. .
Department of Education ....................................... .
Department of Energy ........................................... .
Department of Health and Human Services, except Social
Security ........................................................ ..
Department of Health and Human Services, Social Security .. .
Department of Housing and Urban Development .............. .
Department of the Interior ...................................... .
Department of Justice ........................................... .
Department of Labor ............................................ .
Department of State ............................................ .
Department of Transportation ................................... .
Department of the Treasury:
Interest on the Public Debt .................................. .
Other .......................................................... .
Department of Veterans Affairs ................................. .
Environmental Protection Agency .............................. ..
General Services Administration ............................... ..
National Aeronautics and Space Administration ................ .
Office of Personnel Management .............................. ..
Small Business Administration .................................. .
Other independent agencies:
Resolution Trust Corporation ................................. .
Other ......................................................... ..
Allowances ...................................................... ..
Undistributed offsetting receipts:
Interest ........................................................ .
Other .......................................................... .
-2,001
1,401
-3,974
6,860
1,310
3,119
-11,113
7,935
-1,075
-38,216
-2,671
-44,555
-7,842
-41,560
-8,240
-91,780
-38,279
Total outlays .................................................. .
134,874
381,485
378,676
1,521,447
1,229,419
(On-budget) ................................................ ..
123,491
318,262
318,707
(Off-budget) ................................................ .
11,382
63,224
59,969
292,028
Surplus (+) or deficit (-) .................................. ..
-4,063
-73,979
-91,509
-167,114
(On-budget) ................................................. .
-19,631
-86,934
-104,445
-228,960
(Off-budget) ............................................... ..
+15,568
+12,956
+12,936
+61,846
'The receipts and outlays in March 1994 have been decreased to reflect the reclassification of
intrabudgetary transactions previously reported as govemmental receipts for the "Wildlife
Conservation and Appreciation Fund".
Note: Details may not add to totals due to rounding.
'These figures are based on the Mid-Session Review of the FY 1995 Budget, released by the
.
'b21ndudes a prior period adjustment to reflect the reclassification of refunds preViously
·eported by the Internal Revenue Service.
)ffice of Management and Budget on July 14, 1994.
5
Table 4. Receipts of the U.S. Government, December 1994 and Other Periods
[$ millions]
Cleasification
Gross
Receipts
Refunds
(Deduct)
l
I
Prior Fiscal Year to Dlte-,
Current Fiscal Year to Date
This Month
Receipts
Gross
Receipts
Refunds
(Deduct)
Rece· t
Ip s
Gross
Receipts
Refunds
(Deduct)
-j
RICtipts
I
-..
Individual income taxes:
Withheld
......................... .
Presidential Election Carnpaign Fund ...................... .
Other
........................ .
123,291
50,680
129,042
2
r *j
3,635
9,410
9,499
r *j
Total-Individual Income taxes .•........•...••..••..••.
54,315
579
53,736
138,454
'3,645
134,809
132,791
3,294
12tM7
Corporation Income taxes .......•...•.........•...•..•••..•..
32,616
700
31,915
40,811
'4,343
36,468
36,088
3,484
32.M4
Social insurance taxes and contributions:
Employment taxes and contributions:
Federal oId·age and survivors ins. trust fund:
Federal Insurance ContributionS Act taxes ........... .
Self-Employment Contributions Act taxes ............ .
Deposits by States .................................... .
~er ....................................... ···.·········
22,863
22,863
50,962
-110
65,891
65,891
2
2
2
50,962
-110
2
-45
(* *j
(* *j
(* *j
(" *j
-45
(" *j
Total-FOASI trust fund ............................ .
22,865
22,865
50,854
50,854
65,846
65,846
4,086
4,086
24,841
484
24,841
484
7,059
7,059
(.oj
(* *j
Federal disability insurance trust fund:
Federal Insurance Contributions Act taxes ........... .
Self-Employment Contributions Act taxes ............ .
Receipts from railroad retirement account ............ .
Deposits by States .................................... .
Other .................................................. .
(")
(")
4,086
4,086
25,325
25,325
7,059
7,059
8,441
8,441
23,564
90
23,564
90
20,426
20,426
Total-FHI trust fund ............................... .
8,441
8,441
23,654
23,654
20,426
20,426
Railroad retirement accounts:
Rail industry pension fund ............................ .
Railroad Social Security equivalent benefit ........... .
158
159
158
159
467
464
7
460
464
492
436
21
471
436
Total-Employment taxes and contributions ....... .
35,708
35,708
100,764
7
100,758
94,259
21
94,238
185
45
3,790
768
11
3,790
757
3,369
709
10
6
7
1
700
7
1
4,552
4,087
10
4,078
Total-FDI trust fund ............................... .
Federal hospital insurance trust fund:
Federal Insurance Contributions Act taxes ........... .
Self-Employment Contributions Act taxes ............ .
Receipts from Railroad Retirement Board ............ .
DepoSits by States .................................... .
Unemployment insurance:
State taxes deposited in Treasury ...................... .
Federal Unemployment Tax Act taxes .................. .
Railroad unemployment taxes ........................... .
Railroad debt repayment ................................ .
Total-Unemployment insurance ...................... .
(* *j
(* *j
185
49
4
r *j
4
r *j
6
11
(")
3,369
230
4,564
413
413
7
1,098
24
1,098
24
1,128
7
22
1,128
22
Total-Other retirement contributions ................. .
420
420
1,122
1,122
1,150
1,150
Total-Social insurance taxes and
contributions ...•.•...•.....•.....•••• , .••••••..••••.
36,362
4
36,358
106,451
18
106,432
99,496
31
99,466
Excise taxes:
Miscellaneous excise taxes2 •.••.•.••...••.•••••••••••.•••••
Airport and airway trust fund .............................. .
Highway trust fund ......................................... .
Black lung disability trust fund ............................ .
1,217
480
3,092
52
255
962
480
3,092
52
7,162
1,376
5,993
169
'316
6
1
6,845
1,371
5,992
169
7,638
1,344
4,301
149
415
-85
7,223
1,342
4,387
149
255
4,587
14,700
323
14,377
13,432
332
13,101
3,475
Other retirement contributions:
Federal employees retirement - employee
contributions ............................................. .
Contributions for non-federal employees ................ .
234
2
Total-Excise taxes .................................... .
4,842
Estate and gift taxes ....................................... ..
1,119
28
1,092
3,616
'103
3,513
3,569
94
Customs duties ...• , ....•••.....••••••....•••..••••• " ••..•••.
1,835
88
1,747
5,761
340
5,421
5,228
248
4,980
Miscellaneous Receipts:
Deposits of earnings by Federal Reserve banks ......... .
All other
836
540
(" *j
836
539
5,377
1,114
6
5,377
1,108
3,326
3723
2
3,326
720
Total -
Miscellaneous receipta ... , ..........•.........
1,375
(* *)
1,375
6,492
6
6,486
4,048
2
4,046
Total -
Receipts .... , .................................. .
132,464
1,654
130.810
316,285
8,179
307,507
294,652
7,485
287,167
Total -
On-budget
105,514
1,654
103,860
240,106
8,179
231,327
221,746
7,485
214,262
Total -
Off-budget
26,950
26,950
76,179
76,179
72,905
'Includes a pnor period adjustment to reflect the reclassification of refunds previously reportad
by the Internal Revenue Service.
'Includes amounts for the windfall profits tax pursuant to P.L. 96-223.
'The receipts and outlays in March t 994 have been decreased by $1 million to reflect the
reclassificatIOn of intrabudgetary transactions previously reportad as governmental receipts for the
Wildlife ConservatIOn and Appreciation Fund··.
... No Transactions.
(. 'j Less than $500,000.
Note: Details may not add to totals due to rounding.
6
~
-------
72,'111
Table 5. Outlays of the U.S. Government, December 1994 and Other Periods
[$ millions]
This Month
Current Fiscal Year to Date
Prior Fiscal Year to Date
Gross !APPlicable! Outlays
Outlays
Receipts
Gross !APPlicable, 0 tl
Outlays
Receipts
u ays
Classification
Legislative Branch:
Senate ....................................................... .
House of Representatives .................................. .
Joint items .................................................. .
Congressional Budget Office ............................... .
Architect of the Capitol ..................................... .
Ubrary of Congress ......................................... .
Government Printing Office:
Revolving fund (net) ...................................... .
General fund appropriations .............................. .
General Accounting Office .................................. .
United States Tax Court ................................... .
Other Legislative Branch agencies ......................... .
Proprietary receipts from the public ........................ .
Intrabudgetary transactions ................................. .
Total-Legislative Branch •••.•.••........••.•.••.•.••.•..
36
63
6
2
13
174
....
..
(
(
(
)
)
)
36
63
6
2
12
174
105
192
19
5
54
Gross !APPlic.able
Outlays
Receipts
..
(
)
I
Outla s
y
103
189
20
372
104
192
19
5
52
372
104
192
20
5
54
247
35
22
93
35
22
93
34
22
103
34
22
103
8
8
9
9
-6
-4
8
7
8
7
-1
-3
-3
903
793
2
2
5
2
52
247
3
3
7
7
31
2
3
31
2
3
-5
-2
-4
333
912
3
7
7
6
6
296
3
629
22
628
22
534
28
534
28
303
658
656
568
568
5
-2
339
6
6
9
6
787
The Judiciary:
Supreme Court of the United States ...................... .
Courts of Appeals. District Courts. and other judicial
services .................................................... .
Other ........................................................ .
297
3
(
Total-The Judiciary ................................... ..
304
(* *)
Executive Office of the President:
Compensation of the President and the White House
Office ....................................................... .
Office of Management and Budget ........................ .
Other ........................................................ .
2
4
20
2
4
20
8
14
39
8
11
14
39
14
28
11
14
28
26
26
61
61
53
53
19
37
207
192
2.062
1.670
102
2.062
1.670
196
2.378
1.575
)
(* .)
5
3
13
3
Total-Executive Office of the President
Funds Appropriated to the President
International Security Assistance:
Guaranty reserve fund ................................... .
Foreign military financing grants ......................... .
Economic support fund ................................... .
Military assistance ........................................ .
Peacekeeping Operations ................................. .
Other ...................................................... .
Proprietary receipts from the public ..................... .
Total-International Security Assistance ............... .
55
37
207
..
)
37
..
..
(
(
)
5
3
Intemational Development Assistance:
Multilateral Assistance:
Contribution to the International Development
Association ............................................ .
International organizations and programs ............. .
Other .................................................... .
38
..
(
6
-1
309
91
89
106
2.378
1.575
)
3
3
13
19
19
6
8
16
-16
106
3.837
4.179
8
25
-25
114
4.065
271
3.943
4
246
173
204
194
114
199
194
114
199
2
2
246
173
204
6
6
624
624
507
507
185
56
56
185
56
56
405
188
130
405
188
130
276
163
129
276
163
129
3
43
45
129
-43
45
312
10
176
45
302
-176
198
13
146
185
-146
46
428
1.080
186
895
767
158
608
Other ...................................................... .
15
(..)
17
-9
2
57
6
2
17
65
1
57
-54
16
61
9
25
..
)
61
-52
25
Total-International Development Assistance ......... .
504
61
443
1,788
251
1.537
1.369
219
1.150
63
364
70
-13
3.384
54
3.346
(* 0)
(0 0)
3.350
-3.350
5
4
Total-Multilateral Assistance ....................... .
Agency for International Development:
Functional development assistance program .......... .
Sub-Saharan Africa development assistance .......... .
Operating expenses .................................... .
Payment to the Foreign Service retirement and
disability fund .......................................... .
Other .................................................... .
Proprietary receipts from the public ................... .
Intrabudgetary transactions ............................ .
45
132
...... .
474
Peace Corps .............................................. .
Overseas Private Investment Corporation ............... .
17
Total-Agency for International Development
Intemational Monetary Programs ........................... .
Military Sales Programs:
Special defense acquisition fund ......................... .
Foreign military sales trust fund ......................... .
Kuwait civil reconstruction trust fund .................... .
Proprietary receipts from the public ..................... .
Other ........................................................ .
Total-Funds Appropriated to the President ••..•..••.•
-26
63
26
-2
1.399
56
3.384
(
(
1.355
-1.355
-26
24
1.399
..
(
)
2,212
11
1,480
7
..
)
..
)
1
5
732
9,241
3,778
5,463
61
(
364
73
-19
3.346
3.193
-3.193
..
(
)
1
9,312
3,599
5,713
Table 5.
Outlays of the U.S. Government, December 1994 and Other Periods-Continuea
[$ millions]
This Month
Cla ...if~tion
Gross
Outlays
Department of Agriculture:
Agncultural Research Service
Cooperative State Research ServICe
ExtenSion ServICe
Animal and Plant Health Inspecl10n ServICe
Food Salety and Inspection Service
Agncultural Mar1<.etlng ServICe
Sod Conservatl()l'l ServICe
Watershed and flood prevention operations
Conservatl()l'l operations
Other
Agncultural Stabilization and Conservation Service:
Conservation programs
Other
lAppl~b'j
Receipts
OuUa s
y
Prior Fiscal Year to Date
tI
Gross /APPlicable /
Outlays
Receipts
Ou ays
Gross /APPlicable/
Outlays
Receipts
Outlays
54
54
48
39
38
74
48
34
39
38
74
174
122
104
125
115
302
174
122
104
125
115
302
175
114
102
106
116
234
175
114
102
106
116
234
27
49
7
27
49
7
81
126
20
81
126
20
72
136
20
136
20
29
65
29
65
1,773
179
1,773
179
1,773
168
1,773
168
-188
-143
180
752
401
674
-221
78
299
677
47
8
155
29
oJ
155
29
143
28
-277
1,116
1,076
40
1,147
29
272
272
272
184
98
13
261
279
44
98
13
-329
-162
214
84
8
172
860
6,307
2
7,413
1
34
Farmers Home Administration:
Credit accounts:
Agncultural credit insurance lund
Rural hOUSing Insurance fund
Other
Salaries and expenses
Other
Current Fiscal Year to Date
15
113
204
256
r
183
Foreign assistance programs
Rural Development Administration:
Rural development insurance fund ....
Rural water and waste disposal grants
Other
............
... . . ... . . . .
Rural Electrification Administration
.............
Federal Crop Insurance Corporation
Commodity Credit Corporation:
Price suPporl and related programs ..................
National Wool Act Program
. . . . ... .. . . . . .
Food and Nutrition Service:
Food stamp program ....
State child nutrition programs
Women, infants and children programs
Other
Total-Food and Nutrition Service . . . . . . . . . . . . . . . . . . .
Forest Service:
National forest system
Forest and rangeland protection
Forest service permanent appropriations
Other
.............
. . . . ... .. . . . . . .
Total-Forest Service
0)
460
29
34
35
5
117
102
250
39
-13
35
5
-133
63
2,527
47
699
1,828
(0
140
590
441
5,503
6,364
1,764
809
142
3,250
3,250
9,500
9,500
9,079
9,079
137
37
94
47
137
37
94
47
390
275
341
143
390
275
341
143
414
117
119
143
414
117
119
143
314
314
1,149
1,149
794
794
46
-107
144
135
-251
164
9
367
155
-367
19,938
23,226
4,116
18,449
77
74
78
68
6
107
92
68
78
68
515
16
65
27
4
9
511
16
65
18
12
611
30
29
-30
48
823
3
107
..
)
(00)
5,506
23,710
3,772
oJ
(
1,605
9
251
..
(
)
4
Science and Technology:
Natl()l'lal OceanIC and Atmospheric Administration
. . . . . .. . . . . ..
Patent and Trademark Office
Natl()l'lal Institute of Standards and TechnOlogy
Other
176
6
31
6
518
13
96
23
7
2
175
6
31
3
8
511
13
96
15
218
3
215
650
16
635
623
2
(00)
2
-9
28
)
29
..
28
-30
)
(00)
304
958
9
(0 0)
.......................
1,909
6,364
1,764
809
142
81
107
92
Total-Department of Commerce
694
296
63
84
8
-521
563
6.528
1,908
900
165
26
32
37
Other
Propnetary recetpts from the public .'
IntrabuCJgetary transactl()l'ls
Offsetting governmental recetpts
151
6,528
1,908
900
165
27
32
37
Total-Science and Technology
272
2,181
733
307
29
r
•
-203
2,181
733
307
29
1,265
of Commerce:
Development Administration . . . . . . . . . . . , . . . . . . . . . .
.....................
the Census
...........
of Industry and Commerce
Department
EconomIC
Bureau of
Prornol1On
•••••••
1,350
7,572
2
1,111
•
("")
143
27
(0 0)
••• •••••
•••••
-179
-194
0)
r
50
Other
Proprietary receipts from the public .....
. . . . . . . . .. . .
Intrabudgetary transactions
4
478
871
(0 0)
47
8
Total-Farmers Home Administration
Total-Department of Agriculture
72
316
(
13
8
..
(
30
50
(00)
r
909
872
0)
n
Table 5,
Outlays of the U,S, Government, December 1994 and Other Periods-Continued
[$ millions]
Classification
This Month
Current Fiscal Year to Date
Prior Fiscal Year to Date
Gross jAPPllcable! 0 tl
Outlays Receipts
u ays
Gross !APPlicable! 0 tl
Outlays Receipts
u ays
Gross !APPlic.able! Outlays
Outlays Receipts
Department of Defense-Military:
Military personnel:
Department of the Army ..................................
Department of the Navy · . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Department of the Air Force ..............................
3,045
2,785
2,373
3,045
2,785
2,373
6,158
6,509
4,951
6,158
6,509
4,951
7,717
7,382
5,518
7,717
7,382
5,518
Total-Military personnel ................................
8,203
8,203
17,617
17,617
20,617
20,617
Operation and maintenance:
Department of the Army · . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Department of the Navy ..................................
Department of the Air Force ..............................
Defense agencies ..........................................
1,777
1,931
2,083
1,520
1,777
1,931
2,083
1,520
5,368
4,991
6,217
4,691
5,368
4,991
6,217
4,691
4,873
5,141
5,423
4,978
4,873
5,141
5,423
4,978
Total-Operation and maintenance ...................
7,312
7,312
21,267
21,267
20,415
20,415
..........................................
685
1,863
1,802
377
685
1,863
1,802
377
1,813
5,803
5,032
1,089
1,813
5,803
5,032
1,089
2,354
6,503
6,083
1,068
2,354
6,503
6,083
1,068
Total-Procurement .....................................
4,727
4,727
13,736
13,736
16,009
16,009
Research, development, test, and evaluation:
Department of the Army ..................................
Department of the Navy ..................................
Department of the Air Force ..............................
Defense agencies ..........................................
478
743
1,283
707
478
743
1,283
707
1,213
1,992
3,435
1,969
1,213
1,992
3,435
1,969
1,423
1,619
3,780
1,989
1,423
1,619
3,780
1,989
Total-Research, development, test and evaluation
3,211
3,211
8,609
8,609
8,810
8,810
Military construction:
Department of the Army ..................................
Department of the Navy ..................................
Department of the Air Force ..............................
Defense agencies ..........................................
38
59
117
223
38
59
117
223
186
157
352
702
186
157
352
702
258
90
278
556
258
90
278
556
Total-Military construction . . . . . . . . . . . . . . . . . . . . . . .. . . . . .
436
436
1,398
1,398
1,182
1,182
104
86
105
12
104
86
105
10
265
231
267
41
265
231
267
31
256
162
240
24
256
162
240
16
10
8
10
8
-17
49
-17
49
-58
143
-58
143
882
43
882
42
744
3
744
1
2,588
-13
2,588
-14
Procurement:
Department of the
Department of the
Department of the
Defense agencies
Army ..................................
Navy ..................................
Air Force ..............................
Family housing:
Department of the Army ..................................
Department of the Navy ..................................
Department of the Air Force ..............................
Defense agencies ..........................................
Revolving and management funds:
Department of the Army ..................................
Department of the Navy ..................................
Department of the Air Force ..............................
Defense agencies:
Defense business operations fund .....................
Other .....................................................
Trust funds:
Department of the Army · . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . .
Department of the Navy ..................................
Department of the Air Force ..............................
Defense agencies ..........................................
Proprietary receipts from the public:
Department of the Army ..................................
Department of the Navy · . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
Department of the Air Force ..............................
Defense agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
Intrabudgetary transactions:
Department of the Army ..................................
Department of the Navy ..................................
Department of the Air Force . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
Defense agencies ..........................................
Offsetting governmental receipts:
Department of the Army ..................................
Defense agencies ..........................................
Total-Department of Defense-Military
.............
2
(")
10
2
(* *)
(' *)
(' *)
(* *)
2
(' *)
1
9
3
6
(' *)
(H)
(* ')
(* *)
(' *)
(' *)
25
52
7
3
103
25
73
-50
19
-83
-23
-10
-4
14
-23
-10
-4
14
25,142
-73
50
-19
83
(* *)
(' *)
-37
25,178
9
52
216
33
198
109
102
416
99
-25
64,863
-216
-33
-198
-109
102
416
99
-25
(' *)
(* *)
569
64,294
7
(' *)
4
3
103
144
121
162
57
136
539
96
-64
71,197
3
(* *)
-144
-121
-162
-57
136
539
96
-64
3
-3
(* ')
(* *)
502
70,695
Table 5. Outlays of the U.S. Government, December 1994 and Other Periods-Continued
[$ millions]
This Month
I
Classification
Gross IAPPlicable
OuUays
Receipts
Department of Defense-Civil
Corps of EngIneers
ConstrUCtion. general
Operatl()l1 and maIntenance. general
Other
Propnetary receIpts from the public
349
MIlitary re!trernent
Payment to mIlitary retirement fund
Retired pay
MIlitary retlfement fund
Intrabudgetary transactIons
EducatIon benefIts
Other
Propnetary receipts from the publiC
Total-Department of Defense-Civil
Total-Office of Elementary and Secondary
Education
Office of Bilingual Education and Minority Languages
Affairs
Office of Special Education and Rehabilitative Services:
Special education
RehabIlitation services and disability research
SpecIal Institutions for persons with disabilities
Office of Vocational and Adult Education
Office of Postsecondary Education:
College hOUSing loans
Student financial assistance
Federal family education loans
HIgher education
Howard UnIversity
Other
Total-Department of Education
........................
Department of Energy:
AtomIC energy defense activities
Energy programs:
General sCIence and research activities
Energy supply. Rand D actiVities
UranIum supply and enrichment activities
FossIl energy research and development
Energy cooservatlon
StrategIc petroleum reserve
Clean coal technology
Nuclear waste disposal fund
Other
Total-Energy programs
Power Markettng AdmInistration
Departmental admlnlstratl()l1
Propnetary receIpts from the public
Intrabudgetary transactIOnS
Offsetting governmental receipts
Total-Department of Energy ............................
32
1,082
1,000
11,470
11,470
11,908
11,908
6,747
-11,470
6
17
6,588
-11,908
50
20
6,588
-11,908
50
19
4
6,747
-11,470
6
16
-4
37
7,848
7,657
339
1.114
..
40
270
277
453
-40
40
961
1
16
7
-1
12
2,553
7,885
710
488
173
5
5
710
488
173
5
5
1,566
555
384
17
9
1,566
555
384
17
9
1,765
562
363
17
5
1,765
562
363
17
5
1,382
1,382
2,531
2,531
2,711
2,711
17
17
50
50
51
51
425
106
10
183
425
106
10
183
889
471
32
446
889
471
32
446
697
560
30
311
697
560
30
311
4
-4
525
1,077
69
16
24
6
1,841
1,440
195
48
37
27
-22
1,841
1,440
195
48
37
1
1.963
993
170
50
5
22
-21
1,963
993
170
50
5
4
1,707
3,567
27
3,540
3,182
22
3,160
109
105
13
109
105
-13
97
98
5
34
29
-5
17
97
98
-17
9
3,888
8,199
40
8,159
7,735
39
7,697
1,114
1,114
3,171
3,171
3,224
3,224
101
295
10
36
32
22
101
295
10
36
32
22
508
843
26
113
130
59
508
843
26
113
130
59
355
762
192
107
122
53
355
762
192
107
122
53
(
2,565
)
r .)
OffIce of Educational Research and Improvement
Departmental management
Propnetary receipts from the public
270
277
453
32
306
438
371
-32
10
525
1,077
69
16
24
Total-Office of Postsecondary Education
Gross !APPlicable! 0 U
Outlays
Receipts
u ays
10
2,192
16
7
Department of Education:
OffIce of Elementary and Secondary Education:
Compensatory education for the disadvantaged
Impact aId
School Improvement programs
Indian education
Other
Gross !APPlicable! 0 U
Outlays
Receipts
u ays
306
438
371
2.192
...................
Prior Fiscal Year to Date
91
134
124
-10
91
134
124
Total-Corps of EngIneers
Outlays
Current Fiscal Year to Date
1,710
34
29
3,897
1
3
43
-3
7,614
25
130
(
)
25
130
80
277
(
)
80
277
77
95
(
)
77
95
652
(
)
652
2,038
(
)
2,037
1,763
(
)
1,763
127
40
230
-103
40
39
1
-1
482
115
487
477
108
324
5
-4
115
-418
-140
-5
15
153
108
-148
-159
-15
911
4,756
487
4,925
..
..
'-39
1,935
192
10
1,743
..
..
418
-140
5,666
..
..
148
-159
5,413
Table 5. Outlays of the U.S. Government, December 1994 and Other Periods-Continued
[$ millions]
Classification
This Month
Current Fiscal Year to Date
Prior Fiscal Year to Date
Gross \APPlicable\ 0 tI
Outlays Receipts
u ays
GrOss/APPlicable \
Outlays Receipts
Outlays
Gross \APPlic.able \ Outlays
Outlays Receipts
Department of Health and Human Services, except Social
Security:
Public Health Service:
Food and Drug Administration ........................... .
Health Resources and Services Administration .......... .
Indian Health Services .................................... .
Centers for Disease Control and Prevention ............ .
National Institutes of Health .............................. .
Substance Abuse and Mental Health Services
Administration ............................................ .
Agency for Health Care Policy and Research ........... .
ASSistant secretary for health ............................ .
66
65
255
151
164
818
255
151
164
818
226
226
4
4
78
Total-Public Health Service ........................... .
Health Care Financing Administration:
Grants to States for Medicaid ........................... .
Payments to health care trust funds .................... .
205
603
481
455
2,510
204
603
481
455
2,510
190
474
445
371
2,685
190
474
445
371
2,685
78
586
25
88
586
25
88
557
18
59
557
18
59
1,761
1,761
4,953
4,951
4,799
4,799
7,321
3,048
7,321
3,048
21,488
9,152
21,488
9,152
21,107
11,302
21,107
11,302
Federal hospital insurance trust fund:
Benefit payments ....................................... .
Administrative expenses ................................ .
Interest on normalized tax transfers .................. .
9,645
112
9,645
112
26,232
301
26,232
301
24,485
273
24,485
273
Total-FHI trust fund ................................ .
9,757
9,757
26,533
26,533
24,758
24,758
Federal supplementary medical insurance trust fund:
Benefit payments ....................................... .
Administrative expenses ................................ .
5,676
162
5,676
162
15,530
396
15,530
396
14,918
415
14,918
415
Total-FSMI trust fund .............................. .
5,837
5,837
15,926
15,926
15,334
15,334
Other ...................................................... .
-34
-34
10
10
64
64
25,931
25,931
73,108
73,108
72,565
72,565
17
63
4,059
17
63
4,059
654
185
6,415
654
185
6,415
1,005
199
7,719
1,005
199
7,719
4,138
4,138
7,255
7,255
8,923
8,923
1,354
183
33
28
82
101
73
259
399
1,354
183
33
28
82
101
73
259
399
4,364
354
105
75
222
136
217
726
1,125
4,364
354
105
75
222
136
217
726
1,125
4,075
804
93
82
194
573
192
658
922
4,075
804
93
82
194
573
192
658
922
299
2
299
733
733
755
755
2
3
3
Total-Administration for children and families ....... .
2,812
2,812
8,059
8,059
8,348
8,348
Administration on aging ..................................... .
Office of the Secretary ..................................... .
Proprietary receipts from the public ........................ .
Intrabudgetary transactions:
Payments for health insurance for the aged:
Federal hospital insurance trust fund ................. .
Federal supplementary medical insurance trust fund "
Payments for tax and other credits:
Federal hospital insurance trust fund ................. .
Other ................................................... .
82
36
82
36
-1,585
214
95
214
95
-4,705
202
63
202
63
-4,177
-3,048
-9,151
-9,151
-11,302
-1
-1
Total-Health Care Financing Administration
Social Security Administration:
Payments to Social Security trust funds ................ .
Special benefits for disabled coal miners ............... .
Supplemental security income program .................. .
Total-Social Security Administration
Administration for children and families:
Family support payments to States ..................... .
Low income home energy assistance ................... .
Refugee and entrant assistance ......................... .
Community Services Block Grant ........................ .
Payments to States for afdc work programs ........... .
Interim assistance to States for legalization ............. .
Payments to States for child care aSSistance .......... .
Social services block grant ............................... .
Children and families services programs ................ .
Payments to States for foster care and adoption
aSSistance ................................................ .
Other ................................................. ···· ..
Total-Department of Health and Human Services,
except Social Security ............................... .
1,585
-3,048
31,712
1,585
11
30,127
4,705
84,533
4,706
79,826
4,177
83,598
-11,302
4,178
79,420
Table 5. Outlays of the U.S. Government, December 1994 an~ Other Periods-Continued
[$ millions]
Classification
This Month
Current Fiscal Year to Date
Prior Fiscal Year to Date
Gross IAppilcablel Outlays
Outlay. Receipts
Gross !APPlicable!
Outlays
Outlays Receipts
Gross !APPlicable/ 0 tl
u ays
Outlays Receipts
Department 01 Health and Human Servlcas, Social
Security (oft-budget):
Federal oId-age and survivors insurance trust fund:
Benefit payments
...........
. ........... .
Administrative e)(penses and construction ............... .
Payment to railroad retirement account ................. .
Interest e)(pense on interfund borrowings ............... .
Interest on normalized tax transfers .. . ................. .
Total-FOASI trust fund ........... .
Federal disability insurance trust fund:
Benefit payments ......................................... .
Administrative e)(penses and construction ............... .
Payment to railroad retirement account ................. .
Interest on nOfTTlalized tax transfers ..................... .
Total-FDI trust fund ...... .
23,641
169
23,641
169
70,354
237
70,354
237
67,562
465
67,562
465
23,810
23,810
70,591
70,591
68,027
68,027
3,2n
71
3,2n
71
9,651
230
9,651
230
8,758
223
8,758
223
3,348
3,348
9,881
9,881
8,981
8,981
(")
(* *)
-17
-654
(* *)
27,141
79,818
16
9
6
456
-18
48
452
57
4
(* *)
Proprietary receipts from the public ....................... ..
Intrabudgetary transactions2 ................................ .
-17
Total-Department 01 Health and Human Service.,
Social Security(oft-budget) ............................. .
27,141
(' ')
(* *)
(")
-654
-1,001
)
79,817
76,007
(* *)
76,007
39
27
12
41
28
13
1,496
308
140
31
31
172
1 ,461
168
35
140
140
31
31
172
1,683
374
1,334
175
349
198
117
(' *)
117
(
..
-1,001
Department 01 HOUsing and Urban Development:
Housing programs:
Public enterprise lunds ...................... .. ......... ..
Credit accounts:
Federal hOUSing administration fund ...... . ........... .
Housing for the elderly or handicapped lund ......... .
Other
.......................................... .
Rent supplement payments ............................. ..
Homeownership assistance .............................. ..
Rental hOUSing aSSistance ................................ .
Rental hOUSing development grants ..................... .
Low-rent public housing ................................. ..
Public housing grants .................................... .
College housing grants ................................... .
Lower income housing assistance .... .. ............... ..
Section 8 contract renewals ....
.. ............... ..
9
9
10
62
10
62
(")
(")
(")
(")
(")
( )
67
67
308
317
958
317
958
5
2,473
1,159
31
327
867
327
867
5
5
2,631
811
10
2,631
811
10
308
14
28
162
14
28
162
..
2
2
5
803
426
803
426
11
2,473
1,159
31
1,681
7,160
1,656
5,504
7,069
1,537
5,532
243
197
46
264
192
73
665
38
642
42
642
42
( )
Other .................................................... .
11
Total-Housing programs ............................. ..
2,199
518
2
(")
Public and Indian Housing programs:
Low-rent public housing-Loans and other expenses '"
Payments for operation of low-income housing
projects ............................................... ..
Community Partnerships Against Crime ................. .
Other
-76
48
230
14
1
230
14
665
38
(")
2
..
2
(")
247
(")
247
948
197
751
948
192
Government National Mortgage AsSOCiation:
Management and liquidating functions fund ............. .
Guarantees of mortgage-back.ed securities .............. .
23
56
-33
1
-1
115
181
-66
300
396
-96
Total-Government National Mortgage AsSOCiation
23
56
-33
115
181
-66
300
397
-97
411
113
25
8
411
113
16
1,070
300
72
34
1,070
300
38
921
140
90
40
51
548
8
540
1,442
34
1,409
1,151
40
1,111
44
-44
4
4
-1
116
15
116
15
125
6
Total-Public and Indian Housing programs
Community Planning and Development:
Community Development Grants
.................. .
Home investment partnerships program ................. .
Other
........... ..
Total-Community Planning and Development ........ .
Management and Administration
Other
Proprietary receipts from the public
Offsetting governmental receipts
Total-Department of Housing and Urban
Development ............................................ .
2,978
584
12
2,394
9,795
4
-4
2,072
7,723
9,598
756
921
140
125
66
6
-66
2,230
7,368
Table 5. Outlays of the U.S. Government, December 1994 and Other Periods-Continued
[$ millions]
Classification
Department of the Interior:
Land and minerals management:
Bureau of Land Management:
Management of lands and resources ................. .
Other .................................................... .
Minerals Management Service ........................... .
Office of Surface Mining Reclamation and
Enforcement ............................................ ..
Total-Land and minerals management
Water and science:
Bureau of Reclamation:
Construction program .................................. .
Operation and maintenance ............................ .
Other .................................................... .
Central utah project ...................................... .
Geological Survey ........................................ ..
Bureau of Mines .......................................... .
This Month
Current Fiscal Year to Date
Prior Fiscal Year to Date
Gross IAPPlicable I Outlays
Outlays Receipts
Gross IAPPlicablel 0 tl
u ays
Outlays Receipts
Gross IAPPlicablel 0 tla
u ys
Outlays Receipts
51
27
55
51
27
55
168
191
199
168
191
199
159
73
185
159
73
185
28
28
90
90
77
77
162
162
648
648
495
495
28
22
39
28
22
31
99
61
72
23
108
36
66
56
118
15
127
46
6
66
56
55
15
127
39
399
428
70
358
278
27
15
2
27
13
99
61
102
23
108
42
Total-Water and science ............................. .
131
9
121
435
Fish and wildlife and parks:
United States Fish and Wildlife Service ................. .
National Biological Survey ................................ .
National Park Service .................................... ..
57
5
116
57
116
273
25
362
273
25
362
353
278
22
353
179
179
660
660
653
653
Bureau of Indian Affairs:
Operation of Indian programs ............................ .
Indian tribal funds ........................................ .
Other ...................................................... .
145
23
37
145
23
36
381
17
156
319
319
-22
-22
2
381
17
153
139
2
137
Total-Bureau of Indian Affairs ...................... ..
205
204
554
2
551
436
2
434
Territorial and international affairs .......................... .
Departmental offices ....................................... ..
Proprietary receipts from the public ........................ .
Intrabudgetary transactions ................................ ..
Offsetting governmental receipts .......................... ..
34
14
34
14
-143
-14
272
272
77
77
121
32
Total-Fish and wildlife and parks
Total-Department of the Interior •..•••••.••••.....•.•.•
Department of Justice:
Legal activities ............................................. ..
Federal Bureau of Investigation ............................ .
Drug Enforcement Administration .......................... ..
Immigration and Naturalization Service ..................... .
Federal Prison System ..................................... ..
Office of Justice Programs ................................ ..
Other ........................................................ .
Intrabudgetary transactions ................................. .
Offsetting governmental receipts .......................... ..
Total-Department of Justice ••.•••••••••.••••••.•.•.•.•
Department of Labor:
Employment and Training Administration:
Training and employment services ...................... ..
Community Service Employment for Older Americans '"
Federal unemployment benefits and allowances ........ .
State unemployment insurance and employment service
operations ................................................ .
Payments to the unemployment trust fund ............. .
Advances to the unemployment trust fund and other
funds ..................................................... .
7
(**)
(* *)
5
143
-14
711
(* *)
153
558
2,551
148
173
538
449
225
388
667
255
122
-6
173
77
77
6
36
64
22
121
32
-438
-21
488
-488
-95
438
(* *)
(* *)
(* *)
(**)
526
2,025
2,143
510
1,633
32
579
498
200
335
557
223
147
-2
29
131
538
449
225
388
635
255
122
-6
-131
81
579
498
200
335
528
223
147
-2
-81
163
2,475
2,538
110
2,427
-95
(**)
148
30
43
136
235
71
-47
-2
-43
54
749
2,638
379
37
23
379
37
23
1,117
96
65
1,117
96
65
1,020
94
42
1,020
94
24
24
37
37
-11
-11
2,296
2,296
136
246
71
-47
-2
803
11
13
42
Table 5. Outlays of the U.S. Government, December 1994 and Other Periods-Continued
[$ millions]
This Month
ClassiflcatiOn
Gross
Outlays
IAppI~blel
Racalpts
Outlays
Current Fiscal Year to Date
Prior Fiscal Year to Date
IAPPli~blel
Receipts
Gross IAPPlicablel
Outlays
Receipts
Outlays
Gross
Outlays
Outlays
0'
Labor.-Continued
Department
Unemployment trust fund:
Federal-State unemployment Insurance:
State unemployment benefits
State administrative expenses
Federal adminIstrative expenses.
Veterans employment and training
Repayment of advances from the general fund .....
Railroad unemployment insurance
...........
Other
1,690
278
9
17
1,690
278
9
17
4,614
802
24
46
4,614
802
24
46
7,580
860
113
43
7,580
860
113
43
5
2
5
2
14
5
14
5
17
5
17
2,001
2,001
5,506
5,506
8,617
8,617
8
8
21
21
18
18
2,473
2,473
6,841
6,841
12,075
12,075
51
219
91
473
20
-106
50
9
25
22
32
58
-717
144
40
70
50
95
51
-557
150
37
66
59
113
-104
-163
58
-717
144
40
70
50
95
-1
-163
-2,480
2,471
6,637
6,507
9,988
169
65
169
65
499
142
499
142
430
156
430
156
37
9
37
9
129
110
14
129
110
14
125
102
34
125
102
34
279
279
893
893
847
847
306
111
10
9
306
111
10
9
1,021
220
22
18
1,021
220
22
18
977
165
33
11
977
165
33
11
-52
-52
-182
-182
-125
-125
664
664
1,993
1,993
1,908
1,908
.............
1,404
12
19
1,404
12
19
4,934
38
60
4,934
38
60
4,863
27
86
4,863
27
86
Total-Federal Highway Administration .. ..............
1,435
1,435
5,033
5,033
4,977
4,977
National Highway Traffic Safety Administration .............
20
20
64
64
68
68
Total-Unemployment trust fund
Other
Total-Employment and Training Administration
Pension Benefit Guaranty Corporation .................
Employment Standards Administration:
...........
Salaries and expenses
Special benefits
Black lung disability trust fund
............
Other
Occupational Safety and Health Administration .......
Bureau of Labor Statistics ............ .......... , ......
. ..........
............
Other
Proprietary receipts from the public ....... ..............
Intrabudgetary transactions ..... , ...... .................
Total-Department of Labor
.............................
74
20
-106
50
9
25
22
32
23
r 0)
-104
2,494
24
r 0)
129
130
5
-16
489
51
-557
150
37
66
59
113
-1
-2,480
-15
10,003
0'
Department
State:
Administration of Foreign Affairs:
. . . , . . . . . . . . . ..
Salaries and expenses
Acquisition and maintenance of buildings abroad ........
Payment to Foreign Service retirement and disability
..................
fund
Foreign Service retirement and disability fund
Other
Total-Administration of Foreign Affairs
.....
International organizations and Conferences ................
Migration and refugee aSSistance ..... ...........
International narcotics control
............
Other
Proprietary receipts from the public ... ...........
...............
Intrabudgetary transactions
Offsetting governmental receipts ............................
Total-Department
0' State ...... " .......... " ..........
0'
Department
Transportation:
Federal Highway Administration:
Highway trust fund:
Federal-aid highways ..
Other .
Other programs
. .............
Federal Railroad Administration:
Grants to National Railroad Passenger Corporation
...............
20
2
18
344
52
3
344
48
214
95
3
214
93
Total-Federal Railroad Administration .... ............
20
2
18
396
3
392
309
3
307
Other
14
Table 5. Outlays of the U.S. Government, December 1994 and Other Periods-Continued
[$ millions]
Classification
This Month
Current Fiscal Year to Date
Gross IAPPlicable/ Outlays
Outlays Receipts
Gross lAPPlicablel 0 U
Outlays Receipts
u ays
Prior Fiscal Year to Date
GrOssjAPPlic.able
Outlays Receipts
I
Outlays
Department of Transportation:-Continued
Federal Transit Administration:
Formula grants ............................................ .
Discretionary grants ...................................... .
Other ...................................................... .
-97
-97
152
335
152
335
144
488
419
144
488
419
257
369
209
257
369
209
390
390
1,050
1,050
836
836
Federal Aviation Administration:
Operations ................................................ .
141
141
423
423
563
563
Airport and airway trust fund:
Grants-in-aid for airports ............................... .
Facilities and equipment ............................... .
Research, engineering and development .............. .
Operations .............................................. .
178
210
15
204
178
210
15
204
533
638
53
708
533
638
53
708
500
455
50
574
500
455
50
574
Total-Airport and airway trust fund ............... .
608
608
1,932
1,932
1,578
1,578
Total-Federal Transit Administration
Other
Total-Federal Aviation Administration
(. *)
(* *)
(* *)
(* *)
(* *)
(* *)
(* *)
(* *)
(* *)
749
(* *)
749
2,355
(* *)
2,355
2,141
(* *)
2,141
625
86
132
64
625
86
132
63
669
63
114
27
669
63
114
25
906
872
871
(* *)
112
99
197
127
1
-1
Coast Guard:
Operating expenses ...................................... .
Acquisition, construction, and improvements ............ .
Retired pay ............................................... .
Other ..................................................... ..
258
14
51
33
(* *)
258
14
51
32
Total-Coast Guard .................................... .
355
(* *)
355
907
Maritime Administration ..................................... .
Other ........................................................ .
Proprietary receipts from the public ........................ .
Intrabudgetary transactions ................................. .
Offsetting governmental receipts ........................... .
64
29
2
62
28
153
99
Total-Department of Transportation
(* *)
1
-1
41
56
(* *)
(* *)
13
13
-16
9,541
78
9,463
-564
65
-194
72
3
-197
72
54
587
199
83
22
49
587
116
2
2
39
39
-11
10,058
59
9,999
-135
37
-559
65
5
(* *)
3,061
5
3,056
-134
37
2
(* *)
16
11
(* *)
141
127
Department of the Treasury:
Departmental offices:
Exchange stabilization fund .............................. .
Other ...................................................... .
Financial Management Service:
Salaries and expenses ................................... .
Payment to the Resolution Funding Corporation ........ .
Claims, judgements, and relief acts ..................... .
Net interest paid to loan guarantee financing accounts
Other ............................................... ······· .
17
17
64
64
18
18
54
587
199
83
22
Total-Financial Management Service ................. .
98
98
946
946
793
793
Federal Financing Bank ..................................... .
Bureau of Alcohol, Tobacco and Firearms:
Salaries and expenses ................................... .
Internal revenue collections for Puerto Rico ............. .
United States Customs Service ............................ .
Bureau of Engraving and Printing ......................... ..
United States Mint .......................................... .
Bureau of the Public Debt ................................. .
560
560
337
337
337
337
24
18
145
-12
-6
16
24
18
145
-12
-6
16
90
56
448
-8
-48
74
90
56
448
-8
-48
74
92
58
445
-24
-8
73
92
58
445
-24
-8
73
105
319
104
105
319
104
355
952
340
355
952
340
343
885
237
343
885
237
11
11
51
51
34
34
Internal Revenue Service:
Pror..essing tax returns and assistance .................. .
Tax law enforcement ..................................... .
Information systems ..................................... ..
Payment where earned income credit exceeds liability
for tax ................................................... .
Health insurance supplement to earned income credit ..
Refunding internal revenue collections, interest ......... .
Other .................. ·············· .. ········· .. ········ ..
413
15
413
15
639
41
Total-Internal Revenue Service ................ ········
966
966
2,379
15
49
587
116
7
7
639
41
789
35
789
35
2,379
2,330
2,330
Tabte 5. Outlays of the U.S. Government, December 1994 and Other Periods-Continued
[$ millions)
This Month
Claulflc8tlon
Gross
Outlays
Depertment of the TrulUry:-continued
Interest on the public debt:
PublIC ISSues (8CC1'U81 basis)
Special issues (cash basis)
on
34
117
91
52
19,317
38,003
56,278
45,685
56,278
45,685
51,429
41,182
51,429
41,182
57,320
57,320
101,964
101,964
92,611
92,611
5
12
12
-693
17
693
-2,041
-255
-2,492
255
5
243
-243
-143
-143
10
3
-2,041
137
95
14
5
117
78
48
17
586
-586
-2,492
95
-95
344
58,656
103,992
966
103,026
94,369
1,317
37
3,802
172
70
3,802
102
3,583
26
177
70
107
196
129
132
93
59
40
230
394
200
5,553
323
27
35
275
4,386
332
18
64
36
19
4,386
332
18
195
119
108
144
10
-42
-109
-25
2,824
144
10
103
103
285
285
2
2
5
-62
30
286
5
29
4
8
5
-49
8
-18
2,850
5,449
344
5.105
50
50
85
85
151
352
r ')
151
352
58,999
Total-Department of the Treasury
Gross IAPPlicablel 0 tI
OuUays
Receipts
u aYI
38,003
Other
Propnetary receipts from the public ........................ .
Receipts from off -budget federal entities .................. .
Intrabudgetary transactions
......... " ................. .
Offsetting governmental receipts ........................... .
Gross iAPPlicable! OuU
OuUays
Receipts
ays
137
105
37
3
19,317
the public debt
OuUays
Prior Fiscal Year to Date
42
44
13
42
47
15
Unrted States Secret SeMce
Comptrollef of the Currency
Office of Thnft Supervison
Total-Interest
IAppI~blel
Receipts
Current Fiscal Year to Date
196
-196
803
93,587
Depertment of Veteren. Affairs:
Veterans Health AdministratiOn:
Medical care ..... . ..................................... .
1,317
.................................... .
63
Veterans Benefits Administration:
Public enterprise funds:
Guaranty and indemnity fund .......................... .
Loan guaranty revolving fund .......................... .
1
43
-78
31
31
Other
.............................................. .
6
CompensatiOn and penSions ............................. .
Readjustment benefits ..... . .................. .
Post-Vietnam era veterans education account .......... .
Insurance funds:
NatiOnal service life .................................... .
United States government life ......................... .
Veterans special life .................................... .
Other .'
2,824
Other ...................................................... .
4
Total-Veterans Benefits Administration
.............. .
ConstT\ICtion .'
............................................ .
Departmental administratiOn ................................ .
Proprietary receipts from the public:
National service life ....................................... .
United States government life ........................... .
Other
13
3,030
Total-Department of Veterens Affairs
180
20
(")
............................................... .
Intrabudgetary transactions ................................. .
75
65
..
-65
170
304
(")
(")
176
-176
-3
-8
9,265
11,256
203
286
502
345
111
2
202
348
507
324
369
-49
-250
-2
51
1,450
1,446
2
394
-110
104
65
-2
2
451
9,923
75
75
96
96
200
144
37
-14
202
348
507
324
369
658
5
6.521
-68
4,253
291
286
510
68
-3
27
7,030
(")
-1
323
-58
-18
)
(
92
5,553
88
-20
-1
4,545
80
3,583
170
304
..
..88
-88
)
( )
175
-175
(
-8
844
10,412
Environmental Protection Agency:
Program and research operations .......................... .
Abatement, control, and compliance ....................... .
Water infrastructure financing .............................. .
Hazardous substance superfund ......... . ................ .
Other
200
144
37
Proprietary receipts from the public ...... . ................ .
Intrabudgetary transactionS ............................ .
Offsetting governmental receipts ........................... .
Total-Environmental Protection Agency " ........ ,""
(")
14
(")
552
15
..
(
(")
49
-250
)
538
1,501
456
-24
17
14
394
-110
104
203
286
502
345
2
109
47
-47
3
-3
52
1,394
Genenli Services Administration:
Real property activities ..................................... .
Personal property activities............... ............ .
InformatiOn Resources Management Service .............. .
Other
456
-24
17
14
Proprietary receipts from the public ........................ .
Total-General Services Administration , ... ,.,"""'"
463
(")
(")
(* *)
462
16
65
453
126
126
-99
-99
47
47
61
61
-1
135
1
134
Table 5. Outlays of the U.S. Government, December 1994 and Other Periods-Continued
[$ millions]
Classification
This Month
Current Fiscal Year to Date
Prior Fiscal Year to Date
Gross IApplicable I 0 tl
Outlays Receipts
u ays
Gross IAPPlicablel 0 tl
Outlays Receipts
u ays
Gross IApplicable I Outlay
Outlays Receipts
5
National Aeronautics and Space Administration:
Human space flight ........................................ ..
Science, aeronautics and technology ....................... .
Mission support ............................................. .
Research and development ................................. .
Space flight, control and data communications ............ .
Construction of facilities .................................... .
Research and program management ....................... .
166
214
141
425
209
35
12
166
214
141
425
209
35
12
216
349
332
1,277
857
74
82
216
349
332
1,277
857
74
82
1,764
1,226
115
375
1,764
1,226
115
375
Other ........................................................ .
1
1
4
4
4
4
Total-National Aeronautics and Space
Administration ........................................... .
1,203
1,203
3,190
3,190
3,484
3,484
295
295
870
870
873
873
9,393
3,765
540
3,913
676
9,393
-148
-136
8,895
3,684
339
3,882
647
8,895
-198
-308
2
2
(* *)
Otfice of Personnel Management
Govemment payment for annuitants, employees health
and life insurance benefits ................................ .
Payment to civil service retirement and disability fund .... .
Civil service retirement and disability fund ................. .
Employees health benefits fund ............................ .
Employees life insurance fund .............................. .
Retired employees health benefits fund ................... .
Other ........................................................ .
3,164
1,247
312
1,417
135
3,164
-170
177
1
1
(. *)
2
(* *)
2
-5
-5
17
17
40
40
-3
-3
-8
-8
-9
-9
Intrabudgetary transactions:
Civil service retirement and disability fund:
General fund contributions ............................. .
Other .................................................... .
Total-Office of Personnel Management
5,012
1,552
3,460
14,579
4,591
9,988
13,824
4,531
9,293
48
40
24
8
81
66
44
107
214
80
1
(* *)
4
2
9
35
125
173
6
121
120
20
(* *)
121
117
(* *)
94
-8
5
117
66
64
426
152
274
420
212
209
15
32
18
49
59
44
286
49
59
25
50
Small Business Administration:
Public enterprise funds:
Business loan fund ....................................... .
Disaster loan fund ........................................ .
Other ...................................................... .
Other ........................................................ .
Total-Small Business Administration ...........•..•...
44
2
35
130
Other independent agencies:
Action ........................................................ .
Board for Intemational Broadcasting ....................... .
Corporation for National and Community Service ......... .
Corporation for Public Broadcasting ....................... .
District of Columbia:
Federal payment .......................................... .
Other ...................................................... .
Equal Employment Opportunity Commission ............... .
Export-Import Bank of the United States .................. .
Federal Communications Commission ...................... .
Federal Deposit Insurance Corporation:
Bank insurance fund ..................................... .
Savings association insurance fund ...................... .
FSLlC resolution fund .................................... .
Affordable housing and bank enterprise ................. .
Federal Emergency Management Agency:
Public enterprise funds ................................... .
Disaster relief ............................................. .
Emergency management planning and assistance ...... .
Other ...................................................... .
Federal Trade Commission ................................. .
Interstate Commerce Commission .......................... .
Legal Services Corporation ................................. .
National Archives and Records Administration ............. .
National Credit Union Administration:
Credit union share insurance fund ....................... .
Central liquidity facility .................................... .
Other ...................................................... .
15
32
18
1
714
1
1
275
275
714
698
3
12
(* *)
56
904
10
-597
21
-1,452
698
-9
(* *)
82
493
4
15
16
56
307
30
621
-496
541
799
2,251
(* *)
16
-15
9
2
7
84
33
695
1,373
30
320
-832
2
375
822
954
-133
1
1
1
1
69
228
105
693
198
465
65
39
-2
183
693
65
66
13
2
11
68
12
124
46
-2
-2
5
10
120
18
25
9
125
2
117
(* *)
1
15
27
2
(* *)
-1
6
44
286
575
31
18
145
13
68
12
25
50
-1
57
4
4
84
228
27
40
-2
88
4
(* *)
17
6
11
57
12
78
65
65
13
11
(* *)
124
46
1
66
132
465
65
47
47
21
10
96
40
(* *)
39
21
10
96
4
-6
14
27
-12
5
1
(* *)
26
9
7
26
1
6
Table 5. Outlays of the U.S. Government, December 1994 and Other Periods-Continued
[$ millions]
Clasalf\c:8t1on
Other Independent agencies:-Continued
NatlOllal Endowment for the Arts
NatlOllal Endowment for the Humanities
NatlOll8l Labor Relations Board
NatlOllal Science Foundation
Nuclear Regulatory Commission
Panama Canal Commission ... . ............................ .
Postal Service:
PublIC enterprise funds (off-budget) ...................... .
Payment to the Postal Service fund ..................... .
Railroad Retirement Board:
................................ .
Federal windfall subsidy
Federal payments to the railroad retirement accounts
Rail industry pension fund:
Advances from FOASDI fund .......................... .
OASDI certifications ................................... .
Administrative expenses ................................ .
Interest on refunds of taxes ..... . .................... .
Other. . ................................................ .
Intrabudgetary transactions:
Payments from other funds to the railroad
retirement trust funds .............................. .
Other ................................................ .
Supplemental annuity pension fund ...................... .
Railroad Social Security equivalent benefit account ..... .
Other
....................................... .
This Month
Current Fiscal Year to Date
Gross IAPPlicabiel Outlays
Outlays Receipts
Gross IAPPliC8blel
Outlays Receipts
Outlays
12
12
12
225
39
43
4,812
3
54
12
12
12
225
35
-10
42
39
41
619
123
133
44.626
186
12.662
61
r *)
-90
90
8
-90
90
8
(
)
(* .)
-271
271
18
17
1
1
2
241
397
241
397
-46
729
1.195
..
11.938
65
46
21
21
r *)
148
148
Prior Fiscal Year to Date
Gross IApplicable
Oudays
Receipts
I
Oudays
42
39
41
619
-24
-15
49
39
40
600
116
125
724
61
12,410
61
65
46
69
12
69
12
-271
271
18
17
2
-268
268
20
18
2
-268
268
20
18
2
-46
-12
719
1.171
1
-12
719
1.171
1
1.999
49
39
40
600
-3
119
136
-12
13.010
-600
61
)
r *)
1
729
1.195
1
Total-Railroad Retirement Board ..................... .
668
668
2,026
2.026
1.999
Resolution Trust Corporation ............................... .
Securities and Exchange Commission ..................... .
Smithsonian Institution ...................................... .
Tennessee Valley Authority ................................. .
United States Information Agency .......................... .
Other
......................................... "
125
8
32
558
99
244
2.126
1.050
32
79
2,375
277
642
5,024
2.528
252
652
2.154
(* *)
1.310
37
66
374
252
527
-3,974
32
79
471
277
114
5.218
37
591
r')
192
-2.001
8
32
-33
99
52
246
406
7,846
8,446
-600
24,497
21,611
2,886
28,257
23,828
4,429
(* *)
r*)
(* *)
r *)
(* *)
( )
Total-Other independent agencies
..
(
1,904
(* .)
Undistributed offsetting receipts:
Other interest ..
. ................ .
Employer share, employee retirement:
Legislative Branch:
United States Tax Court:
Tax court judges survivors annuity fund ........... .
The Judiciary:
Judicial survivors annuity fund ........................ ..
Department of Defense-Civil:
Military retirement fund ............................... ..
Department of Health and Human Services. except
Social Security:
Federal hospital insurance trust fund:
Federal employer contributions ................ .
Postal Service employer contributions .............. .
Payments for military service credits ............ .
Department of Health and Human Services, Social
Security (off-budget):
Federal old-age and survivors insurance trust fund:
Federal employer contributions ...................... .
Payments for military service credits ............... .
Federal disability insurance trust fund:
Federal employer contributions ...................... .
Payments for military service credits ............... .
Department of State:
Foreign Service retirement and disability fund ........ .
Office of Personnel Management:
Civil service retirement and disability fund ..
Independent agencies:
Court of veterans appeals retirement fund
Total-Employer share, employee retirement
3.909
66
..
..
)
r *)
(* .)
(* ')
(
-1.018
-1.018
-3.044
-3.044
-3.192
-3.192
-158
-45
-158
-45
-475
-134
-475
-134
-476
-110
-476
-394
17
-1.182
17
-1.182
17
-1.275
-1.275
-71
-17
-212
-17
-212
-17
-138
-138
-8
-8
-25
-25
-26
-26
-871
-871
-2.352
-2.352
-2.397
-2.397
2,564
2.564
-7,422
-7,422
-7.613
7.613
18
-110
Table 5. Outlays of the U.S. Government, December 1994 and Other Periods-Continued
[$ millions]
Classification
Undistributed offsetting receipts:-Continued
Interest received by trust funds:
The Judiciary:
Judicial survivors annuity fund ......................... .
Department of Defense-Civil:
Corps of Engineers .................................... .
Military retirement fund ................................ .
Education benefits fund ................................ .
Soldiers' and airmen's home permanent fund ........ .
Other .................................................... .
Department of Health and Human Services, except
Social Security:
Federal hospital insurance trust fund ................. .
Federal supplementary medical insurance trust fund ..
Department of Health and Human Services, Social
Security (off-budget):
Federal old-age and survivors insurance trust fund .. .
Federal disability insurance trust fund ................. .
Department of Labor:
Unemployment trust fund .............................. .
Department of State:
Foreign Service retirement and disability fund ........ .
Department of Transportation:
Highway trust fund ..................................... .
Airport and airway trust fund .......................... .
Oil spill liability trust fund .............................. .
Department of Veterans Affairs:
National service life insurance fund ................... .
United States govemment life Insurance Fund ....... .
Environmental Protection Agency ........................ .
National Aeronautics and Space Administration ......... .
Office of Personnel Management:
Civil service retirement and disability fund ............ .
Independent agencies:
Railroad Retirement Board ............................ ..
Other .................................................... .
Other ...................................................... .
Total-Interest received by trust funds ............... .
This Month
Current Fiscal Year to Date
Prior Fiscal Year to Date
Gross lAPPlicable/
Outlays Receipts
Outlays
Gross /APPlicable/
Receipts
Outlays
Outlays
Gross /APPlicable/ 0 tl
Outlays Receipts
u ays
..
(* *)
(
-1
18
..
(
)
-4
-4
-4
-4
-1
18
-1
-5,373
-15
-1
-5,373
-15
-1
-4,925
-17
-1
-4,925
-17
-8
..
..
)
(
-1
..)
)
-1
..
..-3
..-8
-3
..
(
(
-5,305
-828
-5,305
-828
-5,318
-903
-5,318
-903
-5,249
-1,003
-5,249
-1,003
-14,684
-796
-14,684
-796
-15,102
-823
-15,102
-823
-13,660
-364
-13,660
-364
-1,210
-1,210
-1,287
-1,287
-1,257
-1,257
-298
-298
-299
-299
-280
-280
-436
-340
-436
-340
)
-508
-371
-2
-508
-371
-2
-701
-416
-2
-701
-416
-2
-531
-4
-531
-4
-535
-4
-535
-4
-536
(
)
-536
-5
(
)
(
(
..
(
)
..
)
(
....
(
)
(
(
..
..
....
)
)
(
)
....-5
..
)
)
( )
(* *)
(**)
(' *)
( )
-13,740
-13,740
-13,801
-13,801
-12,908
-12,908
-58
..-3
-58
(
)
(* *)
-3
-158
-2
-44
-158
-2
-44
-188
-3
-31
-188
-3
-31
-38,216
-38,216
-44,555
-44,555
-41,560
-41,560
Rents and royalties on the outer continental shelf lands ..
Sale of major assets ...................................... ..
Spectrum auction proceeds ................................ ..
106
-106
(
)
420
-420
(
(
)
)
627
-627
Total-Undistributed offsetting receipts .•.• , ••.....• , •.
-40,781
106
-40,887
-51,977
420
-52,397
-49,173
627
-49,800
Total outlays., ••... , •• , •.......•.••... ,., •.•....•.•• , ....• ,.,
151,378
16,504
134,874
426,760
45,275
381,485
426,166
47,490
378,676
Total on-budget ..•..• , ••....•. , .................. ,., ....•.
135,370
11,878
123,491
351,598
33,336
318,262
353,186
34,480
318,707
Total off-budget .•• , •.... ,., ...•. ,." ... ,., ••.....• " •...•.
16,009
4,626
11,382
75,162
11,939
63,224
72,979
13,010
59,969
Total surplus (+) or deficit ., •.•..•• , •....• , •.•..• ,., •.....
-4,063
-73,979
-91,509
Total on-budget , •• , ...•• , •... " •....• , .... ,., •. ,.,.,., •...
-19,631
-86,934
-104,445
Total off-budget ...••.••..• , ••... ,., •....•.•... , •• , ... , •...
+15,568
+12,956
+12,936
MEMORANDUM
Receipts offset against outlays
[$ millions]
Current
Fiscal Year
to Date
Proprietary receipts ..................................................... .
Receipts from off-budget federal entities .............................. .
Intrabudgetary transactions ............................................. .
Governmental receipts .................................................. .
Total receipts offset against outlays .............................. ..
Comparable Period
Prior Fiscal Year
11,426
10,691
75,759
554
87,739
78,098
433
89,222
"The Postal Service accounting is composed of thirteen 28-day accounting periods. To
conform with the MTS calendar-month reporting baSis used by all other Federal agencies, the MTS
reflects USPS results through 12/9 and estimates for $1,416 million through 12/31.
• Represents a retroactive adjustment for FY 1994 to reflect the new distribution between the
FOASI and FDI trust funds.
... No Transactions.
(' ') Less than $500,000
Note: Details may not add to totals due to rounding
'Prior month adjustment.
2Jncludes FICA and SECA tax credits, non-contributory military service credits, special benefits
for the aged, and credit for unnegotiated OASI benefit checks.
:trhe receipts and outlays in March 1994 have been decreased by $1 million to reflect the
reclassifICation of intrabudgetary transactions previously reported as governmental receipts for the
"Wildlife Conservation and Appreciation Fund".
19
Table 6. Means of Financing the Deficit or Disposition of Surplus by the U.S. Government, December 1994 and Other Periods
[$ millions]
A...t. .nd Llabilltle.
DlrKt\y Re4ated to
Budget Off-budget Activity
Net Transections
(-) denotes net reduction of either
liability or asset accounts
Account Balances
Current Fiscal Year
Beginning of
Fiscal Year to Date
This Month
This Year
1
This Year
Prior Year
Close of
This month
1
This Month
LIability account.:
BorTowll19 from the public:
PublIC debt securities. issued under general Financing authorities:
Obligations 01 the United States. issued by:
United States Treasury
............................. .
Federal Financing Bank
........................................ .
21.630
107,400
124.198
4,677,750
15,000
4,763,520
15,000
4,785,150
15,000
21,630
107,400
124,198
4.692,750
4,778,520
4,800,150
Tolal, public debt securities .................................... ..
1,317
79,548
1,309
80,757
Plus premium on public debt securities ...................... .
less discount on public debt securities ..................... ..
-8
1,209
-23
2,126
41
-5,917
1,333
78,631
Total public debt securities net of Premium and
discount .................................................. ..
20,412
105,251
130,156
4,615,453
4,700,292
4,720,704
Agency securities, issued under special financing authorities (see
Schedule B. lor other Agency borrowing. see Schedule C) ......... .
3
-1,777
1,383
28,543
26,762
26,766
Total federal securities ............................................... .
20,416
103,474
131,539
4,643,996
4,727,054
4,747,470
33,796
43,944
36,771
1,213,104
1,223,252
1,257,048
64
140
-6,037
1,684
1,759
1,823
33,732
43,804
42,808
1,211,421
1,221,493
1,255,225
Deduct:
Federal securities held as investments 01 government accounts
(see Schedule D) ............................................... .
less discount on federal securities held as investments of
government accounts ....................................... ..
Net lederal securities held as investments of govemment
accounts ................................................... ..
Total borrowing from the public ........................ ..
-13,316
59,669
88.731
3,432,575
3,505,561
3,492,244
43,287
7,189
7,316
4,938
34,251
7,137
7,455
1,504
48,482
7,153
7,549
3,623
Accrued interest payable to the public ................................... .
Allocations 01 special drawing rights ..................................... .
Deposit lunds ............................................................. .
Miscellaneous liability accounts (includeS checks Outstanding etc.) ..... .
14,232
15
94
2,119
5,195
-37
233
-1,315
-656
-220
-1,338
-2,517
Total liability .ccount.................................................... .
3,143
63,745
84,001
3,495,306
3,555,908
3,559,051
1,814
-2.290
-476
313
-9,675
-9,362
-2,480
-303
6,848
29,094
5,348
21,709
7,161
19,419
-2,783
35,942
27,056
26,580
21
68
-179
9,971
-8,Q18
10,017
-8,018
10,039
-8,018
21
68
-179
1,953
1,999
2,021
82
-33
(* *)
-200
27
1
-1,127
79
-8
31,762
7,163
-25,923
-96
31,762
6,881
-25,863
-95
31,762
6,963
-25,896
-95
-57
136
763
-292
-837
-644
-700
12,040
12,033
A...t .ccounll (deduct)
Cash and monetary assets:'
U.S. Treasury operating cash:
Federal Reserve account ...................... .. .................... .
Tax and loan note accounts . .. .................................... ..
Balance ........................................................... .
Special drawing rights:
Total holdings ......................................................... .
SDR certificates issued to Federal Reserve banks ................. .
Balance ........................................ ..
Reserve position on the U.S. quota in the IMF:
U.S. subscription to International Monetary Fund:
Direct quota payments .......................... . ................. .
Maintenance of value adjustments ................................ .
letter of credit issued to IMF ....................................... .
Dollar deposits with the IMF ......................................... .
Receivable/Payable (-) for interim maintenance of value
adjustments ......................... . ............................... .
Balance
7
........................................................... .
loans to International Monetary Fund ................................ ..
Other cash and monetary assets ...................................... .
Total cash and monetary assets
Net activity, guaranteed loan financing .................................. ..
Net activity, direct loan financing ......................................... .
Miscellaneous asset accounts ., .......................................
01' . . . .11
(-)
21,417
..
..
)
( )
23,714
21,111
(
-2,603
-306
54
3,065
9.636
-3,201
71,380
64,809
61,745
-687
795
2,084
913
1,807
-1,321
-1,449
848
-3,527
-9,806
12,726
-1,386
-10,032
13,738
-4.791
-10,719
14,533
2,707
872
10,063
-7,329
72,915
63,724
62,852
+4,016
+73,808
+91,330
+3,422,391
+3,492,183
+3,496,199
48
171
178
123
171
+4,063
+73,979
+91,509
+3,492,306
+3,496,370
Transactions not applied to current year's surplus or deficit (see
Schedule a lor Details) .................................................. .
Tota~ ~t and off-budget federal entities (financing of deficit (+)
01' dispositiOn of surplus (-)) ............................................. .
12,069
(* *)
Total ....t account.
Exce.. of llabilitie. (+)
36
'M8jOI' sources of ,"formatIOn used to determine Treasury's operating cash income include the
08IIy Balance Wres from Federal Reserve Banks, reporting from the Bureau of PubliC Debt.
eIectronoc transfers !Ivtlu!1' the Treasury FnandaI Conmunication System and reconciling wires
from Internal R~ Centers Operatng cash is presented on 8 IT1O(jflecJ cash basis deposits
ere reftected as recerved and wittl<hwa/S ere reflected as processed.
'
+3,422,391
... No Transactions.
(•• ) Less than $500,000
Note: Details may not add to totals due to rounding
20
Table 6. Schedule A-Analysis of Change in Excess of Liabilities of the U.S. Government, December 1994 and
Other Periods
[$ millions]
Fiscal Year to Date
This Month
Classification
This Year
Excess of liabilities beginning of period:
Based on composition of unified budget in preceding period
Adjustments during current fiscal year for changes in composition
of unified budget:
Revisions by federal agencies to the prior budget results ..... .
3.492,183
I
Prior Year
3.422,146
3,218,965
245
526
73,979
91,509
----------------------------3.492,183
3.422,391
3,219.491
======================
Excess of liabilities beginning of period (current basis) ............... .
Budget surplus (-) or deficit:
Based on composition of unified budget in prior fiscal yr .......... .
Changes in composition of unified budget ........................... .
4,063
----------------------------4,063
73,979
91,509
======================
19,631
86,934
104,445
Total surplus (-) or deficit (Table 2) ................................... .
Total-on-budget (Table 2)
Total-off-budget (Table 2)
-15,568
-12,956
-12,936
Transactions not applied to current year's surplus or deficit:
Seigniorage ............................................................ .
-48
-171
-178
Total-transactions not applied to current year's Surplus or
deficit ............................................................... .
-48
-171
-178
-----------------------------
Excess of liabilities close of period
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
===================
3,496,199
3,496,199
3,310,821
Table 6. Schedule 8-Securities Issued by Federal Agencies Under Special Financing Authorities, December 1994 and
Other Periods
[$ millions]
Net Transactions
(-) denotes net reduction of
liability accounts
Account Balances
Current Fiscal Year
Classification
Beginning of
Fiscal Year to Date
This Month
I
This Year
Agency securities, issued under special financing authorities:
Obligations of the United States, issued by:
Export-Import Bank of the United States ...
Federal Deposit Insurance Corporation:
FSLlC resolution fund ................................................. .
Obligations guaranteed by the United States, issued by:
Department of Defense:
Family housing mortgages ............................................ .
Department of Housing and Urban Development:
Federal Housing Administration ....................................... .
Department of the Interior:
Bureau of Land Management ......................................... .
Department of Transportation:
Federal Transit Administration ......................................... .
Coast Guard:
Family housing mortgages .......................................... .
Obligations not guaranteed by the United States, issued by:
legislative Branch:
Architect of the Capitol ............................................... .
Independent agencies:
Farm Credit System Financial Assistance Corporation ............... .
National Archives and Records Administration ....................... .
Tennessee Valley Authority ........................................... .
0
Total, agency securities
000000 . . 0 " 0
0
...........................
0" 0
0
0
0
0" 0
0
0
0
0
0
0
0
0
...... 0
This Year
Prior Year
(* .)
(* *)
(* *)
538
538
538
(**)
6
6
6
42
112
117
116
13
13
13
(* *)
(**)
(* *)
4
192
195
196
1,261
298
24,334
1,261
298
24,336
26,762
26,766
.
-1
4
I This Month
Close of
This month
-547
4
0" 0
... No TransactionS.
(0 OJ Lass than $500,000.
Note: Details may not add to totals due to rounding.
21
2
-1,785
1,885
1,261
298
26,121
3
-1,777
1,383
28,543
Table 6.
Schedule C (Memorandum)-Federal Agency Borrowing Financed Through the Issue of Public Debt Securities,
December 1994 and Other Periods
[$ millions]
Account Balances
Current Fiscal Year
Transactions
Classification
Fiscal Year to Date
This Month
This Year
Borrowing from the Treasury:
Funds Appropnated to the President:
International Secunty Assistance:
...........
Guaranty reserve fund
Agency for Internallonal Development:
International Debt Reduction
Housing and other credit guaranty programs
. . . . .. . . . . . . . . . .
Pnvate sector revolving fund
Overseas Pnvate Investment Corporation
Department of Agriculture:
Foreign aSSistance programs
..............
Commodity Credit Corporation
Farmers Home Administration:
Agnculture credit insurance fund
...........
Self-help housing land development fund
Rural hOUSing insurance fund
Rural Development Administration:
............
Rural development insurance fund
...........
Rural development loan fund
Rural Electrification Administration:
Rural communication development fund
Rural electnfication and telephone revolving fund ....
..................
Rural Telephone Bank
Department of Education:
Guaranteed student loans . . . . . . . . . . .
College housing and academic facilities fund
College hOUSing loans
Department of Energy:
Isotope production and distribution fund
Bonneville power administration fund
Department of Housing and Urban Development:
HOUSing programs:
Federal Housing Administration
Housing for the eder1y and handicapped .
PubliC and Indian housing:
Low-rent publiC hOUSing
Department of the Interior:
Bureau of Reclamation Loans
Bureau of Mines, Helium Fund
Bureau of Indian Affairs:
. . . . . . . . . . . ...
Revolving funds for loans
Department of Justice:
Federal prison industries, incorporated
Department of Transportation:
Federal Railroad Administration:
Railroad rehabilitation and improvement financing funds
Amtrak corridor improvement loans
Other
Federal AViation Administration:
Aircraft purchase loan guarantee program
Department of the Treasury:
Federal FinanCing Bank revolving fund
...........
Department of Veterans Affairs:
Loan guaranty revolving fund
..... ......
Guaranty and Indemnity fund
Direct loan revolving fund
Vocational rehabilitation revolving fund
EnVIronmental Protection Agency:
Abatement. control. and compliance loan program
Small BUSiness Administration:
BUSiness loan and revolving fund
Independent agencies·
Exporl-Imporl Bank of the United States
Federal Emergency Management Agency:
NatIOnal insurance development fund
Pennsylvania Avenue Development Corporation:
Land aqulsltlon and development fund
Railroad Retirement Board:
R8Ilroad retirement account
SOCIal Secunty eqUivalent benefit account
Smthsonlan Institution:
John F Kennedy Center parking facilities
Tennessee Valley Authonty
Total agency borrowing from the Treasury
financed through public debt securities issued
Beginning of
1
Prior Year
This Month
750
750
315
125
1
16
315
125
1
16
315
125
1
16
-13,250
550
16,909
544
4,816
544
6,682
4,032
4,497
2,284
1
5,472
2,284
1
5,674
1,866
-7
-10,227
-2,385
202
-1,748
1
1,177
715
40
-10
2,091
21
2,806
61
2,806
61
-16
695
98
31
242
16
57
8,212
586
57
8,907
701
57
8,907
684
3,598
4,887
13
1,605
596
411
1,605
1,884
411
1,605
5,482
411
58
14
2,617
14
2,617
14
2,617
-475
783
8,484
762
7,714
762
7,714
135
135
135
11
252
11
252
11
252
26
25
25
20
20
20
14
2
14
3
14
3
-21
-770
-1
(* .)
(" .)
..
( )
(" .)
-5,540
11
-27
256
4,061
734
-9,645
)
n
n
(
)
(*0)
(
-1,141
94,357
90,662
88,817
1,107
181
2
2
1,107
181
2
2
1,107
181
2
2
26
37
37
7,289
7,289
7,289
811
2,632
2,605
2,605
125
87
87
87
85
85
85
2,128
2,781
2,128
3,259
2,128
3,515
20
150
20
150
20
150
163,642
149,936
153,997
..
-1,845
..
..)
(. ")
(
22
I
413
337
..................
This Year
Close of
This month
..
(
)
716
-15,248
Table 6.
Schedule C (Memorandum)-Federal Agency Borrowing Financed Through the Issue of Public Debt Securities,
December 1994 and Other Periods-Continued
[$ millions]
Account Balances
Current Fiscal Year
Transactions
Classification
Fiscal Year to Date
This Month
This Year
Borrowing from the Federal Financing Bank:
Funds Appropriated to the President:
Foreign military sales ................................................... .
Department of Agriculture:
Rural Electrification Administration ..................................... .
Fanners Home Administration:
Agriculture credit insurance fund .................................... .
Rural housing insurance fund ........................................ .
Rural development insurance fund ................................... .
Department of Defense:
Department of the Navy ................................................ .
Defense agencies ....................................................... .
Department of Education:
Student Loan Marketing Association ................................... .
Department of Health and Human Services,
Except Social Security:
Medical facilities guarantee and loan fund ............................. .
Department of Housing and Urban Development:
Low rent housing loans and other expenses ......................... .
Community Development Grants ....................................... .
Department of Interior:
Territorial and international affairs ...................................... .
Department of Transportation:
Federal Railroad Administration ., ...................................... .
Federal Transit Administration .......................................... .
Department of the Treasury:
Financial Management Service ......................................... .
General Services Administration:
Federal buildings fund .................................................. .
Small Business Administration:
Business loan and investment fund .................................... .
Independent agencies:
Export-Import Bank of the United States ............................. .
Pennsylvania Avenue Development Corporation ....................... .
Postal Service ........................................................... .
Resolution Trust Corporation ........................................... .
Tennessee Valley Authority ............................................. .
Total borrowing from the Federal Financing Bank .•.•.••......•.•
Beginning of
I Prior Year
This Year
I This Month
Close of
This month
-13
-37
-38
3.785
3.761
3.748
28
76
-75
21,916
21.964
21.991
6,063
24,391
3,675
6.063
23,981
3.675
6.063
23.981
3.675
1.624
-145
1.624
-145
1.624
-145
-410
-30
-1
-9
(' ')
63
54
54
-58
-54
-14
1,747
110
1.689
105
1.689
104
22
22
22
15
665
14
665
14
665
-5
(")
-1
-1
665
-30
14
64
61
1.780
1,831
1.844
-17
-34
-20
581
564
547
-478
10
-478
29
-900
-3,577
-200
-485
27
3.926
250
8,973
26.519
3,400
3.926
268
8.073
24,329
3.200
3.449
278
8,073
22.942
3.200
109,360
105,664
103,820
-1,387
-1,845
-5,540
-1,146
-1,142
... No Transactions.
(' ') Less than $500,000
Note: Details may not add to totals due to rounding
Note: This table includes lending by the Federal Financing Bank accomplished by the purchase
of agency financial assets. by the acquisition of agency debt securities. and by direct loans on
behalf of an agency. The Federal Financing Bank borrows from Treasury and issues its own
securities end in tum may loan these funds to agencies in lieu of agencies borrowing directly
through Treasury or issuing their own securities.
23
Table 6. Schedule D-Investments of Federal Government Accounts in Federal Securities, December 1994 and
Other Periods
[$ millions]
Securities Held as Investments
Current Fiscal Year
Net Purchases or Sales (-)
Classification
Beginning of
Fiscal Year to Date
This Month
I Prior Year
This Year
Federal funds:
-2
Department of Agnculture
Department of Commerce
Department of Defense-Military:
Defense cooperatl()(l account
Department of Energy
Department of Housing and Urban Development:
HOUSing programs
Federal hOUSing administration fund ...
Government Natl()(lal Mortgage Association:
Management and liquidating functions fund:
PubliC debt securities
Agency securities
.......... .
Guarantees of mortgage-backed securities:
PubliC debt securities
........... .
Agency securities
Other
Department of the Interior
Department of Labor .
Department of Transportation
Department of the Treasury
Department of Veterans Affairs:
Canteen service revolving fund
Veterans reopened insurance fund
Servlcemen·s group life insurance fund.....
. .......... .
Independent agencies:
Export-Import Bank of the United States ...
Federal Deposit Insurance Corporation:
Bank insurance fund
Savings association insurance fund ....
FSLlC resolution fund
Federal Emergency Management Agency:
NatIOnal flood insurance fund .......... .
NatIOnal Credit Union Administration ..
Postal Service .
Tennessee Valley AuthOrity
Other
Other
This Year
(' ')
3
2
(")
2
2
13
14
14
-4
(" ')
(")
217
148
5
4,527
(' ')
-74
4,818
4,744
-3
-81
-120
5,742
5,664
5,661
16
16
16
3,781
1
212
3,195
5,287
989
8,699
3,810
1
212
3,187
5,236
990
8,758
19
464
-94
16
1,306
-28
158
-6,560
28
-67
3,713
1
193
2,722
5,330
974
7,452
3
16
-109
37
524
41
37
519
3
41
539
(' ')
4
15
-38
32
-17
541
57
8
41
488
1,532
-33
824
16
-375
741
13,972
2,493
1,649
14,308
2,508
1,307
14,796
2,508
1,274
-67
-67
-5
-3
86
-174
-73
-2,701
86
255
200
3,052
1,271
3,954
1,017
2,626
200
3,053
1,281
1,253
1,017
3,055
133
3,048
-84
-71
6
1,073
1,570
2
-161
219
-133
-1,207
1
61,564
17
61,212
17
61,431
-1,206
61,581
61,229
61,448
9
4
4
(oo)
5
27
16
5
27
12
5
32
29
96
92
1
-9
-51
1
60
4
20
(" ')
Total publiC debt securities
Total agency securities
Total Federal funda
I This Month
Close 01
This month
219
-133
-6
4
1,197
1,253
1,103
2,881
17
Trust funds:
Legislative Branch:
library of Congress
.......... .
UMed States Tax Court
Other
The JudiCiary:
JudiCial retirement funds .
Department of Agnculture
Department of Commerce
Department of Defense-Military:
VOluntary separation incentive fund
Other
Department of Defense-Civil:
Military retirement fund
Other
-4
5
5
(oo)
(oo)
-1
(oo)
(oo)
28
4
20
179
245
273
275
278
273
278
(oo)
(oo)
(oo)
(oo)
(oo)
-24
-6
(oo)
-43
5
763
157
781
156
757
(oo)
-1,261
-59
13,405
-58
13,140
8
105,367
1,307
120,033
1,308
118,772
1,249
24
157
Table 6. Schedule D-Investments of Federal Government Accounts in Federal Securities, December 1994 and
Other Periods-Continued
[$ millions]
Securities Held as Investments
Current Fiscal Year
Net Purchases or Sales (-)
Classification
Fiscal Year to Date
This Month
This Year
Beginning of
I Prior Year
This Year
I This Month
Close of
This month
Trust Funds-Continued
Department of Health and Human Services, except Social Security:
Federal hospital insurance trust fund .................................. .
Federal supplementary medical insurance trust fund .................. .
Other .................................................................... .
Department of Health and Human Services, Social Security:
Federal old-age and survivors insurance trust fund ................... .
Federal disability insurance trust fund ................................. .
Department of the Interior ................................................ .
Department of Justice .................................................... .
Department of Labor:
Unemployment trust fund ............................................... .
Other .................................................................... .
Department of State:
Foreign Service retirement and disability fund ......................... .
Other .................................................................... .
Department of Transportation:
Highway trust fund ..................................................... .
Airport and airway trust fund .......................................... .
Other .................................................................... .
Department of the Treasury .............................................. .
Department of Veterans Affairs:
General post fund, national homes .................................... .
National service life insurance .......................................... .
United States government life Insurance Fund ........................ .
Veterans special life insurance fund ................................... .
Environmental Protection Agency ......................................... .
National Aeronautics and Space Administration ......................... .
Office of Personnel Management:
Civil service retirement and disability fund ............................ .
Employees health benefits fund ........................................ .
Employees life insurance fund ......................................... .
Retired employees health benefits fund ............................... .
Independent agencies:
Harry S. Truman memorial scholarship trust fund .................... .
Japan-United States Friendship Commission .......................... .
Railroad Retirement Board ............................................. .
Other .................................................................... .
(' ')
4,825
-1,711
16
2,726
1,594
30
128,716
21,489
836
128,695
19,787
852
133,541
19,778
852
14,476
1,292
27
45
6
16,879
64
45
13,825
-1,227
118
82
413,425
6,100
234
398,954
21,687
272
413,431
22,979
299
45
-498
-8
750
-28
-730
-28
39,788
59
41,036
39
40,537
31
314
395
-50
5
12
7,179
50
7,259
7,574
(' ')
(' ')
1,432
324
119
-39
482
-52
157
-92
-310
165
1
-78
17,694
12,206
1,683
247
16,743
11,830
1,721
195
18,175
12,155
1,840
156
(")
429
60
218
300
-3
48
442
318
-3
47
74
(' ')
(' ')
(' *)
38
11,852
115
1,509
6,250
16
38
11,723
113
1 ,497
6,473
16
38
12,152
113
1,557
6,691
16
11,867
161
-178
7,897
154
138
7,630
250
320
(")
(")
(")
338,889
7,572
14,929
1
334,919
7,565
15,245
1
346,786
7,726
15,068
1
(")
(")
(")
(")
(")
53
-8
47
-102
127
-162
4
53
17
12,203
226
12,110
306
53
17
12,101
354
Total public debt securities .......................................... .
33,577
44,077
37,977
1,151,523
1,162,024
1,195,601
Total trust funds ....................... , ...................... , ..
33,577
44,077
37,977
1,151,523
1,162,024
1,195,601
Grand total ................................................................. .
33,796
43,944
36,771
1,213,104
1,223,252
1,257,048
4,846
-9
(")
-1
17
Note: Investments are in public debt securities unless otherwise noted.
Note: Details may not add to totals due to rounding.
... No Transactions
(' ') Less than $500,000.
25
Month, Fiscal Year 1995
Table 7. Receipts and Outlays of the U.S. Government by
[$ millions]
Jan.
Feb.
March
April
May
June
July
Aug.
Sept.
Fiscal
Year
To
Date
Com·
parable
Period
Prior
F.Y.
Oct.
Nov.
Dec.
43,659
3,055
37,414
1,497
53.736
31,915
31,263
1,073
351
4,272
1,202
1,848
2,300
33.786
3,249
352
5,518
1,220
1,827
2,811
35.708
230
420
4,587
1,092
1.747
1,375
...........
89,024
87,673 130,810
307,507
(On -budget) .,.,',., .. , .. , ..........
65,384
62,083 103,860
231,327
(Off -budget) ........................
23,639
25,590
26,950
76,179
..... ,
287,167
Classiflc8tion
Receip ts:
IndlvtduaI Income taxes
Corpora tt()(l Income taxes
Sooal In surance taxes and
contnbu tt()(lS
Empjo yment taxes and
contn butt()(ls
Unem pIoyment Insurance
Other retirement contributtons
ExCise t axes
Estate and 9'tt taxes
Customs duties
MiscellaneoUS receipts
TolIl-Receipts this yelr
134,809
36,468
129,497
32,604
100,758
4,552
1,122
14,377
3,513
5,421
6,486
94,238
4,078
1,150
13,101
3,475
4,980
4,046
......
......
r(lcal- R('ft'lp{\ prIOr rear
78,662
83,102 125,403
......
IOn I> Ildgt'li
55,858
58,695
99.709
......
214,262
72,905
rOtil> Ildg{'1}
22.804
24.407
25,694
......
354
184
18
217
169
17
333
303
26
903
656
61
787
568
3,255
310
271
3,837
4,065
726
-381
367
452
443
18
1,537
89
1,150
498
1,749
5,850
305
2,973
3,860
300
1,857
3,649
304
6,580
13,358
909
5,777
12,673
823
3,713
6,118
4,254
5,701
7,837
4,754
8,203
7,312
4,727
17,617
21,267
13,736
20,617
20,415
16,009
2,501
425
247
2,896
537
242
3,211
436
305
8,609
1,398
793
8,810
1,182
675
147
275
-311
-222
942
42
778
95
2,659
328
17,680
21,435
25,178
64,294
70,695
2,638
1,949
1,683
2,656
2,322
1,330
2,553
3,888
1,743
7,848
8,159
4,756
7,614
7,697
4,925
1,603
1,588
1,761
4,951
4,799
6,622
7,834
7,545
8,942
7,321
9,757
21,488
26,533
21,107
24,758
4,799
3,055
917
5,290
3,092
2,200
5,837
3,015
4,138
15,926
9,162
7,255
15,334
11,366
8,923
2}28
-4,508
2,519
-4,525
2,812
-4,515
8,059
-13,547
8,348
-15,214
23,413
3,289
-630
23,368
3,244
-7
23,810
3,348
-17
70,591
9,881
-655
68,027
8,981
-1,001
2,903
2,426
2,394
7,723
7,368
Outlays
leglslatlv e Branch
The Judiclary
Executive Office of the President .
Funds Appropnated to the President:
Intema tlonal Security ASSistance
Intema tional Development
Assls tance
........
Other
Departme nt of Agriculture:
FOfelgn aSSistance, special export
programs and Commodity Credit
COfpo ration
Other
Department of Commerce .
Department of Defense
Military
Military personnel
Oper atlon and maintenance
..
Procurement
Research. development, test, and
evaluatlon
Milltary construction . . . . . .
Faml Iy housing
...
Revel vlng and management
fund s
Other
Total Military .
C,v,l
Departme nt of Education
Departmen t of Energy
Departmen t of Health and Human
Services. except Social Security:
PUb/IC HeaJth Service
Health Care Financing Administration:
Grant S to States fOf Medicaid
Feder al hOSpital Ins. trust fund
Federal supp. mad Ins. trust
fund
Other
Sooal Secunty Administration
Admlnls tratt()(l fOf children and
families
Other
Departmen t of Health and Human
ServICes SOCIal Secunty
Federal old-age and SUrYIvors Ins.
trust fu nd
Federal disability Ins. trust fund
Other
Departmen t of HOUSIng and Urban
Devek:>pmen t
26
53
Table 7.
Receipts and Outlays of the U.S. Government by Month, Fiscal Year 1995-Continued
[$ millions]
Classification
Oct.
Nov.
Dec.
Jan.
Feb.
March
April
May
June
July
Aug.
Sept.
Fiscal
Year
To
Date
Comparable
Period
Prior
F.Y.
Outlays-Continued
Department of the Interior ..............
Department of Justice ...................
Department of Labor:
Unemployment trust fund .............
Other ..................................
Department of State ....................
Department of Transportation:
Highway trust fund ...................
Other ..................................
Department of the Treasury:
Interest on the public debt ...........
Other ..................................
Department of Veterans Affairs:
Compensation and pensions ..........
National service life ...................
United States government life ........
Other ..................................
Environmental Protection Agency .......
General Services Administration .........
National Aeronautics and Space
Administration . . . . . . . . . . . . . . . . . . .. . . . . . .
Office of Personnel Management . . . .. . .
Small Business Administration . . . . . . . . ..
Independent agencies:
Fed. Deposit Ins. Corp.:
Bank insurance fund . . .. . . . . . . . . . . .
Savings association insurance
fund ...............................
FSLlC resolution fund ..............
Postal Service:
Public enterprise funds (offbudget) ............................
Payment to the Postal Service
fund ...............................
Resolution Trust Corporation .........
Tennessee Valley Authority ...........
Other independent agencies ..........
Undistributed offsetting receipts:
Employer share, employee
retirement ............................
Interest received by trust funds ......
Rents and royalties on outer
continental shelf lands ...............
Other ..................................
884
908
583
818
558
749
2,025
2,475
1,633
2,427
1,650
702
488
1,854
-170
841
2,001
469
664
5,506
1,002
1,993
8,617
1,386
1,908
1,794
1,650
1,762
1,737
1,416
1,640
4,972
5,027
4,891
4,572
19,732
34
24,912
-308
57,320
1,336
101,964
1,062
92,611
956
105
64
1
1,528
438
-651
1,457
70
1
1,784
474
639
2,824
83
2
1,344
538
462
4,386
218
5
4,656
1,450
451
5,553
197
5
4,656
1,394
134
845
3,410
65
1,143
3,118
145
1,203
3,460
64
3,190
9,988
274
3,484
9,293
209
-127
-208
-496
-832
-1,452
-2
-87
-13
430
(")
33
-15
375
7
-133
648
-110
186
724
-600
61
-471
265
2,720
......
. .....
-1,502
239
1,646
-2,001
-33
1,710
61
-3,974
471
6,075
61
1,310
374
4,862
-2,416 -2,564
-5,727 -38,216
-7,422
-44,555
-7,613
-41,560
-2,442
-611
-154
-160
-106
-420
-627
(")
(")
(")
(")
(. *)
121,480 125,131 134,874
381,485
......
95,307
99,464 123,491
318,262
......
26,174
25,668
11,382
63,224
......
-32,457 -37,458
-4,063
-73,979
......
-29,922 -37,381 -19,631
-86,934
......
(Off-budget) ...........••••••......•
-2,535
-78 +15,568
+12,956
......
....
32,457
40,528 -13,316
59,669
88,731
Totals this year:
Total outlays
(On-budget)
(Off-budget)
.........................
........................
........................
.....
........................
Total-surplus (+) or deficit (-)
(On-budget)
Total borrowing from the public
124.085 121.483 133,108
378.676
96,719 121,425
318.707
24.764
11,683
59.969
Total-surplus (+) or deficit (-) prior
year .... ......
....... .. .. -45.422 -38.381
-7.705
Total-outlays prior year
(On-budget)
...........
..... ..... . , ' , . ...... ,
(Off-budget) .. ... .............
(On·budget)
(Off-budget)
.. .
100,562
23.523
-91.509
.....
.. .... .... ....... -44,704 -38,024 -21.717
.......
..
-719
.....
-357 +14.012
... No transactions.
than $500.000.
Note: Details may not add to totals due to rounding.
r .) Less
27
-104.445
+12.936
Table 8. Trust Fund Impact on Budget Results and Investment Holdings as of December 31, 1994
[$ millions]
Fiscal Year to Date
This Month
C.. salflcatlon
Securities held es Investments
Current Fiscal Year
Beginning of
Receipts
Outlays
Excess
Receipts
Outlays
Excess
This Year
I
This Month
TNst rKelpts. outlays. Ind Investments
held:
17,811
29,821
67,690
14,430
6,500
3,350
1,128
19,887
5,999
608
1,725
1,932
144
9,881
-182
9,506
26,533
70,591
15,926
5,786
3,384
1,961
6,747
5,506
240
820
-191
26
16,580
182
8,305
3,288
-2,901
-1,496
714
-34
-833
13,140
494
367
905
32,248
197,323
74,140
158,775
74,140
38,547
11,167
32,248
123,183
84,636
38,547
90,431
21
126,742
21
-36,311
192,696
59
305,222
59
-112,526
Federal lund receipts and outlays on the
...............
basis 01 Table 4 & 5
90,410
126,721
-36,311
192,637
305,163
-112,526
...........
3,015
3,015
8,314
8,314
307,507
381,485
15,384
14,023
37,941
5,339
3,528
1,355
375
1,000
1,543
555
563
608
50
3,348
19
3,202
9,757
23,810
5,837
1,874
1,399
647
2,192
2,001
43
414
213
3
1,623
-19
12,181
4,266
14,131
-499
1,655
-44
-272
-1,193
-459
512
149
less: Interfund transactiOnS ....................
87,449
44,034
55,202
44,034
Trust lund receipts and outlays on the basis
.............................
01 Tables 4 & 5
43,415
Total Federal fund receipts and outlays
less: Interfund transactions ..................
Airport
Black lung disability
Federal disability Insurance .
Federal employees life and health
Federal employees retirement
Federal hospital insurance
Federal old-age and survivors insurance
Federal supplementary mediCal insurance
HlQhways
.......................
Military advances
. . . . . . . . . . . . ............
Railroad retirement
............
Military retirement
Unemployment
., .................
Veterans life insurance
............
All other trust .
820
53
4,971
1,741
170
26,461
Total trust fund receipts and outlays
and Investments held from Table 6-
0
..........................................
less: oHsetting proprietary receipts
Net budget receipts & outlays
...............
130,810
134,874
-4,063
No transactions.
Note Interlund recetpts and outiays are transactions between Federal funds and trust funds
such as Federal payments and contributions, and interest and profits on Investments in Federal
secuntl8S They have no net eHect on overall budget receipts and outiays since the receipts side of
such transactIOnS IS oHset against bugdet outiays. In this table, Interlund receipts are shown as an
adlustment to anive at total receipts and outiays of trust funds respectively.
-
12,206
11,830
12,155
6,100
22,503
346,317
128,716
413,425
21,489
17,694
21,687
22,811
342,458
128,695
398,954
19,787
16,743
22,979
22,795
354,638
133,541
413,431
19,778
18,175
12,203
105,367
39,788
13,477
12,240
12,110
120,033
41,036
13,333
12,547
12,101
118,772
40,537
13,822
12,877
1,151,523
1,162,024
1,195,601
-73,979
Note: Details may not add to totals due to rounding.
28
Close of
This Month
Table 9. Summary of Receipts by Source, and Outlays by Function of the U.S. Government, December 1994
and Other Periods
[$ millions]
Classification
This Month
Fiscal Year
To Date
Comparable Period
Prior Fiscal Year
Individual income taxes ........................................... .
Corporation income taxes ......................................... .
Social insurance taxes and contributions:
Employment taxes and contributions ........................... .
Unemployment insurance ....................................... .
Other retirement contributions .................................. .
Excise taxes ....................................................... .
Estate and gift taxes ............................................. .
Customs ........................................................... .
Miscellaneous ...................................................... .
53,736
31,915
134,809
36,468
129,497
32,604
35,708
230
420
4,587
1,092
1,747
1,375
100,758
4,552
1,122
14,377
3,513
5,421
6,486
94,238
4,078
1,150
13,101
3,475
4,980
4,046
Total ........................................................ .
130,810
307,507
287,167
26,348
1,334
1,529
74,092
7,244
4,439
1,320
6,256
6,753
143
9,521
2,598
13,108
26,897
36,023
53,907
77,012
10,486
3,560
3,667
49,891
-8,240
378,676
RECEIPTS
NET OUTLAYS
National defense ................................................... .
Intemational affairs ................................................ .
General science, space, and technology ......................... .
Energy ............................................................. .
Natural resources and environment ............................... .
Agriculture ......................................................... .
Commerce and housing credit .................................... .
Transportation ..................................................... .
Community and Regional Development ........................... .
Education, training, employment and social services ............ .
Health .............................................................. .
Medicare ........................................................... .
Income security .................................................... .
Social Security ..................................................... .
Veterans benefits and services ................................... .
Administration of justice ........................................... .
General government ............................................... .
Interest ............................................................. .
Undistributed offsetting receipts .................................. .
1,622
1,938
-2,166
3,021
1,102
5,779
9,246
14,058
19,331
27,158
4,277
1,278
1,972
19,302
-2,671
67,585
7,850
4,318
1,108
6,836
6,770
-2,552
9,961
3,381
13,510
27,402
37,844
50,757
80,472
9,291
3,794
4,788
56,212
-7,842
Total ....................................................... ..
134,874
381,485
417
Note: Details may not add to totals due to rounding.
29
Explanatory Notes
the employee and credits for whatever purpose the money was withheld.
Outlays are stated net of offsetting collections (including receipts of
revolving and management funds) and of refunds. Interest on the public
debt (public issues) is recognized on the accrual basis. Federal credit
programs subject to the Federal Credit Reform Act of 1990 use the cash
basis of accounting and are divided into two components. The portion of
the credit activities that involve a cost to the Government (mainly
subsidies) is included within the budget program accounts. The remaining
portion of the credit activities are in non-budget financing accounts.
Outlays of off-budget Federal entities are eXCluded by law from budget
totals. However, they are shown separately and combined with the onbudget outlays to display total Federal outlays,
1. Flow of Data Into Monthly Treasury Statement
The Monthly Treasury Statement (MTS) is assembled from data in the
central accounting system The malor sources of data include monthly
accounting reports by Federal entitles and disbursing officers, and daily
reports from the Federal Reserve banks. These reports detail accounting
transactions affecting receipts and outlays of the Federal Government
and off-budget Federal entitles, and their related effect on the assets and
liabilities of the U.S Govemment Information is presented in the MTS on
a modified cash baSIS.
2. Notes on Receipts
Recetpts included in the report are classified into the following major
categones: (1) budget receipts and (2) offsetting collections (also called
apphcable receipts). Budget receipts are collections from the public that
result from the exercise of the Government's sovereign or govemmental
powers, excluding receipts offset against outlays. These collections, also
called governmental receipts, consist mainly of tax receipts (including
SOCial insurance taxes), receipts from court fines, certain licenses, and
deposits of eamings by the Federal Reserve System. RefundS of receipts
are treated as deductions from gross receipts.
Offsetting collections are from other Government accounts or the
public that are of a business-type or market-oriented nature. They are
classified into two major categories: (1) offsetting collections credited to
appropriations or fund accounts, and (2) offsetting receipts (Le., amounts
deposited in receipt accounts). Collections credited to appropriation or
fund accounts normally can be used without appropriation action by
Congress. These occur In two instances: (1) when authorized by law,
amounts collected for materials or services are treated as reimbursements to appropriations and (2) in the three types of revolving funds
(publiC enterprise, intragovernmental, and trust); collections are netted
against spending, and outlays are reported as the net amount.
Offsetting receipts in receipt accounts cannot be used without being
appropriated. They are subdivided into two categories: (1) proprietary
receipts-these collections are from the public and they are offset against
outlays by agency and by function, and (2) intragovemmental fundsthese are payments into receipt accounts from Governmental appropriation or funds accounts. They finance operations within and between
Government agencies and are credited with collections from other
Govemment accounts. The transactions may be intrabudgetary when the
payment and receipt both occur within the budget or from receipts from
off-budget Federal entities in those cases where payment is made by a
Federal entity whose budget authority and outlays are excluded from the
budget totals.
Intrabudgetary transactions are subdivided into three categories:
(1) inter1und transactions, where the payments are from one fund group
(either Federal funds or trust funds) to a receipt account in the other fund
group; (2) Federal intrafund transactions, where the payments and
receipts both occur within the Federal fund group' and (3) trust intrafund
transactions, where the payments and receipts both occur within the trust
fund group.
Offsetting receipts are generally deducted from budget authority and
outlays by functIOn, by subfunction, or by agency. There are four types of
receipts, however, that are deducted from budget totals as undistributed
offsetting receipts. They are: (1) agencies' payments (including payments
by off-budget Federal entities) as employers into employees retirement
funds, (2) interest received by trust funds, (3) rents and royalties on the
Outer Continental Shelf lands, and (4) other interest (Le., interest collected
on Outer Continental Shelf money in deposit funds when such money is
transferred into the budget).
4. Processing
The data on payments and collections are reported by account symbol
into the central accounting system. In turn, the data are extracted from
this system for use in the preparation of the MTS.
There are two major checks which are conducted to assure the
consistency of the data reported:
1. Verification of payment data. The monthly payment activity reported by
Federal entities on their Statements of Transactions is compared to the
payment activity of Federal entities as reported by disbursing officers.
2. Verification of collection data. Reported collections appearing on
Statements of Transactions are compared to deposits as reported by
Federal Reserve banks.
5. Other Sources of Information About Federal Government
Financial Activities
• A Glossary of Terms Used in the Federal Budget Process, January
1993 (Available from the U.S. General Accounting Office, P.O. Box 6015,
Gaithersburg, Md. 20877). This glossary provides a basic reference
document of standardized definitions of terms used by the Federal
Government in the budgetmaking process.
• Daily Treasury Statement (Available from GPO, WaShington, D.C.
20402, on a subscription basis only). The Daily Treasury Statement is
published each working day of the Federal Government and provides data
on the cash and debt operations of the Treasury.
• Monthly Statement of the Public Debt of the United States
(Available from GPO, Washington, D.C. 20402 on a subscription basis
only). This publication provides detailed information concerning the public
debt.
• Treasury Bulletin (Available from GPO, Washington, D.C. 20402, by
subscription or single copy). Quarterly. Contains a mix of narrative, tables,
and charts on Treasury issues, Federal financial operations, international
statistics, and special reports.
• Budget of the United States Government, Fiscal Year 19 _
(Available from GPO, Washington, D.C. 20402). This publication is a
single volume which provides budget information and contains:
-Appendix, The Budget of the United States Government, FY 19_
-The United States Budget in Brief, FY 19 _
-Special Analyses
-Historical Tables
-Management of the United States Government
-Major Policy Initiatives
3. Notes on Outlays
Outlays are generally accounted for on the basis of checks issued,
electronIC funds transferred, or cash payments made. Certain outlays do
not. reqUire Issuance of cash or checks. An example is charges made
against appropnatlons for that part of employees' salaries withheld for
taxes or savings bond allotments - these are counted as payments to
• United States Government Annual Report and Appendix (Available
from Financial Management Service, U.S. Department of the Treasury,
WaShington, D.C. 20227). This annual report represents budgetary
results at the summary level. The appendix presents the individual receipt
and appropriation accounts at the detail level.
30
Scheduled Release
The release date for the January 1995 Statement
will be 2:00 pm EST February 22, 1995.
For sale by the Superintendent of Documents, U.S. Govemment Printing
Office, Washington, D.C. 20402 (202) 512-1800. The subscription price is
$35.00 per year (domestic), $43.75 per year (foreign).
No single copies are sold.
The Monthly Treasury Statement is now available on the Department of Commerce's Economic Bulletin Board.
For information call (202)482-1986.
DEPARTMENT
OF
THE
TREASURY
~:i/78~q~. . . . . . . . . . . . . . . . . . . . . . . . . .. .
............................
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C .• 20220 • (202) 622-2960
Text as prepared
Embargoed until delivery
Expected at 10 a.m.
January 25, 1995
STATEMENT O.~ THE HONORABLE ROBERT E. RUBIN
SECRETARY OF THE TREASURY
BEFORE THE HOUSE COMMITTEE ON BANKING AND FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
January 25, 1995
Mr. Chairman and Members of the Committee, I appreciate the opportunity to
appear before you today.
We have been engaged in a cooperative process these past few days. The President
called for a bipartisan effort to respond to Mexico's financial problems, and the leadership
of Congress, Republican and Democrat, responded. Our shared goal is to protect U.S.
interests by helping our neighbors in Mexico. We all know that the stakes are high in
avoiding a potential financial crisis that could spread to other emerging markets.
Mexico has experienced a loss of confidence, but the damage is not yet irreversible.
It is critical that we prevent the current situation from deepening into a crisis with lasting
implications for U.S. jobs, Mexican economic viability, and the financial prospects of all
emerging markets.
Today I want to discuss with you what the U.S. has at stake, what we can do, and
how our proposal will stabilize markets and protect our interests. Finally, I want to respond
to some concerns about the proposed loan guarantee program.
What Is the U.S. Stake?
The crisis precipitated by events in Mexico demands our attention because what
happens in Mexico has profound implications for the United States -- not just for economic
theorists but for working Americans.
Mexico is an important and growing market for U.S. goods and services. We sell
almost 3 times more goods there now than we did in 1987. Mexico has become our third
largest export destination. Nearly 700,000 U.S. jobs depend directly on sales to Mexico.
RR - 024
DEPARTMENT
OF
THE
TREASURY (.~. . . ~:.)
TREASURY
NEW S
1789
OFFICE OF PUBUCAFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
Text as prepared
Embargoed until delivery
Expected at 10 a.m.
January 25, 1995
STATEMENT OF THE HONORABLE ROBERT E. RUBIN
SECRETARY OF THE TREASURY
BEFORE TIlE HOUSE COMMITI'EE ON BANKING AND FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
January 25, 1995
Mr. Chairman and Members of the Committee, I appreciate the opportunity to
appear before you today.
We have been engaged in a cooperative process these past few days. The President
called for a bipartisan effort to respond to Mexico's financial problems, and the leadership
of Congress, RepUblican and Democrat, responded. Our shared goal is to protect U.S.
interests by helping our neighbors in Mexico. We all know that the stakes are high in
avoiding a potential financial crisis that could spread to other emerging markets.
Mexico has experienced a loss of confidence, but the damage is not yet irreversible.
It is critical that we prevent the current situation from deepening into a crisis with lasting
implications for U.S. jobs, Mexican economic viability, and the financial prospects of all
emerging markets.
Today I want to discuss with you what the U.S. has at stake, what we can do, and
how our proposal will stabilize markets and protect our interests. Finally, I want to respond
to some concerns about the proposed loan guarantee program.
What Is the U.S. Stake?
The crisis precipitated by events in Mexico demands our attention because what
happens in Mexico has profound implications for the United States -- not just for economic
theorists but for working Americans.
Mexico is an important and growing market for U.S. goods and services. We sell
almost 3 times more goods there now than we did in 1987. Mexico has become our third
largest export destination. Nearly 700,000 U.S. jobs depend directly on sales to Mexico.
2
Border states are especially heavily dependent on trade with Mexico: California sells $5
billion of goods there yearly. But even Michigan sells $6 billion, nearly 20 percent of its
export sales. And export-producing jobs are high paying jobs.
These numbers make clear that failing our neighbor would mean failing ourselves -and giving up a bright future because, ultimately, more trade at a sustainable exchange rate
will fuel both Mexican and U.S. economic growth.
The risks are not only economic. A protracted crisis could send immigrants north
and create social problems along our borders. Illegal immigration could increase by as
much as 30 percent, at no small cost to taxpayers in border states and nationally. A strong
and growing Mexico, on the other hand, provides jobs for Mexicans at home.
And the risks are not only in Mexico. Restoring confidence in Mexico will head off
the spread of financial distress around the world. The fastest-growing customers for U.S.
products are the most likely to feel the financial spillover from problems in Mexico. U.S.
manufactured exports to developing countries expanded by 65 percent between 1989 and
1993; more than two-fifths of our overall exports are now destined for these countries.
These are countries with great potential, countries where U.S. investors have large stakes.
Mexico has been, in several ways, a prototype for countries that are striving to put
inward-looking, state-controlled models of economic development behind them. A new
prosperity based on open markets, a welcome-mat for investment, and privatization is
beginning to emerge. But Mexico's financial crisis shows that these emerging economies are
still vulnerable to financial shocks. Helping Mexico through its current difficulties can keep
alive the promise of market-oriented reform -- the key to growth and stability over the
longer term for all of us.
What Can We Do and What Will It Cost?
The current situation in Mexico arises from a loss of confidence -- and its fallout.
There is a prospect of a vicious circle, as this loss of confidence chokes off Mexico's access
to funds and creates financial and economic distress, perpetuating investor unwillingness to
invest in Mexico. If confidence is restored, a virtuous circle of foreign capital inflows, strong
investment, and economic growth can be started.
Turning the situation around requires a mechanism to jumpstart confidence. The
Administration and Congressional leadership have agreed that we can and should provide
this mechanism. We have agreed to do this because it is the right thing for the United
States and because the fundamentals of the Mexican economy are strong.
We propose to offer our backing to help Mexico access private resources while it
restructures its economy. We would provide guarantees for up to $40 billion in private
sector loans to the Mexican government. The funds raised would allow Mexico to reduce its
short-term obligations, not take on more total debt. In exchange for these guarantees,
Mexico will pay a commitment fee for the availability of the guarantees, a basic fee that will
3
cover the cost to the U.S. budget, and a supplemental fee that will keep guaranteed
borrowing from being a low cost option for Mexico. This will encourage Mexico to return to
the market under its own name as quickly as possible.
These guarantees will have no adverse effect on the current U.S. budget. In fact, if
the deal goes forward as we expect, the United States Treasury will gain.
We have good reasons for being confident that Mexico will meet its obligations.
o
We will provide guarantees only if the Mexican government follows policies that lead
to financial stability and lay a sound basis for growth. This means tightly controlling
monetary and credit growth, maintaining a budget surplus, and intensifying
privatization and other market reforms. These policies will promote a healthy
Mexican economy that can meet its obligations. Each time Mexico issues securities
to be guaranteed by the U.S. Government, we must be satisfied that it is fully
implementing these policies.
o
Mexico has repaid its borrowings from the U.S. Government for over fifty years.
o
The United States will, as an integral part of the proposed guarantee, have access to
oil revenue streams that can reimburse the United States, in the extremely unlikely
event that we incur any obligations pursuant to the guarantees.
This is not about foreign aid. We are not giving away anything.
And this is not a precedent for the future -- either for Mexico or for other countries.
We have a uniquely important stake in Mexico at the present time, one that we cannot
ignore. The problem that Mexico has encountered, a collapse of market confidence that has
made it impossible to restabilize its currency, is unusual. The scale of the problem is
beyond international financial institutions' current capacity. Our action and only our action
can make a difference here that it would not make in other cases. At the same time, we are
working to ensure that the international machinery for identifying and dealing with problems
like this is prepared for such situations in the future.
There is natural concern that the United States not address this potential
international crisis alone. We in the Administration are working hard, as is Chairman
Greenspan, to gain international support to reinforce our efforts.
An array of swap facilities has been arranged to enhance Mexico's available shortterm resources. Canada is providing about $1 billion in swap credits. The Bank for
International Settlements has commitments from other central banks for a $5 billion swap
facility. And Mexico and the IMF are in advanced stages of negotiations on a program that
will provide substantial financial resources with policy conditionality. Indeed, I hope that
the IMF will be able to go beyond its usual limits in supporting Mexico.
We are not leaving matters here. We are seeking additional support from others.
4
Will the Guarantee Program Make a Difference?
Mexico faces a problem of liquidity. This is key to understanding why the proposed
approach will meet the challenge posed by current circumstances in Mexico.
The nature of the crisis becomes clear when one looks at how it came about. As
Mexican economic reforms attracted investment over the past few years, the Mexican peso
was buoyed and reserves expanded. Imports were easily financed. Less than a year ago, the
Mexican "problem" was seen as one of keeping capital inflows from pushing up the money
supply and feeding inflation.
But following the assassination of PRI presidential candidate Luis Donaldo Colosio,
capital inflows did not recover, and we can now see that enthusiasm for Mexican paper was
waning. And yet Mexico's appetite for imports -- to provide inputs for production and to
fuel consumption -- did not wane. The current account deficit persisted, but there were no
longer enough dollars coming in to finance it. There were no longer ready buyers for pesos.
The Mexican authorities fought to maintain the exchange rate by using dollar
reserves to buy pesos and issuing Tesobonos -- dollar-indexed, peso-denominated short-term
securities. The Mexicans also raised interest rates well above U.S. rates, even adjusting for
inflation. But investors did not want to provide the new money Mexico needed to finance
its current account deficit.
In this context, Mexico could not maintain its exchange rate, and the band for the
peso was widened. But even the wider band was impossible to sustain. A concerned market
took the peso well beyond almost all previous views about its equilibrium value.
In retrospect, Mexico could and should have managed this situation better. By the
time the authorities let the peso go, they lacked the resources to counter market disorder.
The Mexicans themselves have made clear that, as they look back, they would have handled
the devaluation quite differently.
These events have not yet eroded the fundamental strength of the Mexican economy
and its potential for growth. Concerted market reform and trade liberalization have made
Mexico's economy dynamic and deep with possibilities. The government is streamJining its
approach to economic management just as the private sector is modernizing business.
Mexico passed legislation making its central bank independent last year. Mexico's economy
is already in transformation to a more efficient, market system.
Helping bridge the current liquidity gap keeps open the window of opportunity -- for
Mexico and its people -- to carry themselves forward to prosperity. But the most
important element of this strategy is what Mexico is doing to help itself.
The Mexican government is tightening its monetary and fiscal policy. It is entering
into a stabilization and economic adjustment program with the support of the International
5
Monetary Fund. Support from the United States will be contingent on Mexico moving
forward with this process.
There is a sound basis in Mexico for ongoing economic reform, given the extensive
restructuring that has taken place over the last ten years. This foundation puts Mexico in a
good position to move quickly to shore up its economic and financial management.
One indispensable element that must be at the center of Mexican stabilization is
sound money. There are countries that have had sound monetary policies with fixed
exchange rates and countries that have done so with floating rates. What is key is that
monetary policy be insulated from the political process. Mexico faced this reality in 1994
when it set up the basic guarantees of independence for the Bank of Mexico. Going
forward, this will shape the culture of the Bank and the monetary policy it sets.
Some argue that the Mexicans should go further in insulating monetary policy by
setting up a currency board. This is only one among several types of institutions that have
historically provided countries with a vehicle for sound monetary policy. What matters is
the determination not to give in to easy money.
Moving Fonvard
The financial support package under consideration by Congress presents a historic
opportunity to avert, before it is too late, a prolonged crisis potentially touching many
countries. America has a vital interest in strong and open markets abroad and in avoiding
the social strains of financial collapse in our neighbor.
This crisis is not a result of NAFfA. Rather, NAFfA has helped make the crisis less
severe. NAFfA ensures that Mexico can never again close its borders to American
products. NAFfA ensures that Mexico must continue to provide safeguards for our
investors. And NAFfA can once again bolster investor confidence, helping to bring Mexico
out of its difficulties.
Providing Mexico with guarantees to access private lending and reduce short term
debt is not about bailing out wealthy investors. American investors in Mexican stocks and
peso securities have already suffered substantial losses -- as much as 40 percent. These
losses are not likely to be recouped even in the context of a stabilization program.
Offering our help to Mexico through the guarantee package is what government is all
about: doing the right thing for America. Congress and the Administration have made a
good start in working together to make it happen. For Mexico and for ourselves, we need
to finish the job.
President \\"illiam Jefferson Clinton
State of the Vnion ..\.ddress
.Ioint Sp"ion of (:ongrp"
The Capitol of the l'nited States
Januan' 24. 1995
Again we are here in the 3anctuary of democracy, and once again our democracy ha3 3poken.
To all of you in the 10'1th Congress to you, l\1r. Speaker Congratulations
If we agree on nothing else, we must agree that the Amencan people \'oted for change in
1992 and 1994 We didn't hear Amenca singing -- \'I:e heard America shouting. ;:\ow, we
mn<;t <;;JY
\\'f' hf'M yon
Wf' \\'111 \\'nrk t02f'thf'r to f';Jrn yonr tm<;t
For we are the keepers of a sacred trust and we must be faithful to it in this new era. Over
two hundred years ago, our Founders changed the course of history by joining together to
UCilLc il Hc,,' CUUHU) bil::'cu UH il jJuwclful iUCil. \Vc hulu Lhc::,c uULh::, Lu bc ::,df-co,iucUL, LhilL
all mcn arc crcatcd cqual; that thcy arc cndowcd by thcir crcator \\' ith ccrtain inalicnable
right!'>; that among thc~c arc Lifc, Libcrty and thc Pur!'>uit of IIappinc~~.
It has fallen to e ... er~y generation since to preser:e that idea
the, \merican idea
and to
its meaning in new and different times. To Lincoln and his Congress: To preser...... e the
Cnion and end sla\'ery To Theodore Roose\'elt and \"oodro,," Wilson To restrain the abuses
e~pand
;Jnrt f'XTf'<;<;f'<; ot thf' Inrtn<;tn;J1 i<f'\'olntton ;Jnrt to ;J<;<;f'rt 4mf'rH";J'<; 1f';Jrtf'f<;hlp In thf' \\'or1rt
In
Franklin Roosevelt To fight the failure of the Great Depression and our century's great
struggle against fascism To all our Presidents since To fight the Cold War Especially to
t\\'o, who struggled in partnership \\'ith Congresses of the opposite party. To Harry Truman,
who summoned us to unparalleled prosperity at horne and constructed the architecture of the
Culu \V ill '" uilu. Auu Lu Ruuillu RCil~ilIl, '" hu cll.huilcU u::, Lu CilIl) uu uuLil UIC Lw ilighL
~truggle
against C ommuni~m \\' as \\'on.
In another time of change and challenge, I became the first President to be elected in the
post-Cold \\'ar era, an era marked by the global economy, the information re\'olution,
unparalleled change and opportunity and insecurity for ordinary Americans. I came to this
h;Jll()\\'f'rt rh;Jmhf'r t\\'o Yf'M<; ;JeO on ;J ml<;QOn 10 rf'<;tnrf' thf' ..\mf'nr;Jn I )rf';Jm tor illl onr
people and to ensure that we move mto the 21 st C entul)' still the world's strongest force for
freedom and democracy
I \"as determined to tackle tough problems too long ignored
In these efforts I have made
Ill:- 11I1::. Litkc::. ilI1U lcillucU ilgiliu Lhc lI11jJUIlillILC uf hUllliliL) iu illl hUlllilll CUUCilo, UI BUL I ilIlI
proud to say that, tonight, our country i~ ~trongcr than it was two ycars ago.
Record numbers of . \mericans are succeeding in the new global economy. \\' e are at peace
and a force for peace and freedom throughout the world. \\'e ha\'e almost si~ million new
Jobs since I became President \"e ha\'e the lowest combined rate of unemployment and
'2.
mflation in o"er 25 years. \Ve ha"e expanded trade, put more police on our streets, gi"en our
citizens more tools to get an educatIOn and rebuild their communities. But the nsing tide IS
not llftme ;J11 hO;Jt<:
While our nation is enJoYing peace and prosperity, too many of our people are still working
harder and harder for less and less. \Yhile our businesses are restructuring and gro\ying more
CUlllfJCLiLi\c, Luu IIl<UI) u[ ULll lJculJlc c<UI'L bc :'L11C u[ C\ClIlid\illg djub lIchL )C<U UI c\ClI
ne:xt month And f",r more: thcUl our mate:rial riche:s cU'e: thre:ate:ne:d Things feU" more: pre:clous - our children, our fam iliC3 , our yaluC3
Our ci"'illife is suffering Citizens are workmg together less, shoutmg at each other more.
The common bonds of community which ha"e been the great strength of this countr), from
It<: hpe1On1Oe ;Jrp hMily h;Jypci
What are we to do about it~ :\Iore than 60 years ago, at the dawn of another new era,
Franklin Roose\"elt told the nation "1\" ew conditions impose new requirements on go\"emment
<UIJ Lllu:,c \\ liu cUlIJLlcl gu \ ClIIlIlClIl"
FlUIIl
LlldL :,iIlllJlc lJI UlJu~iLiuIL lic :,lidlJcJ Lllc ~ C\I DCdl,
\Yhich hc:lpe:d re:store: our nation to prospe:nty cUld de:fine:d the: rc:lationslllp be:twe:e:n Ame:riccUls
cUld the:ir goye:rnme:nt for half a ce:ntury.
That approach ","orked in its time But we today, we face a new time and different
conditions \\' e are mO"'ing from an Industrial Age built on gears and sweat, to an
Infonnation Age that ",ill demand more skills and learning. Our gonmment, once a
rh;Jmpl0n of n;Jtl0n;Jl pnTJloc.p 1<; nnw
<;ppn
;J<; ;J r;Jpll\'P of nilfTOW 1Otprpc.t<;. pnttme morp
burdens on our citizens, instead of equipping them to get ahead. The \'alues that used to
hold us together are coming apart.
So, tomght we must forge a ne\\' social compact to meet the challenges of our time As
\\'e
CIILcl d lIC\\ Cld, \\ C lIccJ d IIC\\ ~cL u[ L1l1Jcl~l<UIJill::!> lIul JLI:,l \\ ILlI ULII gU\ CllllllClIl bLlL
more: UllportcUlt \Yith one: cUlothe:r
That is what I want to talk to you about tonight. I call it a ~ew Co'.'enant, but it is grounded
in a "'ery old idea That all Americans han not jmt a nght but a responsibility to rise as far
as their God-gi,'en talents and detennination can take them, and to gl\'e something back to
thplr rommnnltlPc. ;Jnci thplr rnnnlry 10 rplnm
OppOftUnllY and responSibility go hand-in-hand. We can't ha\"e one withom the other And
our national community can't hold together \yithout both.
Our ~e\y Covenant is a new set of understandings for how \\'e can equip our people to meet
Lllc dldllclIgo u[ Lllc 1IC\\ CCUIIUIIl), !iU\1 \\ C C<UI cli<Ulgc Lllc \1 d) ULII gu \ CIlIlllClIL \\ Ulh.:, Lu [iL
a diffe:re:nt time: cUld, abo'\'e: aIL how we: CcUl re:pair the: dcUllage:d bonds in our socle:ty cUld
come together behind our common pUrp03C \Ve mU3t ha'\'e dramatiC change in our economy,
m our go'.'emment and m ourseh'es
Let us nse to the occasion Let us put aSide partisanship. pettmess and pride As we embark
on a ne\\' course, let u<; put our country fir<;t, remembenng that regardless of our party labek
are all Amencam Let the final te<;t of any action we take be a <;Imple one 1<; it good for
\\'e
thp "\mpnr:m ppnplp"
\\' e cannot ask A,mericans to be bener citizens if we are not bener sen'ants. \\' e'n made a
Start this week by enacting a law applying to Congress the laws YOU apply to the pnyate
::.eclUl. BUl \\e 11Cl.\e <11ul IlIUle lu Ju
Three time3 113 mll!ly lobbYl3t3 rOIlffi the 3treet3 Il!ld corridor3 of \\' 113hington 113 did 20 yean
ago The. \merican people look at their nation'~ capital, and they ~ee a city where the well
connected and the well protected milk the ~y~tem, and the intere~t~ of ordinaI)' citizens are
too often left out .
..\<:. thl<:. np\\' ('nnefp<:.<:. nppnprl It<:. rlnnf<:;. lnhhYl<:.ts \\,p.fp st111 ilt \\'nfk
~fpp
tfil\'pl. pxppn<:;n;p
gifts
business as usual. Twice this month, you ha\'e yoted not to stop these gifts \\' ell.
there doesn't haye to be a law for eyerything Tonight, I challenge you to just stop taking
them -- now, without waiting for legislation to pass Then, send me the strongest possible
lubb) IcfulIII bill, c1l1J I'll ::;igH it
Require the lobbYists to tell the people who they work for, ",hdt they're spending dnd whdt
they Wll!lt. And lct'3 curb the role of big money in our electiom, by cl1pping the C03t of
carnpaign~ and limiting the influence of P.\C~, and opening the people'~ ain\"ave~ to be an
instrument of democracy, by gi"ing free T\· time to candidates.
\\'hpn ('nnefpS<; k111prl pnlltlrill fptnrm lilst ypilf. tht> lnhhyl<:.ts ilrtllillly <:;tnnrl
10
thp hillls nt
this sacred building and cheered. This year, lefs gin the folks at home something to cheer
about
)'lore important let's change the goYernmem -- let's make it smalleL less costly and smarter - lcculel, Hul IIleCUlel.
The:\' e\y Connll!lt i3 Il!l I1pprol1ch to goyeming thl1t i3 113 different from the old burel1ucflltic
way a~ the computer i~ from the manual typewriter The old \\"ay protected the organized
interests The :\'ew Co,'enant looks our for the interests of ordinary people. the old way
di"lded u<; by mterests. constituency or class The :\'e\\' Co,'enant unites 1.l'i behind a
rnmmnn \'l<:;lnn nt \"hilt'<:; hp<:;t tnf nllf rnllntry
The old way dispensed sen'ices through large, hierarchical. inflexible bureaucracIes. The
Coyenant shifts resources and decision-making from bureaucrats to citizens, injecting
choice, competition and indiyidual responsibility imo national policY
~e\\'
The old way seemed to reward failure The :"e\\' Coyenant has built-in lllcentiyes to reward
3ucce33. Thc old way \\"113 ccntflllizcd in \\' 113hington Thc :\' cw C oycnll!lt mU3t takc hold in
commUnitle~ across the countl}'
Our job here is to expand opportUnity, not bureaucracy To empo'''er people to make the
rno'>t of their own h"e,> to enhance our ,>ecurity at home and abroad
\\'1" m1l<;t en hf'ynnrl thf' <;tf'nlf' rlf'hMf' hf't\\'f'f'n thf' 1111l'lnn thM thf'rf' 1<; ;1 prner;1m tnr f'Yf'1)'
problem and the IllusIOn that gonrnment IS the source of all our problems Our Job
rid of yesterday's gonrnment so our people can meet today's and tomorro\\"s needs
FUI
) e:iU ~ Ue:[UI e:
I Ue:UlIIle:
IS
to get
PI e:~iJe:lIl, ulhe:1 ~ h<1J ue:e:lI ~it) lllg lhe:) \\ uulJ lul gu \ e:IUIIle:lIL uul
not much happened. \Ve did it. \\' e cut o"er a qUcl_rter of a tJ'illion dollar5 in 5pending, more
than 300 domc3tic prograrm, more than 100,000 p03itiom from the federal bureaucracy in the
last t,,"o years alone. Based on decisions we have already made, we will have cut a. total of
more than a quarter million positions, making the federal government the smallest it has been
since John Kennedy was President.
l.nrlf'r thf' If';1rlf'r<;hlp nf' lrf' iJrf'<;lrlf'nt (inrf'. nnr 1nltl;1tl"'f'<; h;1\'f' ;11rf';1rlY q\'f'rl t;1xp;1Yf'r<; Sf)';
bIllion The age of the S500 hammer is gone. Dead\\'ood programs like mohair subsidies are
gone We han streamlined the .-\.griculture Department by more than 1.200 offices Slashed
the Small Business loan form from an inch-thick to a single page and thrown a\\'ay the
gU\ e:IUIlIe:lIl'~ 10,000 fJ<1ge: fJe:IWllIld IIliUIUit1. FE).!.-\. -- Ule: [e:Je:litl Ji~<1~Le:1 itge:I1l) -- li<1~ gUIle:
from being a di5a5ter to helping people. Gonrnment worker5 -- hand-in-hand with priYate
bU5ine55 -- rebuilt 50uthern California'5 fractured freeway5 in record time and under budget.
And becaU3e the federal go\'ernment mo\'ed fa3t, all but one of the 650 3choob damaged In
the earthquake are back In business educating our children.
l"ni"er,>ity admim'>trator,> tell me that they are '>a"ing \\'eeb of time on college loan
;1pphr;1tlnn<; hf'r;11l<;f' nf n1lr nf'\\' rnllf'ef' In;1n
prner~m th~t
r1lt rn<;t<; tn thf'
t;1xp~yf'r<;.
r1lt<;
costs to students, and gives people a better way to pay back their college loans, and cut out
bureaucracy
Previous go\'ernmem reform reports gathered dusl: \\"e are gening resull:s And we're nOl
uuuugli. Tlie:le: i~ guillg Lu ue: it ~e:lUIlJ luuIlJ u[ le:lll\e:UliIlg gU\e:lIII11e:UL \Ve: fJIUfJU::;e: Lu lul
S 130 billion in 5pending by 5hnnkmg departlnent5 extending our freeze on dome5tic
3pending, cutting 60 public hou3ing program3 down to three Getting rid of o\,er 100
programs we don't need
program.
like the Interstate Commerce Commission and the helium reser;e
I hf'<;f' prner;1m<; h;1\'f' n1lthYf'rl thf'lr 1l<;f'f1l1nf'<;<; \\F h;1VF tn r1lt Yf'<;tf'rrl;1Y'<; en\'f'rnmf'nt tn
help soh'e tomorrow's problems
.-\.nd we need to get government closer to the people It'S meant to ser.'e Where states and
communil:ies, priYal:e cnizens and the prinl:e senor can do a bener lob, we should gel: om of
Ule: \1 it). \\"e:'Ie: LilkiIlg fJU\\ e:1 it\1 it) [IUIIl [e:Je:litl UUle:itUllitliO iUlJ gl\ lllg Il Uitlk. Lu
commuilltle5 and IIldi"iduab. And it'5 time for Congre55 to 5tOP pa5511lg on to the 5tate5 the
C03t of the decl310m we make here in \\' Q3hington
For "ean.
Con~ress has concealed In the bud~et scores of pet spending projects -- and last
.
.
year ,,'as no different .4. million dollars to study stress In plants 512 million for a tick'-
"-
remm'al programs that c1ic1n't e"en ,,'ork Gi,'e me the line item "eto anc1 I'll sa,'e the
taxpayers money,
But \\'hen we cut. let's remember that gonrnment stili has important responsibilities, Our
young people hold our future in their hands: we owe a debt to our nterans who were willing
to risk their lives for us the elderly ha\'e made us what we are, :\ly budget cuts a lot. but it
lJI ulecl:, nlULC1llUl1. \ elel ill I:', SUUC11 SeLul il), illlJ )'leJILill e illlJ :'u :,buulJ ) UU,
And when we gi\'e more flexibility to the 3tatC3, 1ct'3 remember certam fundamental national
needs that should be addressed in every state, Immunization against chtldhood dlseac,e school
lunches; Head Start; medical care and nutrition for pregnant women and infants
they're in
the national interest
I
~ppl;l1lrl
your rlp<;lrp to 2pt nrl of ro<;tly,
nnnf'rp"<;~ry rp2nl~tlon"
Hnt whpn
WI'
rlprp2nlatp,
let's remember what national action in the national interest has given us: ~afer food for our
families: safer toys for our kids: safer nursing homes for our parents Safer cars and
highways And safer \\'orkplaces Clean water and clean air
Do We need more common !:>en!:>e <llld f<lirne!:>!:> in our regul<ltion!:>" You bet we do, Dut We Celll
h<l'\"e common !:>eme ellld !:>tlll pro'\"ide for !:><lfe drinking W<lter. We Celll h<l\'e f<lirne!:>!:> ellld 5till
clean up tOXIC wa3te dump3. And we ought to do it
Should we cut the deficit more'" Of course, we should. We must bring down spending in a
,,'ay that protects the economic reco"ef)' anc1 c10es not punish the mic1c1le class or seniors.
I know many of you in this chamber support the balanced budget amendment. \\' e all want to
balance the budget Our administration has done more to bring the budget closer to balance
than anyone in a long time But if you're gomg to pass this amendment. yOU have to be
straight with the American people They have a right to know what you are going to cut and
bu\\ il \\ uulJ ilffecl tlielli. AIIJ ) uu :,buulJ lell tbelll bcfule ) uu dlillige !lIe CUII:,litutiull.
In the ::\ ew C o\'enant there are problcm3 we ha\'e the rC3pomibility to fllce
:\" othing has done more to undermme our sense of responsibility than our failed welfare
system. It re,,'arc1s ",elfare m'er ,,'ork It unc1ermines family ,'al1.1es. It lets millions of parents
2pt
~\\'~y
\\'lthont
P~Y1n2
rhllrl <;npport
That is \\'hy I have worked so long to reform welfare 'lYe han made a good start. In the last
two years, my administration has given more states the chance to find their own ways to
reform welfare than the past t\\'O administrations combined. Last year I introduced the most
:,\\ eelJiIlg \\ elfille IcfuIIlI lJlilll e\ el lJloellleJ b) illl C1JllIiIli:'UC1tiuII.
\Ve hll'\"e to make welfare whllt It Wll3 meant to be 11 3econd chance, not 11 wily of life \Ve'll
help those on welfare mO','e to work a.s quickly ac, pOSSible, pro';ide child care and teach
skills if they need them for up to two year>. But after that the rule Will be simple Anyone
",ho can ,,'ork mlJst go to work
If a parent isn't paying child support, ,,·e'll make them pay \\' e'll su<;pend their dm'er's
licenses, track them across state lines and make them ,york off ,,·hat the\" O\'·e. GO\'emments
rlnn't r~l<:p rhdrlrpn jJ~rpnt<: rln
-
I want to work with you to pass \\"elfare reform But our goal must be to liberate people and
lift them up -- from dependence to independence welfare to work, mere childbearing to
IC::'}JulI::,iblc }JcuclIlillg -- lIul }JulIi::,h UII:llI bClilu::,c lllt:) hil}J}JClI Lu bc }JUUI.
Wc ::,huulu Icquilc
work il.l1d mutuill rcsponslbility, but wc shouldn't cut pcoplc off bccilusc thcy ilrc pOOL
young, unmarned \Ve 3hould promote rC3pomibility by requiring young mothef3 to live at
home with their parents or in other super"ised settings JIld finish school, not by putting them
JIld their children out on the street. \Ve shouldn't puntsh poor children for the mistakes of
their parents
Ipt thl<: hp thp
YPM
,yp pnc1 wplbrp ~<: ".p knm\" It
Knt Ipt thl<: ill<:n hp thp yp~r wp <:tnp
using thiS Issue to dinde .-\.merica ;\'0 one is more eager to end welfare than the people that
are trapped on it. Let's promote education. work. good parenting Let's punish bad behavior
and the refusal to be a student, a worker. a responsible parent. Let's not punish po,·erty and
}Jil::'L ulI::,Lilkc::,.
.-\,11 uf U::, hil \ C llIilUC uw,Lilko :\' Ullc uf U::, lCUI dlculgc UUI ) c::,Lcl Uil) '::', bUL
illl of us Ciln chilngc tomorrow's Just ilsk Lynn \\'oolscy, who workcd hcr Wily off wclfill'c
ilI1d IS now il congrcSS'YOmilil from Cilliforniil
I kno,,· it has become fashionable to embrace FrJIlklin D Roosevelt So let's remember
exactly what he said: "Human kindness has ne\'er weakened the stamina or softened the fiber
of a free people. A nation does not haye to be cn.lel in order to be tough."
I know members of this Congress are concerned about crime. But I \\"ould remind you that
last year \\"e passed a ,'ery tough crime bill -- longer sentences. three strikes and you're out.
more pre"ention, more prisons, and 100, 000 more police And we paid for it all bv reducing
the size of the federal bureaucracy and giving money back to local communities to lower the
lIilllC lilLc. Thclc Ulil) bc UUICI ulillg::, \\ C lCUI UU lu bc Luughcl UII lIiIllC CUIU Lu hd}J lu\\ CI
thc crimc riltc ilI1d let's do thcm Dut lct's not tilkc bilck thc good things wc\'c illrcildy donc.
That'3 \\"hat local communtty lcader3 think And that'3 ,,·hat the police \yho put their liye3 on
the line every day think
Secondly, the last Congress passed the Brady Bill and the ban on nineteen assault weapons
think p,'pryhnrly
In
thl<: mnm knm'·<:
th~t <:p,'pr~ I
mpmhpr<: nt thp
I~<:t
('nnerp<:<: ,,·hn vntprl tnr
the assault weapons ban and the Brady Bill lost their seats because of it. ~either the bill
supporters are I beliew anything should be done to infringe upon the legitimate right of our
citizens to bear arms for hunting and sporting purposes. Those people laid do\\"n their seats in
Congress to try to keep more police and children from laying down their lives in our sueets
UlIUCI il hilil uf il::'::'ilU!L \\ cil}Jum' bullct::, Allu I \\ illlluL ::,cc LhilL bcul IC}Jci1lcu.
\Ve 3houldn't cut goyemment program3 that help to prepare U3 for the new economy, promote
responsibtllty JIld are orgJIlized from the grass roots up not by federal bureaucracies. The
be.t example of that i£ the national sef\'lce program -- Americorps --which today has 20,000
Americans, more than e"er sef'·ed in one year in the Peace Corps, ,,·orking all o"er America,
I
helping people -- per~on to per~on -- In local "olunteer group~ ~oh'lng problems and earmng
~ome money for their education Thl~ is citizenship at It~ best It'~ good for the Americorps
mc"m hc"r, ;}nn eoon tnr thc" rc",t of
11,
If, thc" c"<;<;c"nrc" of thc" \, 1'\\' ('c)'.·f'n;}nt .l. nn Wc"
shouldn't stop it.
All Amencans are rightly disturbed by the large numbers of illegal ImmIgrants emenng this
lUUlIU).
Tlic JUb:O llic) liulu Illiglil ulhcI
\1
i:oc bc hclu b) UUI lili£Cll:O UI lcgill iIllIlllgli1Jlb, i1JlU
the public ~elTice~ they u~e impo~e burdem on our tJ.xpJ.yer~. ThJ.t'~ why our J.dmini~trJ.tion
ha3 moyed aggre33iycly to 3ecure our borden by hiring a record number of ne\," border
guards, by deporting twice as many criminal aliens as eyer before, by cracking down on
illegal aliens who tIJ' to take. \merican jobs, and by barring welfare benefits to illegal aliens
In thc" hllnec"t I \\'111 prc"<;c"nt to Y01l \\'c" \\'111 nn mnrc" tn try tn 'pf'f'n thf' nf'pnrt;}tlnn nf l11f'e;}]
aliens who are arrested for crimes. and to better identify illegal aliens 10 the workplace. as
recommended by the commission headed by former Congresswoman Barbara Jordan
Tlii:o i:o il lIilllUli uf iIlIIlllgli1Jlb
BUl il i:o <1bu <1 IJilliuli uf 1<1\\. Allu Il i:o \IIUlIg, i1JlU ulLiIllillcl)
~df-defeJ.ting, for J. nJ.tlon of immigrJ.nt~ to permit the kind of abu~e of our immigration
lJ.w~
we hJ.ye
~een
in recent
year~.
The most important job of government is to empower people to succeed in the new global
economy. America has always been the land of opportUnity, a land where if you work hard
you can get ahead \Ve are a middle cla~s country. :\fiddle class "alue~ sustain u~. \\'e must
f'xp;}nn thc" mlnnlc" rL1<;<; ;}nn ,hnnk thc" llnnf'rrl;}<;<;. \,'hllc" c;l1ppnrtme thf' mllhnnc; \\"hn ;}rf'
already successful in the new economy .
.-\merica is once again the world's strongest economy ..-\lmost six million lobs in two years
Expons booming Inflation down High wage jobs coming back A record number of
AmCliLi1Jl ClIUq.nClICUI:O Ii\illg Lllc AIUClili1Jl UICi1l1L If IIC \\i1lJl illu :olil) Lllill \\(1), LlIU:OC \\!W
\York and lift our nJ.tion mu~t haye more of it~ benefit~.
Today too many of those people are being left out. They are working harder for less security,
less income, less certainty they can e\'en afford a \'acation, much less college for their
children or retirement for themseh'es \Ve cannot let this continue
If \\"e don't act. our economy will probably do \\"hat I1'S done since 1978 Proyide high
income gro\\"th to those at the top. glye \"try little to eyeryone in the middle. and lea\"t the
people at the bottom to fall eyen farther behind. no matter how hard they \\"ork
\\'C IUU:olliil\C <1 gU\CIlIIlIClil Lllillli1ll bc il fJi1lUlCI ill IUilhlllg Llll:O IlC\\ ClUlIUIU) IIUlh. fUl illl
American~ -- a goyernment that hdp~ each J.ud eyel")' one of u~ get J.ll education J.lld hJ.ye
the opportunity to renew our 3kil13
,0
That's why we worked
hard to increase educational opportUnity from Head Start, to public
schook to apprenticeships, to job training, to making college loan~ a"a!lable and more
affordable for 20 milhon people That's the first thing we ha"e to do
I'hf' 'f'rnnrl thme \\'f' r:m rln tn r;H,f' mrnmf'e:: 1, tn l(1\\'f'r til"f', In 1YY';. \\'f' tnnk thf' hre::t
step with a working family tax cut for 15 rmllion families WIth incomes of under 527,000
and a tax cut to most small and new businesses Before we could do more than that. \\'e first
had to bring down the deficit we inhented And we had to get economic growth up \Ye ha\'e
Jvuc UVLll
'\" ow \ye can cut taxe3 10 a more comprehen3i\'e \yay Tax cut3 mU3t promote and reinforce
our first obhgation empowering citizens With education and traming to make the most of
their Ii'.-es The tax relief spotlight must shme on those who make the fight chOices for their
families and communities.
I hilW prnpn'f'rl thf' \l1rlrl1f' (,lil" Kd1 nf K1ehte:: -- wh1rh ,hnn1rl hf' rilllf'rl il Kd1 nf K1ehte::
and ResponsibIlities, because its pro\'isions only benefit those who are working to educate
and raise their children or to impro\'e their own li\'es It will. therefore. gi\'e needed tax
relief and raIse incomes in the shon: and long runs in a way that benefits all of us.
There <ll'e four pro\'i5ioll5. rir5t, <l t<lX deduction for <lll educ<ltion <lnd tr<lining <lfter high
5chool. Educ<ltion i5 e\'en more 1l1lport<lnt now th<111 e\'er to the economic well-being of
...l"merica, and \\'e 3hould do e\'el)'thing \ye can to encourage it. If bU3ine33e3 can get a
deduction for investlOg 10 factories, why shouldn't families for 1O'.'estment in their future'"
Second, a S500 tax credit for all children under thirteen in middle class households
Th1rrl. iln mrl1\'lrlnil1 rf't1rf'mf'nt ilrrnnnt w1th pf'nillty-trf'f' w1thrlrilwil1 nehte:: fnr thf'. rne::t nf
education, health care, first-time home buying, and care of a parent
A,nd founh, a G.1. Bill for American \\'orkers \Ye propose to collapse nearly 70 federal
programs and offer \'ouchers directly to eligible ...l"merican \\'orkers. If yOU are laid off or
Illilkc dlv\\ \\dgc, )VU \\ill gcL d IvUCI!CI \1 VILlI 52,GOO d )Ci1l fVI UlJ Lv L\lV )Ci1l~ Lv gv Lv
your 10C<l1 conUllunlty college or get pI'j\'<lte or public Job tr<lining to r<li5e your job 5kilb .
. \nyone can call for a ta~, cut, but I will not accept one that explodes the deficit and puts our
economic reco\'el)' at risk \\'e mmt pay for any tax cut., fully and hone,tly. Two years ago
it "'as an open questIOn "'hether we "'ollld find the strength to cut the deficit. Thank'> to the
rnnril2f' nf milny pf'np1f' hf'rf'. ilnrl milny \\'hn rl1rl nnt rf'tnm tn tilkf' thf'lr 'f'ilte:: m th1' Hnn'f'.
we began to do \\'hat others said they would do for years
We Democrats cut the deficit by onr S600 bIllion -- that's nearly S10.000 for enry family
of four in this country The deficit is coming do\\'n three years in a ro\\' for the first time
~IIlCC PIc~iJcuL TIUIlli1l1
\I
d~ iu v ffi u:
In the budget I \\'Ill 3end you the :\1iddlc Cla33 Bill of Right3 i3 fully paid for by budget
cuts, cuts 10 bureaucracy, cuts 10 programs, cuts 10 special IOterest subsidies. \nd the
spending cuts will more than double the tax cuts. :\1y budget pays for the :\hddle Class Bill
of Rights \"1thout any cuts in :\ 1edicare And I '''111 oppose any attempt to pay for tax cuts
,,·ith
~ledicare
I knn\\"
,1
cuts
Int nt ynll haw' ynllr Cl\\'n Hifa<; ahnllt tax rfhft I \\'ant tn \\"nrk \\'Ith \"nll
\ I\" tf<;t
for any proposal is Will it create jobs and raise mcomes-:' \\'111 It strengthen f~llies and
support children -:' \\' ill it build the middle class and shrink the underclass -:' Is it paid for-:' If
it does, I will support it If it doesn't, I will oppose H.
Thelt'5 \\"hy I will el5k you to 5upport reli5ing the minlillull1 Welge It rewelrd5 work. Two <l.nd el
half millton Amencam, often women \yith chtldren, \york for $4.25 an hour. In term3 of real
buying power. by ne~'"t year, that minimum wage will be at a ·10 year low
I ha"e studied the arguments and evidence for and against a minimum wage increase. The
"'elght of endence IS that a modest increase does not cost jobs, and may e,'en lure people
Intn thf Jnh markft
Kllt thf plain tilrt Ie. ynll riln't milkf
,1
h\"ln2 nn S4 J..., iln hnm.
especially if you han kids to support
In the past. the mmlmum wage has been a bipartisan Issue. It should be again I challenge
YOU to get together and find a way to make the minimum wage a li\'mg wage
:\lember5 of Congre55 hel"\"e been on the job le55 thelll A month Dut by the end of the week.
28 dely5 into the nny yeell', eelch Congre55melll helS ellreeldy eell'ned el5 much 1ll Congressionell
3alary a3 people \yho \york under mimmum wage make in an entire year.
And e"l:eryone 10 this chamber has something else that too many Americans go without:
health care. Last year, "'10' almost came to blows over health care, but nothing was done. But
thf hard rnlrl tart
10.
that. o.lnrf
\\'1".
e.tartfrl thlo. rlfhatf.
\\'1"
knnw that mnrf than I I ml1hnn
A.mericans in working families han lost their co\·erage. The hard, cold fact is that millions
more. mostly workers \,"ho are farmers. self-employed. and in small businesses. ha\"e seen
their conrage erode with higher premium costs, higher deductibles, and higher co-payments.
I ::.lill belie\e \\e lIlu::.llllU\e UUI Ililliull lU\\i11J::. l-'lu\iJillg hei1llh :;elulil) [U1 n·el) AlIlelili111
felllllly. LAst yeell', \Ye bit off more thelll we could chew. This yeell', let's \york together, step by
3tep and get 30mething done
Let's at least pass meaningful insurance reform so that no American nsks los 109 co"erage or
faCing skyrocketing prices ,,·hen they change JObs or lose a job, or a family member falls ill.
I \\'ant tn \\"nrk tn~fthfr \\'Ith thf I )fmnrratlr Ifarlfro.hlp ami Kfpllhhrano. hkf Knh I )nlf. whn
han a longtime commitment to health reform
Let's make sure that self-employed people and small businesses can buy insurance at more
affordable rates through \"oluntarl' purchasing pools Let's help families pro\'ide long-term
li11e [UI i1 ::.ilk l-'i11Clll UI i1 Ji::'ilblcJ lhilJ Let'::. bell-' \\U1kcI::. \dlU lu::.c lheil jub::. kccl-' bCillLh
imUrelllCe co"\"erelge for el yeell' wlllle they look for work. And let's find el \Vely to m<lke sure
our children have health care Lct'3 \york togethcr Thi3 i3 too important for polttiC3 a3 u3ual.
~luch of what IS on the Amencan people's mind is de"oted to internal security concerns -the security of our Jobs and incomes, our chtldren, our streets, our health, our borders. ~ow
,0
that the Cold War IS past It IS tempting to belte,'e that all security Issues ,nth the possible
exceptIOn of trade, reside "'ithin our borders That IS not so
Our security depends upon our contmued world leadership for peace, freedom, and
democracy We cannot be strong at home \yithout being strong abroad
The: fiwllH.:idl C1i~i~ ill :\lo.icu l~ d pu\\e:lful Cd~e: 1II puilll. We: hd>e: lu del -- fUI Lbe: ~itke: uf
milliom of .-\menC<111S \Yhose liYclihoods <1re tied to :\lexico's well-being If \ye \Y<111t to
3ecure American job3, pre3ery e American export3 and 3afegua.rd AmerlCa'3 borden, we mU3t
pass our stabihzation program and help put )'lexico back on track. •\nd let me repeat
this
is not a loan, this is not foreign aid, this is not a bailout. We'll be giving a guarantee, like
co-signing a note with good collateral that will co"er our risk This legislation is right for
America, arid together "'ith the biparti<;arI leader<;hip I call on C ongre<;<; to pa<;s it quickly
Tomght. not a single Russian miss tie is aimed at our homes or our children .-\nd we, with
them, are on the \yay to destroying missiles and bombers that carry 9000 nuclear warheads
\\' e:\ e: CUIUe: ~u fdI ~u fd~l ill L11e: pU~l-CulJ W dI \\ urlJ L1ldl il is e:d~: lu litke: L11e: Je:clille: uf
the nuclecl,r thre<1t for gflUlted Dut it is still there:. cllld we <l.re not finished yet.
Thl3 yea.r I a.rn a3klng the Senate to appron STA.RT II -- and eliminate weapom that caITY
5000 more I.yarheads The C nited States will lead the charge to el.."tend Indefinitely the
:'\ uclear :'\ on-Proliferation Treaty, to enact a comprehensi,'e nuclear test ban, and to eliminate
chemlcal,Yeapom To <;top, and roll back :'\orth Korea"., potentially deadly nuclear program,
\"P
\Y111 ('nntlfillP tn 1mp]pmpnt thp ;}2fPpmpnt \YP h;}vp fP;}('hpn \"lth th;}t nM1nn
I(<;;) <;m;}rt
tough deal based on continuing inspection. with safeguards for our allies and ourseh'es.
ThiS year I \\"111 submit to Congress comprehensive legislation to strengthen our hand in
combating terronsts, whether they strike at home or abroad As the cowards who bombed the
\\'urlJ TldJe: Ce:lIle:1 CdIl lolif:
L11e: Cllile:J Sldle:~ \\ill bUill JU\\II le:IIUlbb dIlJ lnillg L11e:IU lu
Justice.
Just this week, another horrendous terrorist aet In Israel killed 19 and injured scores more.
On behalf of the A.merican people I e,,"tend our deepest sympathy to the families of the
"ictlm<; I knm" that In the face of <;uch e"iL it i<; hard to go forward But the terrori<;t<; are
thp P;}<;t nnt thp tlltllfP
\\'P mllq -- ;}nn \I'p \Y111 -- PPf<;lq lfi nllf Pllf<;lllt nt;} ('nmpfPhpn<;l\'p
peace bet\Yeen Israel and all her neighbors in the :.Itddle East. .-\ccordingly. last mght I
signed an Executl\'e Order that Will block the assets in the Cnited States of terrorist
organizations that threaten to disrupt the :'liddle East peace process and prohibits fmancial
transactions \yith these groups Tomght I call on our allies, and peace-loving nations around
L11e: \\ urlJ, lu JUlII u~ \\ ILlI Ie:lle:\\ e:J fel >UI 1II L11e: glul.1<11 e:ffull lu CUlI1Uill lellUII~lI1.
F rom my fint day in office I han pledged that our nation would maintain the be3t equipped,
best tral~ed and best prepared fighting force on Earth We ha'.'e
and they are. They ha';e
managed the dramatic downsizing of our forces since the Cold War \,'ith remarkable skill and
<;pirit To make sure our mt!ltary 1<; ready for action -- and to pro"lde the pay arid quality of
II
life that the military and their familie<; de<;erw -- I am a<;kln~ this Congress to add 525
billion more In defen<;e spending O\oer the ne,,"t six year<;. TOOlght I repeat that request 'Ve
;J<:.k mnrh nt nnr MTTlPel tnrrps Thpy ;Jrp r;JllPel tn <:.prYlrp m milny W;JY<:. -- ;mel \"p mn<:.t 2 1VP
them and their families what the times demand and they desern
Time after time. in the last year. our troops showed o-\.merica at its best helping to save
hundreds of thousands of lives in Rwanda. )'loving with lighming speed to head off another
bilqi UUt:ill lu Ku\\ ilit. AuJ gl\ iug fIt:t:Julll ClUJ Jt:IllUClilL) UilLh.. lu Ult: }Jt:u}Jk u[ Hilili.
The Cnited StatC3 ha3 proudly 3upported peace, pr03perity, freedom and democracy, from
South .\frica to ~orthern Ireland, from Central and Eastern Europe to .\sia, from Latin
. \merica to the )'liddle East .\11 these endeavors make. \menca's future more confident and
more secure.
Thl<:'. thpn my tpijm,' ..\mpnr;Jo<:'.
IS
nnr il2pnel;J -- pxpilnelm2 nppnrtnfilty. nnt hmp;Jnrrilry.
enhancing security at home and abroad, empowering people to make the most of their own
lins.
It
i::> dluuiliuu::> dllJ ilL Ii it: \ iluk, Uul il i::> uul t:uuugli. Wt: ut:t:J IllUIt: Uldll Ut:\\ iJt:il::> dldllgiug
thc world, or cquipPlllg <111 AmCnC<ll15 to compctc in thc ncw cconomy. )'lorc th<lll <1
goycrnmcnt th<1t i5 5111<1llcr, 5111<ll1:cr <llld w i5cr. )'lorc tIl<lll <111 tI1C Ch<lllgC5 WC C<lll milkc from
the out3ide in Our fortune3 and our p03terity abo depend upon our ability to an3wer
questions from within, from the values and the 'o'oices that speak to our hearts, 'oooices that tell
us we must accept responsibility for oursehoes, for our families, for our communities and,
yes, for our fello\\" citizen<;.
We see our families and our communities coming apart. Our common ground is shifting out
from under us The PT.-\.. the to\yn hall meeting, the ball park -- it's hard for many
onpxorked Americans to find the time and space for the things that strengthen the bonds of
trust and cooperation among citizens. And toO many of our children don't han the parems
dllJ gldlIJ}Jdlt:Ub \\bu Ldll gi\t: Lbt:1ll Ult: t:Joo.}Jt:lit:ULt:::> lllt:) ut:t:J lu vuilJ dldlilLlcl dllJ
5trcngtIlcn ldcntity.
\Ve all know that while we here In this chamber can make a difference the real differences
In Amenca must be made by our fellow citizens where they work and where they li,oe )'lore
than e"er before, a<; we mo"e to the twenty-first century, e"eryone matter<; and we don't ha,oe
;J ppr<:.nn tn \\"il<:.tp
That means the new covenant is for enrybody For our corporate and business leaders: We
are working to bring do\yn the deficit and expand markets and to support your success in
every \yay But YOU han an obligation \\"hen YOU are doing well to keep iobs in our
LUlllluuuilio dllJ gi\t: AIllt:liLdll \\ UIh..t:I::> il [ilil ::>bdlt: u[ lllt: }J1U::>}Jt:lll) lllt:) gt:Ut:ldlt:.
For th03e in the entertainment indu3try \\' e applaud your creatiyity and your \yorld\yide
success, and we support your freedom of expression. But you ha'o'e a responsibility to assess
the impact of your work and to understand the damage that comes from the Incessant,
repetitl,oe and mlndles<; "1olence. and Irresponsible conduct that permeates our media. :':ot
11because \\'00 \\'111 make YOlL but because you should,
For our community leaders, 'Ve'n got to stop the epidemic of teen pregnancies and births
,\'hf'ff' thf'ff' "
nn m:lrrl:l2f'
I h:l\"f' ,f'nt ('nn2ff',<; :l p1:Jn tn t:lf2f't ,rhnnl, :l11 n\"f'f thf' rnnntfy
with anti-pregnancy programs that work But gonmment can only do so much Tonight. I
am calhng on parents and leaders across the country to join together In a I\ational Campaign
.-\gainst Teen Pregnancy -- to make a difference
r or our religious
leaders You can ignite your congregations to can)' their fcl.ith into action,
rea.ching out to 0.11 our children, to tho3e in dl3tre33, to tho3e who ha.\'e been 3a.\'a.ged by the
breakdown of all "\'e hold dear, BecauGe so much of what has to be done must come from
the inGide out, You can make all the difference
Responsibility is for all our citizens It takes a lot of people to help all the kids in trouble to
,t:ly ntt' thf' ,tff'f't<; :lnrt m c;rhnnl tn hnllrt thf', H;Jh,t:lt fnf Hnm;Jn1ty hnmf'<;, tn prn\"lrtf' thf'
people power for all the ci\"ic organizations that make our communities grow It takes enry
parent to teach their children the difference between right and wrong, and to encourage them
to learn and grow to say no to the wrong things in life and to belie,'e they can become
\\ i1d.lc \ Cl U1C \ \\ d.lll lu be,
I
it i3 ha.rd when you a.re \\'orking ha.rder for lc33 money a.nd you a.re under grea.t 3trC33
to do these things I also know it'G hard to do the work of citizenGhip \\'hen for years,
politicians in both parties ha.\"e treated you like consumers and spectators, promising you
something for nothing and playing on your fears and fnlstrations, And more and more of the
knO\\'
mfnfTT1:ltlnn ynn 2f't rnmf', m \"f'T)' nf'2;Jtn'f' ,\';Jy" nnt rnnrtnr1\'f', tn ff';J I rnn,'f'f<;:ltlnn
Knt thf'
truth is. we ha,'e got to stop seeing each other as enemies. enn when we ha\"e different
news If you go back to the ,'ery beginning of this country, the great strength of .-\merica
has always been our ability to associate with people who were different from ourselns and
to work together to find common ground And in the present day, enrybody has a
lc::'jJumibilil) lu UU UlUle uf Uld.l.
Tha.t i3 the flnt la.\\' of democra.cy, the oldC3t lc330n of m03t of our fa.lth3: Tha.t \\'C a.re
stronoer
tooether
than alone That we .111 '-gain \\'hen we '-give, That IS why-' we must make
o
0
citizemhip matter again Here are fi\'e shining examples of citizemhip:
('mrty f-lf'ff)' tf':lrhf'<; ,f'rnnrt ef:lrtf'f<;' tn ff':lrtm ..\mf'f1( 'nrr<; m nlf:ll kf'nmrky
Shf' 2:l m <;
\yhen she gins :She IS a mother of four. and she says that her sef\'ice "inspired" her to get
her high-school equI\"alency last year '\" O\Y, like thousands of other members, she \yill use
her scholarship from .--\.meriCorps to go to college to equip herself to compete and \yin In the
new economy
'Vith
50
mil.l1y forces pulllllg us apart, we cannot stop a force like .--\.meriCorps that's pulling
U3 together,
Chief Stephen BIshop gains when he gi\'es He has \\'orked with AmeriCorps to build
community pohclng in Kansa<; City -- and ha<; <;een crime go do\\'n because of it, He stood
13
up for our Cnme Bill and the Assault \Veapons ban, and kno"'s that the people he sen'es and
the people he leads are all safer became of it
Corporal Gregory Depestre gainS when he giYes He \Hnt to Haiti as part of his adopted
country's force to help secure democracy A,nd he sa\\' the people of his natiw land --Haiti -are restorin.g democracy for themse1Yes.
And Jack Lucas gained when he ga.... e. fifty crowded years ago, U1 the sa.l1ds of Iwo Jima, he
taught and hc learncd thc lc330m of citizcmhip. FcbrullI)' 20, 1945 \\"a3 no ordinllI)' day for a
small town boy . \s he and his three buddies mo .... ed along a slope, they encountered the
enemy
and two grenades at their feet. Jack Lucas thre"" himself on them both, and, in that
moment, sa"ed the li"es of his companions. And what did he gain'1 In the ne",-t instant, a
medic sand his life. He gained a foothold for freedom And he gained this: Jack Lucas -- at
1 I Yf';}rc, nlo. JllC,t ;} )"f';}r nlof'r thim h1C, er;}noc,nn 1<:; tno;})" -- hf'r;}mf' thf' )"nllnef'c,t \l;}f1nf'
1n
our history, the youngest man in this century, to be awarded the Congressional ~Iedal of
Honor.
"It JiJu'l llldllci \\ bCIC
from, \"ho you were. You relted on one a.l1other. You did it for your country."
All UIOC ) C<U:' 1<tlcl, bCIC':, \\ Iw,l bc :'d):' dbuul Uldl Jd).
) UU \\ ClC
\\'c all gain whcn "'c giyc. \\'c rcap whatcycr wc 30\\". That'3 at thc hcart of thC ~cw
Covenant Responsibility Citizenship Opportunity They are more than stale chapter
headings in some remote ci.... ics book. They are the ,'irtues by which we can fulfill ourseh'es
and our God-gi,'en potential -- the ,'irtues by which we can lin out, the eternal promise of
.l.mf'nra thf' f'nnllnne nrf';}m nf th;}t hrc,t imn mnc,t c,;}rrf'n rnYf'n;}nt·
Ih;}t \,'f' hnln thc"c,c"
truths to be self-e\'ident. that all men are created equal That they are endo\Hd by their
Creator \\'ith certain inalienable rights ,-\nd that among these are Life. Liberty and the
Pursuit of Happiness
Tbi:, j:, d \ Cl) gl cdl L:uuuu).
AuJ UUl bol Jd):' <U C ) cl lu L:UllIC. GuJ blc:,:, ) UU, <U1J GuJ
bless the C"nited States of America.
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
January 25, 1995
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 5-YEAR NOTES
Tenders for $11,000 million of 5-year notes, Series G-2000,
to be issued January 31, 1995 and to mature January 31, 2000
were accepted today (CUSIP: 912827S60).
The interest rate on the notes will be 7 3/4%. All
competitive tenders at yields lower than 7.79% were accepted in
full.
Tenders at 7.79% were allotted 88%. All noncompetitive and
successful competitive bidders were allotted securities at the yield
of 7.79%, with an equivalent price of 99.837. The median yield
was 7.77%; that is, 50% of the amount of accepted competitive bids
were tendered at or below that yield. The low yield was 7.74%;
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
$32,917,177
Accepted
$11,000,438
The $11,000 million of accepted tenders includes $1,172
million of noncompetitive tenders and $9,828 million of
competitive tenders from the public.
In addition, $730 million of tenders was awarded at the
high yield to Federal Reserve Banks as agents for foreign and
international monetary authorities. An additional $362 million
of tenders was also accepted at the high yield from Federal
Reserve Banks for their own account in exchange for maturing
securities.
RR-025
DEPARTMENT
OF
THE
TREASURY
NEWS
~178~9~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1II
......................................
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.• 20220 • (202) 622-2960
FOR IMMEDIATE RELEASE
January 25, 1995
Remarks by Assistant Secretary for Economic Policy
Alicia H. Munnell
National Academy of Social Insurance
Conference on "Social Security: What Role for the Future?"
The National Press Club
I am delighted to be here. I am very pleased to see the National Academy of
Social Insurance holding a conference on such a very, very timely topic.
I am proud of being a founder, charter member, and past president of this
organization. At the very beginning my concern was: "Who will take care of this
country's social insurance programs, should Bob Ball decide to retire at, say, age 90 or
95?" So Henry Aaron, Bob and I traipsed around, from foundation to foundation,
looking for seed money to get this organization started. After we had found some wise
benefactors, we were smart enough to hire Pam Larson. Among her other tasks, she
went from antique -- or was it junk? -- shop to antique shop trying to find chairs for the
original library.
It was all worth it, because this organization has turned out to be an enormous
success.
Today's topic is extremely important. Senator Moynihan has said that the Social
Security system is the jewel in the crown of the New Deal. I agree. For more than fifty
years Social Security has been social insurance done right. Social Security has made sure
that millions of Americans had the money they needed when they retired, when they
became disabled, or when they lost the family breadwinner.
In an era, like today, when many in the middle class feel great anxiety about their
economic futures, Social Security should be a significant force easing their worries.
America's workers today should be looking at the Social Security contributions recorded
(MORE)
RR-26
-2-
on their earnings statements, and should be confident they can rely on the benefits that
Roosevelt promised. America's workers should be reassured by the covenant that the
government has made with them: payroll-based contributions now, in exchange for
benefits in the future.
But there are signs that this covenant has become tattered. I have read that more
young people today believe in unidentified flying objec~s than in the prospect that they
will receive their Social Security benefits. Young Amencan workers today pay nearly 6.2
percent of their wages -- with a matching contribution from employers -- into the system.
For them not to believe or trust that they will receive their benefits is, I think, at the
heart of the doubts Americans have about their government.
We must address this confidence issue. And at the root of the confidence issue is
a public that is confused, semi-informed, and mis-informed about the financial
underpinnings of the Social Security system.
Today the Social Security system brings in more money than it spends. The
balance piles up in the trust fund, invested month by month in "special issue" Treasury
bonds that pay market rates of return. The system is in no way responsible for the
current deficit. Instead, it helps finance the deficit in the rest of the budget. According
to the most recent projections, revenues will continue to exceed outlays until 2013.
Today's trust fund and the projected future course is adequate to pay benefits through
the year 2028.
Since the Greenspan Commission and the 1983 amendments, the "year of trust
fund exhaustion" has slowly crept toward us. But this has much more to do with oneshot technical factors than with any bias in underlying assumptions. We have had to
revise our demographic predictions. We have had to revise our predictions of future
economic growth as the persistence of the productivity slowdown.has become clear. But
when I look at the long-run projections today, I see no reason to believe that trust fund
projections will continue to move in an unfavorable direction. Over the next decade,
changes in economic and demographic projections are as likely to improve as to erode
the long-run balance of the Social Security system.
You might think that a system that is financed for the next thirty years would be
classified by the political system as in good financial shape. I have been in Washington,
working at the Treasury, for only two years. Yet that has been enough to learn that in.
modern American political discourse, "long run means "next month.
D
D
Nevertheless, the Social Security Trustees have made a strong statement that the
long-run actuarial imbalance needs to be addressed. The Trustees' 1994 annual report
asked the Quadrennial Social Security Advisory Council to develop recommendations to
restore balance over the 75-year projection period. The Advisory Council is hard at
work. \Ve look forward to its report.
-3-
We have plenty of time -- more than a generation -- to fix the long-run financing
of the Social Security system. But it is in our interest to restore expected actuarial
balance as soon as possible for two reasons. First, adequate financing for the next 75
years would reassure even skeptical twenty-somethings that benefits will be there for
them.
Second, the sooner the adjustments to restore balance are made, the more modest
are the changes required. Some may have received the impression from the proposals
that were brought before the Entitlements Commission that Social Security required
massive restructuring to pay benefits for the next 75 years. But the proposals brought
before the Commission were unnecessarily far-reaching: an attempt to use savings from
reduced Social Security benefits to provide a tax cut to today's workers. Together these
proposals cut average benefits in the long run by forty percent. But the extremely large
benefit reductions were necessary to restore Social Security balance.
How could we restore long-run balance to Social Security quickly, easily, and
straightforwardly?
The current expected long-run deficit of Social Security is equal to 2.13 percent of
"taxable payroll." If the payroll tax were raised, today, by roughly 1 percentage point
for workers and 1 percentage points for their employers, then we would have restored
75-year actuarial balance: the system would, under our current economic and
demographic assumptions, have enough money to pay 75 years of benefits.
Few, if any, would advocate that the solution be found entirely on the tax side.
But the exercise is useful in providing an estimate of the size of the problem. Over the
past decade a gap has been opened by a series of technical factors. It would be prudent
to take steps to close it. And maybe, in the future, we would then find that changing
economics and demographics had opened a gap -- this time in the opposite direction -which it would be prudent to close by cutting payroll contributions and increasing
benefits.
We should all work to find a bipartisan solution to Social Security financing, once
the Quadrennial Advisory Council comes out with its recommendations. Because it is
simply crazy that people have so little confidence in a system that has served us well for
half a century. We have a moral duty to restore long-term balance -- so that Americans
will no longer be frightened, as they eat their TV dinners, of the voices from their TVs
talking about the Social Security deficit. And so that this generation of working
Americans will know that the Social Security system will be there for them -- just as they
have been there for the Social Security system.
But restoring public confidence in the long-run future of Social Security requires
more than restoring actuarial balance in the Trustees' 75-year projections. It requires
careful attention to make sure that Social Security remains a universal program, in which
-4-
all believe that they have a stake because all draw benefits. The universal nature of
Social Security is its strength. It is the means by which we are alilinked--a steelworker
in Pittsburgh, a doctor in Los Angeles, a computer salesperson in Dallas--linked to one
another, and linked across the generations.
Why is it important that Social Security remain a universal program? Because the
universality of contributions and benefits, and the "earned-right nature of benefits,
together prevent abrupt political disturbances from gutting the program. Explicitly
means-tested programs are much more susceptible to federal and state budget pressures,
and to changes in society's view of the relative worthiness or unworthiness of the
relatively poor.
U
Consider the early 1980s. The Omnibus Budget Reconciliation Act of 1981 -OBRA 81 -- imposed a gross income limit for eligibility for Aid to Families with
Dependent Children, capped the maximum deduction for child care costs, set a standard
deduction for work expenses, and ended the work-incentive disregard for working
recipients. 490,000 families lost their AFDC (Aid for Families with Dependent
Chrildren) benefits as a result of OBRA 81. All this occurred with some, but not a great
deal, of comment and debate.
By contrast, in May 1981 President Reagan began to look to Social Security
benefits as a potential source to offset his proposed 1981 tax cuts. The half-life of the
proposal was measured in days. It is possible to reduce Social Security benefits -consider the Greenspan Commission, and its proposal to raise the retirement age in the
relatively distant future. But it is. politically, not possible to reduce people's I'eamedu
Social Security benefits in order to fund some alternative short-run politically-desirable
step.
Thus a universal program has a great advantage: relative immunity from shortrun political turmoil. It is impossible to run a social insurance program without such
immunity: a social insurance program is a covenant extending across generations, and
thus must be protected from the political fads and fashions of the moment. If not
protected it will disappear -- either because it will be swept away as a result of a partisan
shift, or because this generation'S taxpayers will recognize the possibility of its
disappearance in some future partisan shift, and so withdraw their support from the
program today.
It is impossible to have true social insurance, a true covenant across generations,
without some degree of political immunity. And it is impossible to have any significant
degree of political immunity without universality.
President Clinton spoke last night of the "covenant of rights and responsibilities"
between government and the American people. No other piece of that covenant is more
representative than Social Security. It is a program of shared responsibilities and shared
-5-
rights. There is no free lunch. No government hand-out. We all share the responsibility
of contributing to the Social Security system. This contribution then preserves the right
to draw on the system when we retire.
By its universal nature, all Americans can share in its promise.
The National Academy of Social Insurance is the right place with the right people
to discuss all the important issues about the future role of Social Security. So let's get to
work.
Thank you.
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DEPARTMENT OF THE TREASURY
WASHINGTON
1125/95
The Multilateral Support Effort
Question: The United States proposal will benefit both American and foreign investors as
well as exporters from many nations who do business with Mexico. What are other nations
and International Financial Institutions doing to assist Mexico?
Answer: We are in the process of assembling an unprecedented multilateral support effort
for Mexico.
o
The International Monetary Fund is arranging a sizeable credit in support of a
Mexico program.
o
The World Bank and Inter-American Development Bank have also sent teams
to Mexico to discuss accelerated disbursement of existing loans, as well as new
lending.
o
Canada is already providing $1.5 billion Canadian (approx. U.S. $1 billion) in
swap lines, which will allow Mexico to borrow Canadian dollars to bolster the
peso.
o
Other nations' central banks have committed $5 billion in support for Mexico
through the Bank for International Settlements (BIS).
o
We are in the process of encouraging these nations to increase their support,
while encouraging new nations to participate.
Mexico's needs are immediate, and the United States must take the lead. We have by far the
greatest stake in Mexico's economic health. No alternative sources exist which can mobilize
such substantial resources as quickly as is necessary.
o
Americans are far and away the largest holders of Mexico's external
obligations, and are by far the largest group of foreign investors in Mexico.
Mexican authorities estimate that U.S. residents hold about 90 percent of
foreign-held Tesobonos, worth about $16 billion. More precise information on
who specifically holds these instruments is not available.
o
Mexico's export market is far more important to the United States than it is to
Europe or Japan.
Mexico imported $24.5 billion of U.S. exports in the first half
of 1994, about five times the amount Mexico bought from Japan
and the European Union combined.
RR-27
DEPARTMENT OF THE TREASURY
WASHINGTON
Mexico's Economy and Its Ability to Repay
Question:
guarantee?
How can we be so sure that Mexico will be able to repay the borrowing we
Answer: Mexico's chief problem is a liquidity crisis; its economic fundamentals are sound.
Future prospects look favorable due to three factors: economic reforms adopted by Mexico
over the past few years; Mexico's relatively moderate debt burden; and the disciplined
economic policies on which the financial guarantee program will be conditioned.
Past Mexican Reforms: Mexico has transformed its economy over the past 6-7 years.
o
The bulk of state enterprises including banks, telecommunications firms, and
large industrial groups have been transferred to the private sector.
o
Tariffs have been slashed back enormously, to zero on more than half of U.S.
exports, with commitments for further cuts.
o
Quantitative restrictions and restrictions on foreign investrrie~t have been
scaled way back; Canadian and United States investors now receive extra
protection under NAFf A.
o
Most importantly, Mexico's government pursued a balanced budget from 1990
to 1993, and was projected to retain a balanced budget for 1994.
Mexico's Debt Burden: Mexico's debt burden is much lighter than it was in 1982 and is
relatively moderate in comparison to other developing countries'.
o
Mexico's external debt to exports ratio fell from 312 % to just under 219 %
from 1982 to November, 1994. The World Bank threshold for heavy
f
indebtedness is 275 %.
o
Mexico's debt service to exports ratio fell from 57% percent in 1982 to 25 %
in November, 1994. The World Bank threshold for heavy indebtedness is
30%.
Conditions for U.S. Support: Our provision of financial guarantees will be strictly
conditioned on Mexico's adopting a rigorous economic and financial program designed to
restore Mexico's economic health, and ensure that private investment returns.
DEPARTMENT OF THE TREASURY
WASHINGTON
America's Slake
Question: What is our stake in Mexico's economic situation? What effects would a
protracted Mexican crisis have in the United States?
Answer: The U.S. and Mexican economies are tightly linked. A major Mexican crisis
would have severe consequences in our country including job losses, harm to our exports,
and a sharp rise in illegal immigration.
o
Mexico is the third largest destination for our exports, buying some $40 billion
worth of U.S. goods. Nearly 770,000 Americans are employed producing and
distributing products destined for Mexico. A protracted crisis would harm
Mexican demand for those products.
Mexico imported $24.5 billion of U.S. exports in the first half
of 1994, about five times the amount Mexico bought from Japan
and the European Union combined.
.
.
U.S. exports to Mexico grew nearly 184 percent from 1987 to
1993, thanks to Mexico's economic reform program and strong
ecoI)omic performance.
.
,
o
A protracted Mexican crisis could lead to a sharp rise in illegal immigration of
30 percent or more. An additional half-million Mexicans could try to enter the
United States illegally this year.
o
A Mexican crisis could create turbulence in other emerging markets -- the fastest
growing customers for U.S. exports. Recession in these countries would slow
demand for our goods and services, causing us to lose as much as 1 percentage point
of real GDP by the end of 1996.
o
Americans are far and away the largest holders of Mexico's financial
obligations, and by far the largest group of foreign investors in Mexico.
Mexican authorities estimate that U.S. residents hold about 90 percent
of foreign held Tesobonos, worth about $16 billion.
Moreover, Americans are thought to be the largest foreign
holders of Mexican debt. If Mexico defaults, millions of
working Americans who have interests in mutual funds and
other investments with Mexican and other emerging market
holdings could see their savings harmed.
DEPARTMENT OF THE TREASURY
WASHINGTON
Minimizing Potential Risks to United States Taxpayers
Question: What are the risks to United States taxpayers? How will Mexico cover its
obligations to the United States in the event that Mexico defaults on obligations we have
g uaran teed?
Answer: Mexico will provide the United States with a full faith and credit commitment to
repay any and all Mexican obligations owed to the United States. In over 50 years, Mexico
has never failed to repay any financial obligation owed to our country.
o
Mexico will pay substantial fees up front to cover the expected risk of default,
based on a method agreed upon by the Office of Management and Budget and
the Congressional Budget Office. Moreover, Mexico will pay additional fees
up front. These will more than eliminate any cost of the program to the
current U. S. budget.
o
As part of the program, Mexico will adopt a comprehensive set of economic and
financial policies. These .will place Mexico back on the path to economic progress,
- .
and help ensure Mexico's 'ability to repay any borrowing we guarantee.
.on
We believe there is little chanGe of Mexico's defaulting
any obligations, given the
country's sound economic fundamentals and the conditions we are-imposing .. Nonetheless,
Mexico and the United States have agreed to create a facility through which any Mexican
obligations to the United States arising from the guarantees can be backed by Mexican oil
proceeds.
o
Proceeds from Mexican oil exports will be deposited initially into a designated
commercial bank account in New York of Pemex, the Mexican state oil
company. These deposits will begin on the first day that U. S. guarantees
could be called (the date of the first payment on the first eligible Mexican
security).
...
o
The Federal Reserve Bank of New York (FRBNY) will notify the commercial bank if
the required payment by Mexico has been made.
o
If the payment has not been made, the commercial bank will transfer the funds to a
Mexican account at the commercial bank, and then to a Mexican account at the
FRBNY. There they will be subject to a set-off for any obligations incurred by
Mexico to the United States as a result of the guarantees.
o
Current plans are for the facility to cover some $6.5 billion a year earned by Mexico
from crude oil exports. We are examining the possibility of including about $1
billion earned yearly by Mexico from oil products exports.
Similar facilities have worked well in the past to back Mexican obligations to the
United States.
DEPARTMENT OF THE TREASURY
WASHINGTON
Conditions for United States Support
Question: What economic and other policies is the United States insisting that Mexico adopt
as a condition of our providing financial guarantees? How can we be certain that any
conditions will be fulfilled?
Answer: Our provision of financial guarantees will be conditioned on Mexico's adopting a
rigorous economic and financial program designed to restore Mexico's economic health, and
ensure that private investment returns. The financial guarantee legislation will require the
President to determine that Mexico is meeting various conditions before any guarantees are
issued. The guarantees are issued in stages, so the President will have to determine Mexican
compliance at each stage, before new guarantees are issued.
The program Mexico follows will incorporate both macroeconomic and microeconomic
conditions.
o
Macroeconomic conditions will be designed to contain the inflationary effects
of-the peso's depreciation and restore the economy to susta,inable growth.
financial markets; containment of
Specifically, they will entail stabilization
domestic price pressures; reduction in the current account deficit to a
sustainable lev~l; and restorati.,on of investor Gonfidence ..
of
o
To these ends, Mexico will impose strict limits on growth of central bank
credits as well as credits from development banks; pursue a more disciplined
fiscal policy; limit government borrowing; and adopt wage policies that cap
inflation while granting workers the benefits of productivity growth.
o
On the microeconomic side, Mexico will adopt structural and supply-side
measures to improve the country's productive capacity.
o
Measures will include deregulation and structural reform of-:>
telecommunications, transportation, and finance; privatization of more statedominated sectors including railroads, communications, and electricity;
liberalization of restrictions on foreign participation in the financial system;
continued trade liberalization; lifting of restrictions on direct investment; and
commitments to impose no restrictions on capital account transactions.
o
The Mexican government will provide appropriate data to allow us to monitor
Mexican economic policies and compliance with our conditions. Quarterly
reports on Mexican performance will be sent to Congress.
DEPARTMENT OF THE TREASURY
WASHINGTON
Beneficiaries of U.S. Guarantees
Question: Who will benefit from our financial guarantees. Won't the prime beneficiaries be
banks and Wall Street investors who have Mexican holdings? Will we also be assisting
wealthy Mexicans who hold Mexican debt?
Answer: The goal of our support package is to protect our economic interests in a nation
which has become our third largest export market. Mexico bought more than $40 billion
worth of our products in 1993, and nearly 770,000 U.S. jobs depend directly on exports to
Mexico. The working Americans who hold these jobs will be the major beneficiaries of a
program that will keep our Mexican export market stable, and prevent a protracted crisis.
Americans are also the largest foreign investors in Mexican debt and equities.
o
Mexican officials estimate that 90 percent of foreign-held Tesobonos, worth about
$16 billion, are held by Americans.
o
U.S. residents hold $18 pillion worth of Mexican bonds, as well as direct inyestments,
with a market value that may be as much as $53 billion.
o
In addition, 12 r,nillion Americans hold shares in the $200 Nllion of U.S.
mutual funds that invest primarily in foreign securities, including those in
Mexico.
o
All told, Americans' Mexican debt and equity holdings amount to more than double
the claims held by U.S. banks alone.
o
American investors in most Mexican stocks and bonds have already suffered
very substantial losses on the order of 40 percent in the last month. It is very
unlikel y that these losses will be recouped in the context of a stabilization
program.
THE WHITE HOUSE
Office of the Press Secretary
For Immediate Release
January 24, 1995
BACKGROUND BRIEFING
BY
SENIOR ADMINISTRATION OFFICIALS
The Briefing Room
2:14 P.M. EST
SENIOR ADMINISTRATION OFFICIAL: Good afternoon. We
were reminded on Sunday, with the appalling bombing at Beit Lid in
Israel, which took 19 lives, of a whole series of terrorist attacks
aimed directly at undermining the Middle East peace process. And the
new executive order and the accompanying package of strengthened
counterterrorism legislation are designed not only to strengthen our
overall arsenal of legal tools to fight terrorism, but to strengthen
our efforts to reduce this threat to the peace process.
We have been aware for some time that the terrorist
organizations which are working to destroy the peace process thrive
on funds from overseas. The majority of these funds we think come
from fore~gn sources, but we have reason to believe that some funding
has also come from donors in the United States.
On October 24th, at his speech at Georgetown University
on the peace process, Secretary Christopher mentioned our concern
about this and said that we are looking at a number of options to
address both the funding threat and to strengthen our
counterterrorism activities in other ways. And this executive order
and the package of laws are a result of that.
These are only part of a much larger effort that the
administration has been making to counter terrorism around the world.
The executive order will also support the efforts which we have been
making now for a long time to encourage similar efforts by foreign
governments to prevent funding from their countries to these
terrorist organizations. By blocking transfers to these terrorist
groups and individuals and by freezing eccounts, while we are not
certain about the volume of funds that we will seize or stop, we know
that we are sending a very powerful message to potential donors by
criminalizing this activity.
The executive order, as you know, designates 12
terrorist organizations. We have a very large body of public and
intelligence information which documents terrorist acts by these
organizations going way back. And it also designates 18 individuals
who are associated with these groups. The process provides an
opportunity to designate additional groups and additional individuals
as we work our way through this.
I'd like to ask my colleag·..l~ from Treasury to talk about
some of the operational aspects of the executive order.
SENIOR ADMINISTRATION OFFICIAL: Treasury Department's
Office of Foreign Assets Control is the agency that is actually
responsible for carrying out the blocking of the assets specifically.
And at 12:01 a.m. this morning, notice went out to about 5,000
financial instit~tions ~hroughout the united States listing these
organizat~o~s that you have in your package here, and the individuals
r,.)':7,ed, as well as pseudonyms of the organizations or other names
that, through working with State and Justice, Treasury's identified
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that these organizations operate under, and freezing or blocking any
assets or movement through those U.S. financial institutions and
channels.
We ~ill.not know for a number of days, and anticipating
an obvious quest~on ~s, how much has been blocked, we will not know
that for a period of time, for a number of days while the
institutions respond back to the Treasury Department Office of
Foreign Assets Control.
The intent here is obvious, as my colleague just stated,
is to essentially another "arrow in the quiver," if you will, to deny
on two fronts, both access to legitimate U.S. financial institutions
for these organizations to move, launder or transmit their financial
assets to support terrorist activities and, two, to also deny them
access to diverting funds that were donated for charitable purposes,
or people believing that they were going for charitable reasons in
the tradition of widows' and orphans' funds, or other mechanisms like
that that we're aware of, but that are actually being diverted and
subverted for terrorist purposes and used by these terrorist
organizations to fund their operations.
So this will essentially seier that lifeline that keeps
those organizations going, we hope, and will help to deter their
backing in the future. I think we'll, in the interest of your time,
I'll save -- you'll probably have more detailed questions, but let me
turn this over now to my colleague from the Department of Justice to
talk about the legislation.
SENIOR ADMINISTRATION OFFICIAL: Thank you. Good
afternoon. The legislation that has been drafted is designed to
strengthen our ability not only to deter terrorist acts, but to also
punish those who engage in such terrorism. It is a comprehensive
bill that we have compiled. It is still being worked on. We will be
working closely with the Hill to perfect it, and it has multiple
provisions, but I'd like to highlight, at this point, essentially
five broad areas, many of which are designed to ensure, among other
things, that this country is not used as a base of operations for
terrorist acts abroad.
To begin with, it creates a new federal statute which
would provide clear federal jurisdiction for any international
terrorist act committed in the united S~ates. As many of you know,
this has been a particularly critical point, especially in light of
various events in the Uni~ed states and highlighted the question of
the existing scope of federal jurisdic~ion.
We also have provisions in the draft criminalizing
in the United States to eng~ge in terrorist acts
committed outslde the Unlted States. This is an extension of the
Material support Act and is critical, I think, for ensuring that the
united States is not, as I said, used as a launching pad for
terrorist attacks anywhere in the world.
consp~racies
Another provision which we think is critical is to
expedited deportation proceedings for aliens who engage in
terrorlst actlvitles and to expedite their removal from the United
States.
prov~de
The fourth provides a comprehensive mechanism for
preventing fundraisi~g in the.U~ited states in support of
international terror 1st activ~t~es overseas.
And the fifth is designed to facilitate the
investigation of matters in~olving explo~ives, and im~lements
recently concluded internat10nal conve~t1on.for e~sur~ng tha~
explosives contain "taggets," if you w1ll, 1nsert~on of chem~cal
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3 -
agents into plastic explosives, which will make them more detectible
and facilitate investigation.
As I said, there are other provisions of the bill, which
are critical. They're more of a technical nature, and would, in
fact, greatly facilitate investigation, prosecution and enhance the
range of the sanctions that can be applied.
At this point, we'd be glad to take questions.
Q
I have no understanding at all of how you are going
to implement this. I mean, there are perfectly innocent people ~n
mosques all through the U.S. who are contributing to what they think
are charitable -- and most of the money does go to charity. Now, I
mean, they don't write checks to Jebril or to Abbas or to Hamas or to
Hezbollah. So, frankly, you listed a lot of names, and it makes
great headlines, but I don't understand the mechanics -- how somehow
-- I would only be repeating myself -- how you can possibly intercept
money where the checks are not made out to the Party of God.
SENIOR ADMINISTRATION OFFICIAL: The initial focus and
the initial targets -- if we could look at this in two phases, for
example, the initial targets are not going to be going after Mr. and
Mrs. smith donating to their local mosqua for charitable purposes.
It is going to be seeking to sever the tie from the financial
institution in New York. Let's assume, for a second, that the
charitable institution that they had donated to in South Texas was
diverting funds to a terrorist organization.
Q
How do you know
The money goes into an account at
all right, it doesn't say for the
of course, they're okay now -- it
are you going to get at that?
-- let's stop right there, please.
the federal bank of Dallas, Texas,
PLO -- it used to say for the PLO;
doesn't say Abu Abbas. Now, how
SENIOR ADMINISTRATION OFFICIAL: When it is transferred,
the first focus of target of attack is going to be phase one. We're
going to be seeking to intercept the funds from the Dallas -- let's
say the Dallas independent savings and loan or financial institution
to seek -- before they would transfer it overseas to an organization
that we know through the listing that you have on the list here and
other organizations or pseudonyms or persons that we'll sever. In
other words, the first target of attack -- our primary focus is to
obviously stop funds from leaving the country. So, if you will, the
first phase of our focus is there.
A second
Q
Why would you think that they would transfer it to
Abu Abbas instead of some phony other
SENIOR ADMINISTRATION OFFICIAL:
It's happened --
Q
Dallas is a good example, but how would you know
that they're transferring it to Abu Abbas?
SENIOR ADMINISTRATION OFFICIAL: All I can tell you is
that it is being transferred and that this will stop i~, and tha~ we
will be able to successfully interdict lt and prevent lt from be~ng
transferred.
money to
t~e
Q
You have evidence that they are openly transferring
groups on your list?
SPi::JR l~.uMINISTRATION OFFICIAL:
Their is belief that
funds ~~c ~eavlng the country in support of terrorist organizations,
a~~ thlS will stop and interdict them.
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Q
We all know that. But how, mechanically -- we
still don't know how you're going to get it. It's pretty well
documented that some money is being collected here for terrorist
organizations. But people -- even the bank doesn't transfer the
funds to the Party of God; how are you going to get it then?
SENIOR ADMINISTRATION OFFICIAL: Well, they're
transferring it to someone, and it's the someone -- and it's stopping
-- and there are ways of identifying working with the Department of
State and the Department of Justice of organizations that we know
they're being transferred to that are becoming and being made
available to terrorist organizations; we will be able to stop and
interdict those funds.
Q
Can you give us any example of some trace that you
have done that actually shows money moving out of the country to one
of these organizations?
SENIOR ADMINISTRATION OFFICIAL: Absolutely. The Office
of Foreign Assets Control has since World War II -- I mean, this
office was created to essentially stop funds from going to the Nazi
organization in World War II. I mean, since then it's been used
as recently, it's been used to stop diversion of funds for Haiti and
property in Haiti. It's been used in Li~ya, during the Libyan
activities to stop and divert transfer of funds of any of Libyan
assets or of organizations of Libya and others -Q
Are we talking about terrorist organizations that
operate in a highly secretive manner and are completely unlikely to
have bank accounts in their names. There were lots of individuals in
Haiti who thought that they were perfectly free to operate by
themselves. These are terrorist organizations. You're telling us
that they have banks in Switzerland or other countries where the name
on the account is Abu Abbas or Hamas?
SENIOR ADMINISTRATION OFFICIAL: They are organizations
and individuals that, if they are using financial institutions, this
will shut that down. They will not
one, it will sever what is
occurring; and two, it will prevent it from occurring in the future.
And you were going to give me an example of how
Is there someplace where you have done that?
Q
that works?
SENIOR ADMINISTRATION OFFICIAL: In terms of today, I
mean, the activity as of 12:01 a.m. this morning, it will block -any of the assets of any of the organizations or names or associated
agencies that we have to those individuals are stopped.
Q
Assuming that they exist.
Q
With all due respect, you're not sounding
convincing. If an organization in the united States or individual
sent a check to the Widows and Orphans Fund of Beirut, are you going
to stop that? Are you going to say, look --
SENIOR ADMINISTRATION OFFICIAL: If there is evidence
following your example -- if the~e is evidence that the Wi~ows and
Orphan of Beirut is a name that 1S a front that we ,have , eV1dence,
working with the Department of Just1ce and st~te, ,lS beln9 u~e~ as a
mechanism to fund funds to any of these organlzat1ons or 1nd~vld~als
that you have listed here, yes, it will stop that check and lt wlll
stop those funds from leaving the country.
Q
By that time, the conventional mind will say that
organization has disappeared, they got the money and they're gone.
Now we have a new organization. We have the "Orphans and Sons of
Veterans" who are getting the funds. "When was it org~nized?" "Oh,
it's been organized a long time ago." Fhat are you gOlng to do about
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that? What are you going to do about it when it goes to, say,
Damascus?
SENIOR ADMINISTRATION OFFICIAL: You get to the point of
phase three. They might be able to tell Mr. and Mrs. Smith in
Dallas, for example -- our example -- that it was organized for a
long time, but they're not going to be able to tell the New York
institution who's assets were -- that they're moving the funds
through that they've been organized for a long time.
So that that's
why I say our first focus is here.
The second focus is, we'll be working with Justice and
State -- because we want to deter and dry up these funds, we'll be
making available, we'll be making available the organizations and
charitable institutions as we progress here that we are aware of
moving the funds -- in other words, illegitimate charitable
institutions that are moving funds to terrorist organizations
and
we will be educating the public so that they do not seek to make
donations to those organizations, but instead to organizations that
we're convinced do not divert their funds for terrorist purposes, and
are truly charitable.
SENIOR ADMINISTRATION OFFICIAL:
Can I just add one
thing? If you're looking for representations that this is a
foolproof method for drying up any possiole capability of diverting
funds to these terrorist organizations, my answer would be, no, it is
not foolproof.
Obviously, it is capable of being circumvented
through a variety of stratagems, if you will.
Nevertheless, from an
enforcement point of view, this has efficacy as just one of several
methods that can be used for addressing the problem of having the
united States be a funding source for these terrorist organizations.
The legislation we propose will contain other devices,
if you will, to facilitate the investigations.
Q
Like wire-tapping?
SENIOR ADMINISTRATION O:FICIAL:
will be certain provisions.
Q
A variety, yes.
There
Isn't that against the Constitution?
SENIOR ADMINISTRATION OF:ICIAL:
Oh, no, of course not.
I mean, appreciate that we have a variety of existing, statutorily
approved mechanlsms.
We are trying to, consistent with
constitutional requirements, be able to afford ourselves the widest
range of enforcement opportunities: No~, that is not.bei~g designed
to, in any way, circumvent or deprlve people of constltutlonal
protections.
But o~ the other ha~d, to the ext 7nt that wire-tap
authority would facliltate lnvestlgatlons ln thlS area, yes, we would
like authority.
But I'm saying that this is just one opportunity, if
you will, for dealing with the problem of fundraising.
Q
What are the other factors in the blocking of
terrorism besides this flow of funds? By the way, there is a
contention by a knowledgeable investigative reporter that says that
about 50 percent of the money flowing to terrorists comes to the
united States.
Do you contradict that?
SENIOR ADMINISTRATION OFFICIAL:
Let me address that and
talk about some of the other things that we're using to fight
terrorism.
We have elaborate exchanges with foreign governments
through la~ enforcement chann 7ls and intelligen~e channels. We share
information round the clock wlth scores of forelgn government
institutions.
~~?~ ~ooperation in law enforcement and int 7lligence
is really _.. C i~feblood of our internatio~al counterterr~rlsm.
strategy, and we invest a great deal of tlme and effort ln thlS.
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-
6 -
We also have a major training program for training law
enforcement officials of foreign governments in counterterrorism
techniques. We spend about $15 million a year in that. We have a
large research and development program for developing
counterterrorism technology, such things as the detection of plastics
explosives are a product of that program. We have an immense effort
to improve aviation security, designed to reduce the terrorist
threat. And we have a very, very active diplomatic strategy to try
to press other governments to enforce their laws and to use law
enforcement as a weapon in counterterrorism.
Q
If we could just come back to today's announcement,
though. You said that you can't promise that this is foolproof. But
I think what we're trying to get at is is this any more than a public
relations exercise? It would be as if you stood up here and said,
guess what, we're going to go after anybody who forwards checks made
out to the Cali Cartel, you know. I mean, how useful is this? How
much evidence do you have that people are actually forwarding money
for terrorism under these particular names of these organizations
you've listed?
SENIOR ADMINISTRATION OFFICIAL: I would suggest that
it's not necessarily just a question of this list, if you will. This
list can be augmented. This list can b~ expanded as the evidentiary
base warrants it, as our enforcement evaluation suggests that we
should put additional names on this list. This is an ongoing
process, but it is, again, just an additional mechanism for
addressing the problem. It is not the exclusive one, nor, as I've
innicated, do I anticipate that it's going to be a foolproof one.
Q
It should be useful in any -- I mean, do you have
evidence that there has been money leaving this country going into
bank accounts for Black september, listed that way or any of the
other aliases that you have for Black September? Anything? I'm not
saying foolproof, anything.
SENIOR ADMINISTRATION OFFICIAL: Yes, I think there is
substantial -- substantial information indicating that the movement
taken today by the President will address a significant aspect of the
terrorism problem. It is not merely a question of symbolism, it is a
question of good enforcement policy so that the action taken, while
it certainly is not going to eliminate the problem, is, in fact, from
my enforcement experience, going to help.
Q
Three quick legal q'-..<estions
Q
Is it not already
~llegal
to donate money to these
organizations?
SENIOR
ADMINISTRATIO~i
CFFICIAL:
Illegal, per se?
Q
For me to give to Abu Abbas, was it not already
illegal for me to do that?
SENIOR ADMINISTRATION OFFICIAL: You have, for example,
Just passed in the last Congress the Material Support Act. But it
has very significant limitations With respect to the scope. So, for
example, you could not, in the context of that particular legislation
contribute, as you suggest, assuming, though, that that act, that the
contribution is to support terrorist acts overseas in which the U.S.
would have federal jurisdiction which is a very limited range of
terrorist acts.
Q
So what changes here, the burden of proof?
SENIOR ADMINISTRATION OFFICIAL:
the legislation?
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Which, under our -- or
- 7 -
Q
Under your new initiative?
SENIOR ADMINISTRATION OFFICIAL: Under new legislation,
we are, among other things, criminalizing the conspiracy in the
United States to commit terrorism acts abroad. Our fundraising
provision, of course, is also much broader than existing law.
SENIOR ADMINISTRATION OFFICIAL: Let me build on that.
In terms of financial institutions, in terms of what's different, we
could not have stopped the transfer from the New York bank -- let's
say you had written the check to the New York bank -- from the New
York bank to whoever you were sending, whatever named organization
you would like. The executive order the President's taken today
allows him under the international -Q
Why could you not have stopped the transfer?
SENIOR ADMINISTRATION OFFICIAL:
there was not legal authority to do it.
We did not have the
Q
I'll try to keep it short.
the judge's prior approval?
Wire-tapping still with
SENIOR ADMINISTRATION OFFICIAL:
Yes.
Q
Okay, you can eliminate hearings now, the right of
somebody to have a hearing before he's deported, are you going to try
to shortcut that? And, third, what about the right to associate so
far as going to a mosque and contributing to a -- you're really
touching on constitutional rights, and you know it as well as I do.
SENIOR ADMINISTRATION OFFICIAL: Let me take issue with
your characterization. No, we're not touching -- obviously, the
legislation in this area has to be drafted with tremendous
sensitivity to those issues, and I think we have. We have, in fact,
brought to bear great concerns about civil liberties of Americans and
non-Americans in this country, and what we have designed, I would
suggest to you, you will see is consistent with those constitutional
limitations.
But on the other hand, as t~e court has repeatedly said,
Constitution is not a suicide pact. :t does permit us to move
aggressively in this area consistent with the Constitution to be able
to protect ourselves and our vital national security.
Now, with respect to this wlre-tapping, all we're
suggesting, among other things, is to take existing authority, which
now has an articulation of a whole range of offenses, that permits
legal wiretapping, and add terrorism to it. Okay?
As far as deportations -- deportations, what we want in
connection with terrorism is a methodology consistent with
constitutional limitations to enable us to expedite the deportation
process, utilizing federal district courts and federal district
judges and to have a mechanism -- have a mechanlsm so that to the
extent that we have to rely on classified information
Q
Closed courts, closed hearings?
SEIEOR ADMINISTRATION OFf:::CIAL: No, no. Public
hearings, procedu"es consistent with the same pr~cedures utilize din
criminal cases tc ensure t~e pr~~ectlon of classlfied information,
con6isten~ ~:=h ::~st.tutional limitations.
That is what we are
prOpO$lrc:.
Q
I'd like to ask about legislation -- for a moment.
You mentioned the legislation that you've got coming up. Two basic
questions -- one, have you had any discussions with the Republican
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- 8 -
leadership on it, and what sort of response have you gotten from
them, if anything? Two, are you liable to have any sort of
difficulties in moving the legislation through because of the
inclusion of two right-wing Jewish groups on the list of
organizations?
SENIOR ADMINISTRATION OFFICIAL: Let me -- maybe others
here are far more qualified to respond to that question -- but let me
just say from working in this area for many years, my experience is
this is a bipartisan area. This is an area where my experience,
everybody's concern, everybody wants to move in this area consistent
with constitutional limitations. But they want to ensure that we are
taking, at the Justice Department, an aggressive stance, which we
are, that we have a full panoply of legal weapons to go after these
problems. And so, from my perspective, I would hope, and I have no
reason to doubt, that we will have a good bipartisan response.
Q
Is the CIA obligated under this Executive Order to
help you and State and the rest with regard to intelligence on these
various groups that might be funneling money to eventual terrorists?
SENIOR ADMINISTRATION OFFICIAL: The CIA and other
American intelligence agencies are a fUll partner in this process,
and their work overseas and the work of the FBI here at home is
essential to make this work. And they'r8 anxious to help, and they
are helping.
Q
There's a broad paragraph in the order that talks
about other federal agencies without naming them, and that's why I
asked the question, whether that is the paragraph that brings the CIA
into the picture.
Q
know.
days.
Have you stopped any :und transfer since midnight?
SENIOR ADMINISTRATION OFF:C:AL: Like I say, we will not
I do not know as of right now. \-;e won't know for a number of
Q
Isn't that something you're following?
wouldn't you be concerned?
I mean,
Q
Is it fair also to desc~ibe this as a freezing of
assets in addition to blocking trans:ers?
SENIOR ADMINISTRATION OFF:;:C::AI.:
Absolutely.
As I said in the beginning, we won't know for a number
of days yet until we hear back from the :inancial institutions. They
are directed, as of 12:01 a.m. tonight, any of the activities that we
discussed or assets that we've discussed or transactions that we've
discussed are hereby blocked. :n otner words, it is a seizure. It
is very similar -- this is identical authority to what you have seen
in terms of the economic sanction prograr',s that have been used that
most of you would be familiar with.
Q
I have another technical question if I may.
This
is your list, is that right? Because there was nothing written at
the top of this. This is the Official --
SENIOR ADMINISTRATION OFFICIAL:
put out by Treasury.
That's been actually
Q
Right. Okay, because I was surprised when I read
the annex although I know there are lots -- I'm not a Middle East
expert --'I know there are lots of different names for thes~ groups
__ not to see Islamic Jihad listed on the annex. Are they ~ncluded
under Hezbollah on this annex?
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- 9 -
SENIOR ADMINISTRATION OFFICIAL:
The Islamic Jihad, the
Palestinian Islamic Jihad, which is listed as one of the 12, is a
distinct organization.
Hezbollah is a d~fferent organization.
They're both listed.
Q
There is something here that just says Jihad, but
it doesn't say Islamic Jihad, and I thought that might be the Jihad
group.
SENIOR ADMINISTRATION OFFICIAL:
are listed, but they're distinct groups.
The two organizations
Q
What if somebody is caught in this and claims to be
innocent, that they're involved in truly humanitarian efforts? Do
they have to sue the federal government to get access to their funds?
SENIOR ADMINISTRATION OFFICIAL:
No, there are appeal
procedures -- this has happened obviously much before -- we have a
lot of experience in this program.
We have appeal procedures, people
would apply to the Treasury Department Office of Foreign Assets
Control, and there are appeal mechanisms in place.
There are
obviously always judicial avenues, but tnere are nonjudicial avenues
as well -- administrative avenues to work this out.
Q
The same as in the Haiti assets freezing?
SENIOR ADMINISTRATION OFFICIAL:
very similar to other activities.
Yes, very similar, and
Q
Is there not a breakdown in consular work to let
these people to get visas to get here in the first place?
SENIOR ADMINISTRATION OFFICIAL:
There have been some
problems in the past, and with the help of the Congress and some new
funding, we've done a lot in the last eig~t months to tighten our
visa issuance in border controls.
And I think we're doing a much
better job on that.
Q
a charge was made lately that the State
Department allowed the CIA to conduct the visa control, and that they
let some of the terrorists in that way -- connected with the CIA for
terrorist purposes that the CIA might want done.
Can you answer
that?
SEtHOR ADllIllIS:RATION OFFIC:::AL:
The Department of State
is responsible for conducting our consular activities overseas, not
the CIA.
And we conducted and we take responsibility for it.
THE PRESS:
Thank you.
END
2: 44 P.M.
EST
DEPARTMENT
OF
TREASURY
NEW
S
__ _______
TREASURY
~
____
~~~~
THE
"~/7~~
~
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202)622-2960
Text as prepared
Embargoed until delivery
Expected at 1 p.rn.
January 26, 1995
STATEMENT OF THE HONORABLE ROBERT E. RUBIN
SECRETARY OF THE TREASURY
BEFORE THE FOREIGN RELATIONS CO:MMITTEE
UNITED STATES SENATE
January 26, 1995
Mr. Chairman and Members of the Committee, I appreciate the opportunity to
appear before you today.
We have been engaged in a cooperative process these past few days. The President
called for a bipartisan effort to respond to Mexico's financial problems, and the leadership
of Congress, Republican and Democrat, responded. Our shared goal is to protect U.S.
interests by helping our neighbors in Mexico. We all know that the stakes are high in
avoiding a potential financial crisis that could spread to other emerging markets.
Mexico has experienced a loss of confidence, but the damage is not yet irreversible.
It is critical that we prevent the current situation from deepening into a crisis with lasting
implications for U.S. jobs, Mexican economic viability, and the financial prospects of all
emerging markets.
Today I want to discuss with you what the U.S. has at stake, what we can do, and
how our proposal will stabilize markets and protect our interests. Finally, I want to respond
to some concerns about the proposed guarantee program.
What Is the U.S. Stake?
The crisis precipitated by events in Mexico demands our attention because what
happens in Mexico has profound implications for the United States - not just for economic
theorists but for working Americans.
Mexico is an important and growing market for U.S. goods and services. We sell
almost 3 times more goods there now than we did in 1987. Mexico has become our third
largest export destination. Nearly 700,000 U.S. jobs depend directly on sales to Mexico.
RR-28
~
2
Border states are especially heavily dependent on trade wi~ !dexico: California sells ~5
billion of goods there yearly. But even Michigan sells $6 billion, nearly 20 percent of Its
export sales. And export-producing jobs are high paying jobs.
These numbers make clear that failing our neighbor would mean failing ourselves and giving up a bright future because, ultimately, more trade at a sustainable exchange rate
will fuel both Mexican and U.S. economic growth.
The risks are not only economic. A protracted crisis could send immigrants north
and create social problems along our borders. illegal immigration could increase by as
much as 30 percent, at no small cost to taxpayers in border states and nationally. A strong
and growing Mexico, on the other hand, provides jobs for Mexicans at home.
And the risks are not only in Mexico. Restoring confidence in Mexico will head off
the spread of financial distress around the world. The fastest-growing customers for U.S.
products are the most likely to feel the financial spillover from problems in Mexico. U.S.
manufactured exports to developing countries expanded by 65 percent between 1989 and
1993; more than two-fifths of our overall exports are now destined for these countries.
These are countries with great potential, countries where U.S. investors have large stakes.
Mexico has been, in several ways, a prototype for countries that are striving to put
inward-looking, state-controlled models of economic development behind them. A new
prosperity based on open markets, a welcome-mat for investment, and privatization· is
beginning to emerge. But Mexico's financial crisis shows that these emerging economies are
still vulnerable to financial shocks. Helping Mexico through its current difficulties can keep
alive the promise of market-oriented reform - the key to growth and stability over the
.
longer term for all of us.
What Can We Do and What Will It Cost?
The current situation in Mexico arises from a loss of confidence - and its fallout
There is a prospect of a vicious circle, as this loss of confidence chokes off Mexico's access
to funds and creates financial and economic distress, perpetuating investor unwillingness to
invest in Mexico. H confidence is restored, a virtuous circle of foreign capital inflows, strong
investment, and economic growth can be started.
Turning the situation around requires a mechanism to jumpstart confidence. The
A~mjnistra~on and Congressional leadership have agreed that we can and should provide
this mechamsm. We have agreed to do this because it is the right thing for the United
States and because the fundamentals of the Mexican economy are strong.
We p:opose to offer our backing to help Mexico access private resources while it
restructures Its econom~. We would provide guarantees for up to $40 billion in new private
sector loans to the MeXIcan government The funds raised would allow Mexico to reduce its
sbo~-te~ obligations, n?t take on more total debt In exchange for these guarantees,
MeXICO will pay a COmmItment fee for the availability of the guarantees, a basic fee that will
3
cover the cost to the U.S. budget, and a supplemental fee that will keep guaranteed
borrowing from being a low cost option for Mexico. This will encourage Mexico to return to
the market under its own name as quickly as possible.
These guarantees will have no adverse effect on the current U.S. budget. In fact, if
the deal goes forward as we expect, the United States Treasury will gain.
We have good reasons for being confident that Mexico will meet its obligations.
o
We will provide guarantees only if the Mexican government follows policies that lead
to financial stability and lay a sound basis for growth. This means tightly controlling
monetary and credit growth, maintaining a budget surplus, and intensifying
privatization and other market reforms. These policies will promote a healthy
Mexican economy that can meet its obligations. Each time Mexico issues its
securities to be guaranteed by the U.S. Government, we must be satisfied that it is
fully implementing these policies.
o
Mexico has repaid its borrowings from the U.S. Government for over fifty years.
o
The United States will, as an integral part of the proposed guarantee, have access to
oil revenue streams that can reimburse the United States, in the extremely unlikely
event that we incur any obligations pursuant to the guarantees.
This is not about foreign aid. We are not giving away anything.
And this is not a precedent for the future -- either for Mexico or for other countries.
We have a uniquely important stake in Mexico at the present time, one that we cannot
ignore. The problem that Mexico has encountered, a collapse of market confidence that has
made it impossible to restabilize its currency, is unusual. The scale of the problem is
beyond international financial institutions' current capacity. Our action and only our action
can make a difference here that it would not make in other cases. At the same time, we are
working to ensure that the international machinery for identifying and dealing with problems
like this is prepared for such situations in the future.
There is natural concern that the United States not address this potential
international crisis alone. We in the Administration are working hard, as is Chairman
Greenspan, to gain international support to reinforce our efforts.
An array of swap facilities has been arranged to enhance Mexico's available shortterm resources. Canada is providing about $1 billion in swap credits. The Bank for
International Settlements has commitments from other central banks for a $5 billion swap
facility. And Mexico and the IMF are in advanced stages of negotiations on a program that
will provide substantial financial resources with policy conditionality. Indeed, I hope that
the IMF will be able to go beyond its usual limits in supporting Mexico.
We are not leaving matters here. We are seeking additional support from others.
4
Will the Guarantee Program Make a DitJerence?
Mexico faces a problem of liquidity. This is key to understanding why the proposed
approach will meet the challenge posed by current circumstances in Mexico.
The nature of the crisis becomes clear when one looks at how it came about As
Mexican economic reforms attracted investment over the past few years, the Mexican peso
was buoyed and reserves expanded. Imports were easily financed. Less than a year ago, the
Mexican "problem" was seen as one of keeping capital inflows from pushing up the money
supply and feeding inflation.
But following the assassination of PRI presidential candidate Luis Donaldo Colosio,
capital inflows did not recover, and we can now see that enthusiasm for Mexican paper was
waning. And yet Mexico's appetite for imports - to provide inputs for production and to
fuel consumption - did not wane. The current account deficit persisted, but there were no
longer enough dollars coming in to finance it. There were no longer ready buyers for pesos.
The Mexican authorities fought to maintain the exchange rate by using dollar
reserves to buy pesos and issuing Tesobonos -- dollar-indexed, peso-denominated short-term
securities. The Mexicans also raised interest rates well above U.S. rates, even adjusting for
inflation. But investors did not want to provide the new money Mexico needed to finance
its current account deficit.
In this context, Mexico could not maintain its exchange rate, and the band for the
peso was widened. But even the wider band was impossible to sustain. A concerned market
took the peso well beyond almost all previous views about its equilibrium value.
In retrospect, Mexico could and should have managed this situation better. By the
time the authorities let the peso go, they lacked the resources to counter market disorder.
The Mexicans themselves have made clear that, as they look back, they would have handled
the devaluation quite differently.
These events have not yet eroded the fundamental strength of the Mexican economy
and its potential for growth. Concerted market reform and trade liberalization have made
Mexico's economy dynamic and deep with possibilities. The government is streamHning its
approach to economic management just as the private sector is modernizing business.
Mexico passed legislation making its central bank independent last year. Mexico's economy
is already in transformation to a more efficient, market system.
. Help~g bridge the current liquidity gap keeps open the window of opportunity - for
~eXlco and Its people -. to carry themselves forward to prosperity. But the most
Important element of this strategy is what Mexico is doing to help itself.
.
The. ~e~can governmen~ is ~ghtening its monetary and fiscal policy. It is entering
mto a stabilization and econOmIC adjustment program with the support of the International
5
Monetary Fund. Support from the United States will be contingent on Mexico moving
forward with this process.
There is a sound basis in Mexico for ongoing economic reform, given the extensive
restructuring that has taken place over the last ten years. This foundation puts Mexico in a
good position to move quickly to shore up its economic and financial management.
One indispensable element that must be at the center of Mexican stabilization is
sound money. There are countries that have had sound monetary policies with fixed
exchange rates and countries that have done so with floating rates. What is key is that
monetary policy be insulated from the political process. Mexico faced this reality in 1994
when it set up the basic guarantees of independence for the Bank of Mexico. Going
forward, this will shape the culture of the Bank and the monetary policy it sets.
Some argue that the Mexicans should go further in insulating monetary policy by
setting up a currency board. This is only one among several types of institutions that have
historically provided countries with a vehicle for sound monetary policy. What matters is
the determination not to give in to easy money.
Moving Forward
The financial support package under consideration by Congress presents a historic
opportunity to avert, before it is too late, a prolonged crisis potentially touching many
countries. America has a vital interest in strong and open markets abroad and in avoiding
the social strains of financial collapse in our neighbor.
This crisis is not a result of NAFTA Rather, NAFTA has helped make the crisis less
severe. NAFTA ensures that Mexico can never again close its borders to American
products. NAFTA ensures that Mexico must continue to provide safeguards for our
investors. And NAFfA can once again bolster investor confidence, helping to bring Mexico
out of its difficulties.
Providing Mexico with guarantees to access private lending and reduce short term
debt is not about bailing out wealthy investors. American investors in Mexican stocks and
peso securities have already suffered substantial losses - as much as 40 percent. These
losses are not likely to be recouped even in the context of a stabilization program.
Offering our help to Mexico through the guarantee package is what government is all
about: doing the right thing for America. Congress and the Administration have made a
good start in working together to make it happen. For Mexico and for ourselves, we need
to finish the job.
DEPARTMENT
OF
THE
TREASURY
NEWS
~178~9~. . . . . . . . . . . . . . . .. .
....................
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
,' . .; - : Conta,~t;., (Iyfi,chelle Smith
FOR IMMEDIATE RELEASE
January 26, 1995
(2d2Y 622-2960
STATEMENT BY TREASURY SECRETARY ROBERT RUBIN
I am pleased that the International Monetary Fund and Mexico have announced
an agreement providing for some $7.7 billion in credits to Mexico. The IMF agreement
demonstrates the support of the international community for Mexico in dealing with its
short-term financial problems.
The program, which will be put to the IMF Board next week, is the largest in the
history of the IMF. It would represent a substantial contribution by all members of the
IMF to addressing a problem that could have implications around the world.
The IMF program is based on strong commitments by the Mexican authorities
regarding the future course of fiscal and monetary policy in Mexico. A substantial
portion of the $7.7 billion would be available immediately after the IMF Board's
decision.
Passage of the guarantee program now under discussion in Congress remains an
urgent prionty if Mexico's economic problems are to be contained.
-30-
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DEPARTMENT
TREASURY
OF
THE
TREASURY
NEWS
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR RELEASE
12:00 Noon EST
January 27, 1995
STATEMENT OF
LESLIE B. SAMUELS
ASSISTANT SECRETARY (TAX POLICY)
DEPARTMENT OF THE TREASURY
BEFORE THE
SUBCOMMITTEE ON HEALTH
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
Mr. Chairman and Members of the Subcommittee:
I am pleased to present the views of the Administration on
the 25 percent deduction for certain health insurance premiums
paid by the self-employed. Under Internal Revenue Code section
162(1), certain sole proprietors, partners and more than twopercent shareholders of Subchapter S corporations are permitted
to deduct 25 percent of the amount paid during the year for
insurance that constitutes medical care for the taxpayer and the
taxpayer's spouse and dependents. The deduction is not
available, however, for taxable years beginning after December
31, 1993. consequently, unless the Congress acts, self-employed
individuals will not be able to claim any deductions for health
insurance premiums on their 1994 income tax returns.
As the members of this Subcommittee know, the Clinton
Administration proposed the extension of the 25 percent
deduction, followed by an increase in the deduction to 100
percent of health insurance premiums in the Administration's
health reform bill of last year. We continue to believe that
allowing a deduction for self-employed individuals more closely
conforms their tax treatment to the treatment of other employers
with employees. This would recognize that these taxpayers share
many attributes with both employers and employees. We also
believe that the deduction for the self-employed will help to
make health insurance more affordable for this segment of the
population and will therefore contribute to expanded insurance
coverage.
On behalf of the Treasury Department, I appreciate the
opportunity to state for the record that the 25 percent deduction
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- 2 -
issue needs to be dealt with expeditiously.
If Congress does not
act before 1994 tax returns are filed, sUbstantial new
administrative burdens could result for taxpayers and the
Internal Revenue Service.
The Treasury Department estimates that almost 3.2 million
self-employed individuals would claim the 25 percent deduction on
their 1994 tax returns if it were made available to them.
Those
tax returns are due on April 15, 1995, although these taxpayers
could request an automatic extension through August 15, 1995. If
the Congress fails to act to extend the 25 percent deduction
prior to the due date for income tax returns, millions of
taxpayers will be forced to decide whether to incur the costs of
filing amended income tax returns. Any such amended returns will
also impose additional administrative burdens and costs on both
the Internal Revenue Service and State and local governments.
As members of this Subcommittee may know, the Department of
the Treasury has already taken steps to make it easier for
taxpayers to claim the deduction if timely Congressional action
occurs on this matter. The 1994 Form 1040 includes a line for
claiming the self-employed health deduction, with a caution that
taxpayers cannot claim the deduction unless the law is changed.
But only swift Congressional action can minimize taxpayer
uncertainty, compliance costs and administrative burdens.
As the President emphasized in his State of the Union
message earlier this week, we should work together to assist
self-employed individuals and others in buying more affordable
health insurance. The extension and expansion of the selfemployed health insurance deduction should be an integral part of
that effort. We look forward to working with the members of this
Subcommittee and others in the Congress to find a way to restore
this deduction without increasing the Federal budget deficit.
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DEPARTMENT
OF
THE
TREASURY
NEWS
"~"""""~/7~"""""""
OFFlCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
EMBARGOED UNTIL 10:00 A.M.
January 27, 1995
STATEMENT OF
GLEN A. KOHL
TAX LEGISLATIVE COUNSEL
DEPARTMENT OF THE TREASUR Y
BEFORE THE
WA YS AND MEANS SUBCOMMITTEE ON OVERSIGHT
U.S. HOUSE OF REPRESENTATIVES
Chairwoman Johnson and Members of the Subcommittee:
I am pleased to have this opponunity to present testimony today on behalf of the
Depanment of the Treasury concerning section 1071 of the Internal Revenue Code. In
convening this hearing, the Subcommittee indicated its desire to examine four issues: (i)
whether the Federal Communication Commission's (FCC) 1978 policy of promoting minonty
ownership is consistent with the underlying intent of Section 1071; (ii) whether the FCC's
administration of section 1071 constitutes an impermissible exercise of legislative authority;
(iii) whether the tax incentive provided in section 1071 fosters minority ownership of
broadcast facilities; and (iv) whether the FCC policy is a necessary or appropriate means of
achieving this goal.
. Because the issues identified by the Subcommittee relate primarily to the
responsibilities assigned by Congress to the FCC, my testimony is intended simply to prove
an overview of Section 1071 -- including recent Treasury testimony on Section 1071 -- and
an explanation of the Internal Revenue Service's (IRS) role in its administration.
In September, 1993, the Ways and Means Subcommittee on Select Revenue Measures
conducted a hearing on miscellaneous revenue measures, including an unspecified proposal
"that would modify section 1071 by adding anti-abuse rules to ensure that tax incentives are
available only for sales that actually foster minority ownership of broadcast stations." The
Assistant Secretary (Tax Policy), Leslie B. Samuels, testified that we would not oppose a
carefully targeted amendment to section 1071 that would prevent certain sellers (e.g., those
who actively participate in sham transactions) from taking advantage of Section 1071,
provided the amendment did not deny such preferential tax treatment to "innocent" sellers :that is, taxpayers who participate in a sale .that results in bona fide minority ownership. Our
position in this regard has not changed. Accordingly, we would be willing to work with the
Committee or the FCC in attempting to craft anti-abuse provisions that we could support and
which would not reduce the effectiveness of the prC!gram. In addition, although the
Administration has no position on this matter, we would be pleased to consider with the
Committee and the FCC whether a cap or other limitations on Section 1071 benefits would
be necessary and. appropriate to target more precisely this tax provision to its desired
2
objective. We will also coordinate with other offices within the Administration, including
the Commerce Department's National Telecommunications and Infonnation Administration.
Overview of Section 1071
Section 1071 provides certain tax benefits (described below) to the seller of property
if the sale or exchange is certified by the FCC to be "necessary or appropriate to effectuate a
change in a policy of, or the adoption of a new policy by, the Commission with respect to
the ownership and control of radio broadcasting stations." Since 1978, the FCC's policy
has been to certify transactions as meeting this requirement where a sale of broadcast
facilities is made to a minority individual or a minority-controlled entity. 1
In general, Section 1071 allows a taxpayer to postpone the recognition of gain
realized upon the disposition of certain broadcasting property for which the taxpayer has
obtained the necessary certificate from the FCC (Section 1071 Certificate). The tax-free
treatment accorded by Section 1071 allows the taxpayer to defer the tax on the gain realized
in the transaction (although in certain circumstances such deferral can be effectively
permanent). In this regard, the benefits of Section 1071 are generally similar to the benefits
accorded taxpayers who reinvest insurance proceeds fo]]owing an involuntary conversion of
property under Section 1033 (~, as the result of fire or flood), or, to a lesser extent,
taxpayers who partiCipate in tax-free exchanges of "like-kind" property under Section 1031.
To obtain the benefits of Section 1071, the taxpayer must file an election with its
return that includes the Section 1071 Certificate. This election requires the taxpayer to
choose one of three alternative methods for taking advantage of the Section 1071 deferral.
The first approach is to apply a modified form of the involuntary conversion rules.
Generally, gain is not recognized to the extent that replacement property which is similar or
related in service or use to the property sold is acquired before the end of the second full
taxable year after the year in which the disposition occurs. The second approach is to reduce
the depreciable bases of other assets held by the taxpayer at the time of the disposition and
acquired before the end of the taxable year in which the disposition occurs. Unless the
taxpayer requests an alternative allocation, the bases of all depreciable assets are reduced on
a pro rata basis. The third approach is to elect a combination of the first two approaches
(i.e., defer a portion of the gain through the acquisition of replacement property and another
portion through reducing the bases of other depreciable property).
We understand that the FCC defines (1) a minority-controlled corporation as a
corporation in which more than 50 percent of the voting stock is held by minorities and (2) a
minority-controlled limited partnership as a partnership in which (a) the general partner is a
minority or minority-controlled and (b) minorities own at least a 20 percent interest.
1
We also understand that the FCC generally requires those who acquire broadcast
properties under Section 1071 to retain those properties for at least one year.
3
The Limited Role of the IRS
Under section 1071, Congress has delegated authority to the FCC to issue Section
1071 Certificates. Tax benefits under Section 1071 are available only if the taxpayer obtains
a Section 1071 Certificate from the FCC. The IRS generally accepts as valid any Section
1071 Certificate that is issued. The IRS neither participates in, nor exercises oversight over,
the FCC's determination, and conducts no independent inquiry into whether, for example,
minorities meaningfully participate in a purchasing group. Consequently, the IRS's role is
limited to administering and interpreting the technical requirements of Section 1071 described
above (including the rules of Section 1033 which Section 1031 incorporates by crossreference) .
Potential For Abuse
I would also like to discuss the potential for abusing Section 1071, but first I should
reiterate that the Department of the Treasury does not participate in the FCC certification
process. My testimony therefore should not be construed as commenting on the propriety of
issuing Section 1071 Certificates in any particular circumstances or for any particular
transactions, including recent transactions that have been covered in the press.
Abusive transactions may arise in any regulatory context. As you are certainly
aware, Treasury, the IRS, and the courts expend considerable energy and resources dealing
with abusive transactions. Fortunately, the tax law, like other statutory regimes, is
interpreted in a manner consistent with its spirit and purpose. Reflecting this rule of
interpretation, tax doctrines have evolved to combat such abuses. These doctrines include a
prohibition against "sham" transactions, a rule that a transaction must be taxed in accordance
with its substance and not merely its form (the "substance over form" doctrine), and a rule
that certain related transactions are to be aggregated and treated as one overall transaction
(the "step transaction doctrine"). In addition, various statutory provisions and IRS
regulations have been adopted to address abuses because the common law doctrines have not
been fully successful in combating abusive transactions.
Certification of transactions under Section 1071, however, is conducted by the FCC,
and not the IRS. I assume that, like any regulatory agency, the FCC deals with attempts to
abuse its rules, including the rules governing the issuance of Section 1071 Certificates. In
the absence of adequate safeguards against abuse, it is possible that an aggressive participant
could devise a scheme that might enable parties to obtain a Section 1071 Certificate even in
situations that do not meaningfully enhance the ownership of broadcasting properties by
minorities. If such a scheme were to succeed, granting the Section 1071 Certificate would
unfairly reward the participants of a tax avoidance scheme, possibly at the expense of a bona
fide minority ownership group and/or a non-minority ownership group that was unwilling to
engage in abusive tax planning. Because the Treasury neither participates in nor reviews the
certification process, however, I am not in a position to comment on whether there, in fact,
4
exist any transactions where the grant of a Section 1071 Certificate is not consistent with the
intent or purpose of Section 1071 or any regulations promulgated thereunder.
The issuance of Section 1071 Certificates is designed to further an FCC objective.
Nevertheless, as I previously stated, we would be pleased to consult with the FCC or this
Committee in developing further safeguards against abuse of the certification process
(through anti-abuse provisions or specific measures such as a more stringent holding period
requirement). We would also be pleased to work together towards other means of tailoring
the Section 1071 benefits to more efficiently promote its objectives.
This concludes my remarks. Thank you once again for affording me the opportunity
to testify. I am now available to answer any questions that the Committee may have.
DEPARTMENT
OF
THE
TREASURY
NEWS
lREASURY
~~178~9~. . . . . . . . . . . . . . . . . . . . . . . . . . . .. .
..............................
OmCE OFPUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
January 26, 1995
TREASURY CFO TO SPEAK AT UNIVERSITY OF NEW MEXICO
George Munoz, the Treasury Department's Chief Financial Officer, will discuss the
Clinton Administration's efforts to assist students and their families at the University of New
Mexico tomorrow, Friday, January 27th.
Muiioz, who is also the Treasury Department's Assistant Secretary for Management,
will address the education tax credits contained in the President's Middle Class Bill of Rights
at 9 a.m. in Mitchell Hall, room 104, University of New Mexico, Albuquerque, N.M. The
Middle Class Bill of Rights calls for tax cuts for middle income families with children, tax
deductions for educational costs and allows for penalty-free withdrawals for educational
purposes from IRAs. The cuts would be paid for through savings achieved by downsizing the
Federal government.
-30Treasury Contact: Jon Murchinson, (202) 622-2960
University of New Mexico Contact: Susan McKinsey, (505) 277-1725
RR-32
DEPARTMENT
'IREASURY
OF
THE
TREASURY
NEWS
~~/78~9~. . . . . . . . . . . . . . . . . . . . . . . . . . . .. .
..............................
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
January 30, 1995
Contact: Michelle Smith
(202) 622-2013
RUBIN, ORTIZ ANNOUNCE NADBANK MANAGER
Treasury Secretary Robert E. Rubin and Mexican Finance Minister Guillermo Ortiz,
on behalf of the Board of the North American Development Bank, on Monday named
Alfredo Phillips as Manager and Chief Executive Officer of the new bank.
"Alfredo Phillips is a distinguished public servant with extensive financial experience.
His selection shows the importance of the NADBank to the United States and Mexico,"
Secretary Rubin said.
Phillips has held several prominent positions in financial institutions, including
director general of the Banco National de Commercio Exterior (the National Foreign Trade
Bank of Mexico), director for international affairs at Mexico's Central Bank. under secretary
for housing in the Ministry of Social Development (SEDESOL), and most recently general
director of the National Institute of Housing (INFONAVIT). Phillips, born in the Mexican
border state of Tamaulipas, also served as Mexican ambassador to Canada and to Japan.
Moreover, his knowledge of U.S.-Mexican relations will be essential to the smooth operation
of this institution.
The NADBank, capitalized and governed by the U. S. and Mexican governments, is
designed to finance environmental infrastructure projects along the U.S.lMexico border.
When fully funded, the San Antonio, Texas-based bank will have $3 billion in capital.
-30RR-33
DEPARTMENT
OF
THE
TREASURY
NEWS
TREASURY
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622·2960
FOR IMMEDIATE RELEASE
January 27, 1995
Contact:
Jon Murchinson
(202) 622-2960
BORROWING ADVISORY COMMITTEE MEETING, REFUNDING PLANNED
The Treasury Department's Borrowing Advisory Committee will hold an open meeting
at 11 :30 a.m. Tuesday, January 31, 1995 in the Cash Room, Main Treasury, 1500
Pennsylvania Avenue NW.
Deputy Assistant Secretary (Federal Finance) Darcy Bradbury will announce the
Treasury Department's quarterly refunding at 2 p.m. on Wednesday, February 1, 1994 in the
Cash Room.
Media without Treasury, White House, State, Defense or Congressional credentials
wishing to attend should contact the Office of Public Affairs at (202) 622-2960, with the
following information: name, Social Security number and date of birth, by 6 p.m. Monday,
January 30 for Tuesday's event and by 6 p.m. Tuesday, January 31 for Wednesday's event.
This information can be faxed to (202) 622-1999.
-30-
RR-34
DEPARTMENT
OF
THE
TREASURY
NEWS
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR RELEASE AT 2:30 P.M.
Januarjr 27, 1995
CONTACT:
Office of Financing
202/219-3350
TREASURY'S 52-WEEK BILL OFFERING
The Treasury will auction approximately $17,250 million of
52-week Treasury bills to be issued February 9, 199~.
This
offering will provide about $725 million of new cash for the
Treasury, as the maturing 52-week bill is currenLly outstanding
in the amount of $16,52i million.
In addition to the mat~ring
52-week bills, there are $26,603 million of maturing 13-week and
26-week bills.
Federal Reserve Banks hold $11,387 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 $3,716 million of the three
maturing issues as agents for foreign and international monetary
authorlties.
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.
Fer p~rposes of determining such additional
amounts, foreign and international monetary authorities are
considered to hold $745 million of the maturing 52-week issue.
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 the new security are given in the attached
offering highlights.
000
Attachment
RR-35
HIGHLIGHTS OF TREASURY OFFERING OF 52-WEEK BILLS
TO BE ISSUED FEBRUARY 9, 1995
January 27, 1995
Offering Amount .
$17,250 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 W9 1
February 2, 1995
February 9, 1995
February 8, 1996
February 9, 1995
$16,521 million
$10,000
$1,000
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 are
$2 billion or greater.
(3) 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 Tenders:
Noncompetitive tenders
Competitive tenders .
Payment Terms .
Prior to 12:00 noon Eastern Standard
time on auction day.
Prior to 1:00 p.m. Eastern Standard
time on auction day.
Full payment with tender or by charge
to a funds account at a Federal
Reserve bank on issue date.
•
J&&222L
o
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federal financing
N
o
FEDERAL FINANCING BANK
Charles D. Haworth, Secretary, Federal Financing Bank (FFB),
announced the following activity for the month of December 1994.
FFB holdings of obligations issued, sold or guaranteed by
other Federal agencies totaled $103.8 billion on December 31,
1994, posting a decrease of $1,844.6 million from the level on
November 30, 1994. This net change was the result of a decrease
in holdings of agency debt of $1,864.9 million, in holdings of
agency assets of $0.1 million, and an increase in holdings of
agency-guaranteed loans of $20.4 million.
FFB made 19
disbursements during the month of December.
FFB also received 34
prepayments in December.
Attached to this release are tables presenting FFB December
loan activity and FFB holdings as of December 31, 1994.
RR-36
C\J
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N
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C\J
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0::
January 27, 1995
N
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C\J
WASHINGTON, D.C. 20220
tJ')
tt
Page 2 of 3
FEDERAL FINANCING BANK
DECEMBER 1994 ACTIVITY
BORROWER
AMOUNT
OF ADVANCE
FINAL
MATURITY
12/2
12/6
12/8
12/9
12/9
12/9
12/14
12/16
12/21
12/22
12/22
12/23
12/27
$6,670.10
$5,588,511.00
$352,214.00
$428,514.74
$5,943.60
$10,955.25
$240,786.00
$9,038,123.00
$4,710.67
$203,069.10
$6,731,070.45
$730,385.41
$4,376,474.00
6/30/95
12/11/95
9/5/23
9/1/95
4/1/97
1/3/95
12/11/95
12/11/95
9/5/23
12/11/95
1/3/95
9/1/95
6/30/95
6.530%
7.290%
8.065%
7.009%
7.720%
5.956%
7.449%
7.221%
8.033%
7.158%
5.686%
6.967%
6.664%
12/15
$9,934,492.93
11/2/26
8.038% S/A
12/1
12/7
12/8
12/21
12/28
$1,590,000.00
$784,000.00
$146,000.00
$2,297,000.00
$32,705,000.00
12/31/25
12/31/96
12/31/26
12/31/15
12/31/96
8.064%
7.499%
7.976%
7.948%
7.722%
DATE
INTEREsr
RATE
GOVERNMENT - GUARANTEED LOANS
GENERAL SERVICES ADMINISTRATION
HCFA Headquarters
Foley Square Office Bldg.
Oakland Office Building
Atlanta CDC Office Bldg.
Chamblee Office Building
Miami Law Enforcement
Foley Services Contract
Foley Square Courthouse
Oakland Office Building
Foley Services Contract
Memphis IRS Service Cent.
Atlanta CDC Office Bldg.
HCFA Headquarters
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
GSA/PADC
ICTC Building
RURAL UTILITIES SERVICE
S. Maryland Elec. #352
Wolverine Power #349
Central Power Elec. #395
W. Farmer Elec. #196
Oglethorpe Power #335
S/A is a Semi-annual rate:
Qtr. is a Quarterly rate.
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*
Agency Assets:
FmHA-ACIF
FmHA-RDIF
FmHA-RHIF
DHHS-Health Maintenance Org.
DHHS-Medical Facilities
Rural utilities Service-CBO
Small Business Administration
sub-total*
Government-Guaranteed Loans:
DOD-Foreign Military Sales
DHUD-Community Dev. Block Grant
DHUD-Public Housing Notes
General Services Administration +
DOl-Virgin Islands
DON-Ship Lease Financing
Rural utilities Service
SBA-Small Business Investment Cos.
SBA-State/Local Development Cos.
DOT-Section 511
sub-total*
grand-total*
*figures may not total due to rounding
+does not include capitalized interest
December 31, 1994
November 30, 1994
$
$
664.7
3,448.6
22,941.8
3,200.0
8,073.1
38,328.1
6,063.0
3,675.0
23,981.0
18.4
33.8
4,598.9
664.7
3,926.4
24,328.8
3,200.0
8,073.1
40,193.0
Net Change
1211/94-12/31/94
$
0.0
-477.8
-1,387.1
0.0
0.0
-1,864.9
FY 194 Net Change
10/1/94-12/31/94
$
0.0
-477.8
-3,577.4
-200.0
-900.0
-5,155.2
38,371.1
6,063.0
3,675.0
23,981.0
18.4
33.8
4,598.9
1.0
38,371.1
0.0
0.0
0.0
0.0
0.0
0.0
-0.1
-0.1
0.0
0.0
-410.0
-6.9
-1. 9
0.0
-0.1
-418.9
3,748.4
104.4
1,688.5
2,122.7
21.9
1,479.6
17,392.3
34.8
511. 4
14.1
27,118.2
3,761.3
105.1
1,688.5
2,099.3
21.9
1,479.6
17,364.6
48.8
514.4
14.2
27,097.8
-12.9
-0.6
0.0
23.5
0.0
0.0
27.7
-14.0
-3.1
-0.1
20.4
-37.0
-5.5
-58.0
93.2
0.0
0.0
75.6
-21. 8
-11. 6
-0 1 5
34.4
~
=========
=========
========
========
$103,817.4
$105,661. 9
$-1,844.6
$-5,539.7
IREASuRY
NEWS
omCE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.• 20220. (202) 622-2960
FOR IMMEDIATE RELl:.AS1:.
January 27, 1995
TRFASURY CFO TO SPEAK AT UNIVERSlfY OF ILLINOIS AI ( Hil\lJO
Former Chicago Board of Education presid~nt George Muiioz
WIll
di:.;;" u,:.-. the Clinton
Administration's efforts to assist students and their families at the l"ru\,erslty ,.; n:mois at
Chicago
011
Monday. January Jv.
Munoz, who is the Treasury Department's Chief Financial Offi\:er and \':;<,,1 stant
Secretary for Management, \vil1 address the education tax I.:redits contamed ire .hl:
Pr~sident's
~-',
CIC, 1007
Middle Class Bill of Rights at 11 a.m. in Behavioral Scienl.:e Building,
W. Harrison Street, ChIcago, i t
The Middle Class Bill uf Rights \:a115 for ta:-. cuts for middle
[.'t,m: :
lD~,'{l!l . ,;:dies with
children, tax deductions for educational costs and allow::; for penalt)· free \UiL11': v,als for
educational
purpos~s
from lRAs. The cuts would be palli
fl.!!
downsizing the Federal goverrunenL
Treasury Contact: Jon Murchinson. (lU2) f)22·2116 0
PIC Contact: Ed Tate, (312) 996·S,282
RR-3"i
through
:-'c-\.'\(l':-"
J:::hicved by
DEPARTMENT
OF
THE
TREASURY
NEWS
TREASURY
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
January 30, 1995
Contact: Michelle Smith
(202) 622-2960
PRESS ADVISORY
Treasury Secretary Robert E. Rubin will be joined by Congressman Jim Leach,
Congressman Robert Matsui, fonner National Security Adviser General Brent Scowcroft.
fonner Secretary of Commerce Robert Mosbacher and former U. S. Ambassador to the
Organization of American States Sol Linowitz for a press availability on the Mexican
financial situation.
The press availability will be at 11 a.m. today, Monday, January 30 in Room 3327
Main Treasury.
Press without Treasury White House or Congressional
pre~'S
credentials should
contact Treasury's Office of Public Affairs at (202) 622-2960 by 10 a.m. for clearance into
the building.
-30-
RR-38
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
January 30, 1995
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $13,459 million of 13-week bills to be issued
February 2, 1995 and to mature May 4, 1995 were
accepted today (CUSIP: 912794R89).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.76%
5.80%
5.79%
Investment
Rate
5.93%
5.97%
5.96%
Price
98.544
98.534
98.536
Tenders at the high discount rate were allotted 19%.
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
RR-39
Received
$48,351,336
AcceQted
$13,459,197
$42,890,153
1,409,668
$44,299,821
$7,998,014
1,409,668
$9,407,682
3,572,715
3,572,715
478,800
$48,351,336
478,800
$13,459,197
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
January 30, 1995
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $13,491 million of 26-week bills to be issued
February 2, 1995 and to mature August 3, 1995 were
accepted today (CUSIP: 912794U36).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
6.11%
6.12%
6.12%
Investment
Rate
6.39%
6.40%
6.40%
Price
96.911
96.906
96.906
Tenders at the high discount rate were allotted 84%.
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
RR-40
Received
$49,563,010
Acce:gted
$13,490,880
$43,786,850
1,387,660
$45,174,510
$7,714,720
1,387,660
$9,102,380
3,400,000
3,400,000
988,500
$49,563,010
988,500
$13,490,880
DEPARTMENT
OF
THE
TREASURY
~/78~q. . . . . . . . . . . . . ..
. . . . . . . . . . . . . .
OmCE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.. 20220. (202) 622-2960
FOR RELEASE AT 3 p.m.
January 30, 1995
Contact:
Jon Murchinson
(202) 622-2960
TREASURY ANNOUNCES MARKET BORROWING ESTIMATES
The Treasury Department on Monday announced that its net market borrowing for the
January-March 1995 quarter is estimated to be $93.7 billion, with a $20 billion cash balance
on March 31. The Treasury also announced that a paydown of $5 billion to $10 billion of
marketable securities is estin.iated for the April-June 1995 quarter, with a $35 billion cash
balance at the end of June.
Market borrowing in the January-March quarter in part reflects paydowns of about
$10-114 billion of nonmarketable Treasury securities, the settlement of December 2- and 5year notes and payment of December 31 interest totaling about $10 billion on January 3, and
the shift of payments totaling about $7 billion from Saturday, April 1, to Friday, March 31.
In the quarterly announcement of its borrowing needs on October 31, 1994, the Treasury
estimated net market borrowing during the January-March 1995 quarter to be in a range of
$65 billion to $70 billion, assuming a $20 billion cash balance on March 31. The increase in
the current borrowing estimate, compared with the prior estimate, is attributable to lower
receipts and higher outlays.
Actual net market borrowing in the quarter ended December 31, 1994 was
$61.2 billion, while the end-of-quarter cash balance was $26.6 billion. On October 31, the
Treasury had estimated net market borrowing for the October-December quarter to be
$59.6 billion, with a $30 billion cash balance on December 31. The lower-than-expected
end-of-December cash balance reflected a reduction in receipts, while actual market
borrowing was little changed from the October 31 estimate.
-30-
RR-41
TREASURY FINANCING REQUIREMENTS
$Bil.r-_ _ _ _ _ _ _ _ _ _ _ _o_c_to_b,e_r_-_D_e_c_e_m_b_e_r_1_99_4-------------, $Bil.
175
175
Uses
Sources
150
125
150
Coupon Maturities
100
75
+
•
125
Coupon Refunding
100
Savings Bonds
State and Local
•
•+
•
2
4 3/ 4
75
/2
50
Foreign Nonmarketables
Net Market Borrowing
25
50
Decrease in
Cash
Balance
25
o
0
, Includes budget deficIt, changes In accrued Interest and checks
outstanding and mmor miscellaneous debt transactions
Department 01 tt'1e Treasury
Offlce 01 MarkS! Finance
JankJary 30 1995·16
$Bil.
Uses
200
175
175
•
150
Coupon Refunding
150
Savings Bonds
•
125
125
1/2
100
100
1
75
•
75
Foreign Nonmarketables
50
Net Market +93%
Borrowing
Decrease in
Cash
Balance 3
•
25
50
25
6/2
o
0
, Includes budget deficit, changes In accrued Interest and checks
outstanding and minor miscellaneous debt transactions
Department ollt1e Treasury
Office 01 Markel Finance
2
Issued or announced through January 27, 1995
3
Assumes a $20 billion cash balance March 31,1995
January 30 1995·17
TREASURY OPERATING CASH BALANCE
Semi- Monthly
$Bil.
60
Total Operating
Balance
-
•
50
40
Tax and Loan
Without
New
Borrowing 1j
---+
30
20
•
•
•
•
10
0
Federal Reserve Account
•,
•,
-10
•
-20
-30
•
••
-40
...
-50
-60
~
__
~
Jan
__
~
Feb
__
~
Mar
__J -_ _- L__- L__- L__
Apr
May
Jun
Jul
~
Aug
__
~
Sep
__
~
Oct
__
~L-
Nov
__L -__L -__
Dec
Jan
1994
~
Feb
__
~
Mar
1995
.YAssumes refunding of matunng Issues
Department 011110 Treasury
January 30 1995-)2
O11lce of Mar.c.et F'r'larx:e
TREASURY NET MARKET BORROWING 11
$Bil. , - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - , $ B i l .
Coupons
103.5
DOver 10 yrs.
100
84.6
81.0 80.6
80
72.4
60
2.8
100
5 - 10 yrs.2I
2 - under 5 yrs
80
•
Bills
76.7
52.8
38.6
D
D
61.2
60
40.6
40
40
8.1
20
20
o
o
-20
-20
-40
L -____________L-______~--~~------~--~~--~--~~~~~-40
II
III
IV
11
21
Y
Department of the Treasury
Office 01 Marl(et Finance
II
III
1992
1991
IV
II
III
IV
1993
II
III
1994
IV
I
1995
Excludes Federal Reserve and Government Account Transactions
7 year note discontinued after Apnl 1993.
Issued or announced through January 27, 1995.
JanlJ8ry 30 1995-18
AWARDS IN WEEKLY BILL AUCTIONS
(13- and 26-Week Bills Combined)
$Mil.
$Mil.
25000
25000
Federal Reserve and Foreign
20000
20000
15000
15000
10000
10000
Total Competitive
5000
5000
o
------~------~------~----~------~------19~9-4------~-----1.9~95*0
Calendar Year
"Data through January 23, 1995 Auction.
Department 01 the Treasury
Jatluary 30.199528
Office 01 MarI<et Finance
AWARDS IN 52-WEEK BILL AUCTIONS
$Mil. , . . . . - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - , $ M i l .
16000
16000
14000
Federal Reserve and Foreign
14000
12000
12000
10000
10000
8000
8000
6000
TotaJ~ve
6000
4000
2000
2000
o~----~------~----~------~----~------~----~------~~o
1994
1995*
Calendar Year
"Data through January 5, 1995 Auction.
Department 01 the Treasury
0fflC8 of Manc:et Finance
January 30, 1995·12
$Mil.
NET NEW CASH FROM NONCOMPETITIVE TENDERS IN
WEEKLY BILL AUCTIONS.!!
Discount Rate %
700
Net New Cash (left scale)
600
. 1 3 week
...
Discount Rate (nght scale)
o 26 week
26 week
....
,--'
.,......
,-'
13 week
500
300
4.5
......
,.'" "
6.0
5.0
..----.,
....
..'
6.5
5.5
~
...........
,...
,.........
: ............
~
,,
400
200
,......." ..,
,,
4.0
"
3.5
.........
3.0
100
2.5
o
-100
-200
Mar
Feb
Jan
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
.11
Jan
Dec
P
1995
1994
Excludes noncompetitive tenders from foreign official accounts and the Federal Reserve account.
P Preliminary
Department 01 the TreaS\..lr)'
OtrIC8 01 Marl<.el Ftl'l8nce
January 30, 1994-27
NONCOMPETITIVE TENDERS IN TREASURY NOTES AND BONDSY
$Bil.~----------------------------------'
$Bil.
_7Year
3.5
t··:··:···:··:.1 2 & 5 Year
3, 10 & 30 Year
3.5
rF:::~:l
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
.5
.5
II
0~11~~~~~~
J F M AM J J AS 0 NO J F M AM J J A SON 0 JP
1993
~xcludes foreign add-ons from noncompetitive tenders
1994
o
1995
p Preliminary
Treasury Increased the maximum noncompetitive award to any noncompetitive bidder to 55 million effective November 5,1991
Effective February 11, 1992 a noncompetitive bidder may not hold a position In WI trading, futures, or forward contracts
nor submit both competrtlVe and noncompetrtlve bids for Its own account
Departmel'Tl 01 !tie Treasury
Office ot Markel Finance
January 30, ,995·3
SECURITIES HELD IN STRIPS FORM 1993-1995
Privately Held
$Bil.
$Bil.l--------------~-------------___,
Strippable
80
•
Stripped
As of January 31, 1993; $629.1 billion, $166.5 billion
~ As of January 31, 1994
$694.9 billion, $210.3 billion
on As of January 20,1995
$757.7 billion, $226.0 billion
80
60
60
40
40
20
20
o
Less than 5 years
5-10 years
10-15 years
15-20 years
20-25 years
o
25-30 years
Years Remaining to Maturity
Note
The STRIPS program was established In Feburary 1985. The 11 5/8% note of November 15,
1994, Issued on November 15,1984, was the first STRIPS-eligible security to mature
Department 01 tI1e Treasury
Otf1ca 01 MaJ1(e! Finance
January 30 199530
SECURITIES HELD IN STRIPS FORM 1993-1995
Percent of Privately Held
%r-------------------------------------------------------------------------~%
50
•
As of January 31, 1993
D
As of January 31, 1994
IillB As of January 20,
40
50
40
1995
30
30
20
20
10
10
o
Less than 5 years
5-10 years
10-15 years
*
15-20 years
20-25 years
25-30 years
Years Remaining to Maturity
• The 113/4% bond of 11/15/09-14 had $4.9 billion (privately-held) available for stnpplng, of which
87% was held In stripped fonm
Note: The STRIPS program was established In Feburary 1985 The 11 5/8% note of November 15,
1994, Issued on November 15, 1984, was the first STRIPS-eligible secunty to mature
Department 01 Tt1e Treasury
()f1,oo 01 Man<el Finance
o
TREASURY NET BORROWING FROM NONMARKETABLE ISSUES
$Bil. r - - - - - - - - - - - - - - - - - - - - -_ _ _ _ _ _ _~ $Bil.
7.8
8
3.5
8
4.5
6
46
4.9
6
0.6
4
2
o
-2
-4
-0.3
-1.1
-4
-1.1
-17
-6
o
o
-8
-10
•
Savings Bonds
-2.3
-6
-4.7
-8
State and Local Series
-10
Foreign Series
-12
-1
12
-14L------~-------L------~----~~~~--14
II
III
1991
IV
II
III
1992
IV
II
III
1993
e
IV
II
III
1 994
IV
Ie
1995
estImate
Department oj the Treasury
OtfIC8 01 Marl<et Fmance
January 30,1995-19
SALES OF UNITED STATES SAVINGS BONDS
1980 - 1994
$Bil. ~------------------~=-----------------------_,
6
5
. . Total Sales
4
3
2
•
Payroll Sales
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990
End of Quarter
e estimate
Department 01 the Treasury
Office 01 Mar~el Finance
January 30 1995-1
STATE & LOCAL GOVERNMENT SERIES
$8il.
$8il.
-
Gross Issues
10
5
$8~ .';=========================================================~ ~8il.
-5
-
-5
NetSLGs
-10L----11~-11-1--IV--~--II---III---IV------II---III--I-V------II--I-II--I-V-----I-I--I1-1--IV~-10
1990
1991
1992
1993
1994
Department of tne Treasury
Otfloe 01 Mar>l8t Finance
January)() 1995-2
STATE AND LOCAL MATURITIES 1995 -1997
$8il . - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - , $8il.
13.3
12.2
12
-
f--
10 f--
.......
-10
9.4
8f-6.4
4f--
2f--
-
8
-
6
-
4
-
2
7.1
........
6~
12
6.2
.......
.......
.......
.......
........
.......
4.7
4.1
3.8
3.3
3.3
.......
.......
.......
.......
2.6
.......
.......
.......
.......
.. ... ... ... ....
II
III
IV
1995
......
I
...... .
.. .... .. ... ... -.~..~
... ~
.. -.~...~
...~.~--~
... ~
....-.~.~
... ~
... ~---..~
... ~···--~O
II
III
IV
II
III
IV
1996
1997
OL---~···~···~··~···~···~·~~~~~~.~--~~~-.~~
Oepartmen1 01 the T (sasut)'
001<::& 01 Maf1(eT F,nance
January 30, 1995-26
QUARTERLY CHANGES IN FOREIGN AND INTEHNATIONAL
HOLDINGS OF PUBLIC DEBT SECURITIES
$8il.
$8il
Nonmarketable
35
0
Marketable
Net Auction Awards to Foreign
30
0
•
25
20
Other Transactions
.11
r=
25
21.7
21.4
~
20
1~5
18.2
~2
1~5
14.5
15
10.2
~3
5.5
~
• ~ 11
r-
"-
I-
1-1-:-:-1L-
10
r-
~
5
o
5
..... .....
I-
1-=
~
..... L.~=~
.....
I-
o
L.
-5
-5
-15
-10
-0.3
L.
-7.9
I
I
II
III
30
28.r
26.6
F'
~o
10
-10
,.--,
~
1=
15
35
31.2
IV
II
1990
I
I
II
IV
III
III
IV
II
II
IV
~ 7 15
IVY
III
1994
1993
1992
1991
III
.11 Auction awards to foreign official purchasers netted against hOldrngs of matunng secuntles
Y Data through November 30. 1994
CHilpol'tm9nl of Ine TresSI.Jry
Otttoa 01 Mano;et F.nsnce
January 30 1995·20
NET AWARDS TO FOREIGN OFFICIAL ACCOUNTS.!I
$8il
6.1
n
6.4
4.7
e-
8 f--
., ,,
e-
6.0
~
6
~6
I--
'
0~
2 f--
o
1.6
f
1
.. I I
!-
,
6
-
4
1.3
,
II
'---
L-
l-
U
I-
L.
Notes
J
LJ L
L
'-
-0.8 L
o
-
-2
-
-4
-
-6
-1.0
-1.0
Bills
2
~
I
CJ 5 years and over
CJ 2-4 years Y
-
-
c-
L
-8
8
r-
-2 f--
I--
-
c-
e-
--'
-4 f--
6.1
n
2.1
e-
e-
3.0
,!:-S
4.1
4 I--
-6
$8il.
8.8
L..
-4.2
III
IV
1991
I
I
I
/I
II
III
1992
IV
II
III
1993
IV
I
II
III
3
IY
IV
-8
1995
1994
Quarterly Totals
y
Department 01 the Treasury
Othoe 01 MQf\(el FH"lanoe
V
V
Noncompetitive awards to foreign oHlclal accounts held In custody at the Federal Reserve In
excess of foreign custody account holdings of matunng secuntles,
4 year notes not Issued after December 31. 1990
Through January 27. 1995
Janua.!), 30. 199521
SHORT TERM INTEREST RATES
Quarterly Averages
%r---------------------------------------------------------------------______-,%
Prime Rate
12
12
10
8
8
6
6
3 Month
Treasury Bill
4
1984
1985
1986
1987
1988
4
1989
1990
1991
1992
1993
Deoanm&m 01 the T 'eaSu/),
OtI1ce 01 MarKet Finance
1994
January 30 1995·22
SHORT TERM INTEREST RATES
Weekly Averages
0/0.-----------------------------------------------------------------------------.0/0
8
8
Prime Rate
•
7
Through
January 25
6
Commercial
Paper
4
3
•-..----•
••.............---_......
5
.......
.................
--.......
••~-....
•
Federal Funds
..........
••••
3 Month
Treasury Bill
....
.................•
••• _
7
6
5
4
3
Depertrnen1 01 !he Treasury
Office 01 Marl<;el F'll'\8nce
January 30 1995-23
LONG TERM MARKET RATES
Quarterly Averages
o~r-------------------------------
____________________________________
~
14
0/0
14
13
13
12
12
New Aa Corporates
•
11
10 -
Through
January 25
!
9
..
8
7
Treasury
5
1985
1986
1987
1988
9
7
~--------~----------~----J-----~--
1984
10
8
30-Year
Municipal Bonds
6
11
1989
6
-
______ ____
1990
~
1991
- L____~____~5
1992
1993
1 994 95
Department olltle Treasury
otflo9 01 Mafl<;et f'!T1onoe
January 30 19w.)·24
INTERMEDIATE TERM INTEREST RATES
Weekly Averages·
%r--------------------------------------------------------------------,
..
FHLMC 30-Year Conventional
9
,
,
, "
I' 1
.,
,'\
1 ' .... _
,
,.,
\'
,,'
,., ... , "
,..,- ... '
...... -,
-
9
... _ ...... '
"
AA 10-Year Industrial
8
-==- . . .~
. __
~".Iiii;iiiiii<~
8
~
t
Treasury 10-Year
Through
January 25
7
7
Treasury 5-Year
6L-----------------------------~~----~~~~--~~--~--~
Apr
May
Jun
Jul
Aug
Sep
Oct
1994
• Salomon 10-yr. AA Industrial
Nov
Dec
Jan
6
1995
IS
a Thursday rate.
Oapartmerrt oflt1e Treasury
OtflCla of Markel Fmance
January 30 legS 2S
MARKET YIELDS ON GOVERNMENTS
%r---------------------------------------------------________________________~o~
•
January 27, 1995
8
7
8
7
6
6
1111111111111111111111111111111'111111
111111111111111111111111111111111111111
111111111111111
5
5
111111111111111111111
111111111
"HJlU
U
°li - - - - - - - - - - - - - - - - - - - - - - ,
0
0/0
75,
75
11111111111
11111111
4
111111111111
11,1
IIIIIIII
4
..
January 31, 1994
"II
3
70,
70
6.5
6.5
1111111111111111111111111111111111111111111111111111111111
I
6.0\
2
3
6.0
111111,11111
2
11111111
5.5
10
2
3
4
12
14
5
16
6
18
20
7
22
24
26
5.5
30
28
10
9
8
Years to Maturity
Department 01 the Treasury
Office of Mar1(6t FlnanC8
January 30 1995-31
PRIVATE HOLDINGS OF TREASURY MARKETABLE DEBT
BY MATURITY
$Bil. r - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - . ,
December 31, 1994 ----i~
DOver 10 years
2600
412.3
2800
----r-
o
o
o
2400
2200
2000
1800
I
2-10years
T
1-2 years
963.0
1 year & under
-t-
1600
•
1400
Bills
1200
1000
800
600
400
200
o
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1 993
1994
As of December 31
Department 01 tne T,easury
()ffloe of Menc:el F,nan.c6
January 30 1995-5
PRIVATE HOLDINGS OF TREASURY MARKETABLE DEBT
Percent Distribution By Maturity
0
Coupons
o 1-2 years
o 1 year & under
Over 10 years
o 2-10 years
•
Bills
100%
15
80
35
60
40
20
o
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
As of December 31
Department 01 Itle Treasury
January 30 1995-6
Office 01 Msn.:el F,nance
AVERAGE LENGTH OF THE MARKETABLE DEBT
Privately Held
Years
10
Months _ _ _ _ _ _ _ _ _ _ _---,
5 Months
70
December 31,1994
5 Years, 6 Months
9
8
7
JFMAMJJASOND
I
6
5
December 1975
4
3
2LLLLLLLLll~~~~~~~-LLLLLLLLLLLLLLLLLLLLLLLLL~
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
Departmem of the Treasury
OffIOO 01 Marl<et Finance
January 30 1995-4
MATURING COUPON ISSUES
February - June 1995
(in millions of dollars)
December 31,1994
Held by
Maturing Coupons
Total
11 1/4%
73/4%
51/2%
3
%
101/2%
77/8%
37/8%
37/8%
83/8%
37/8%
11 1/4%
81/2%
57/8%
125/8%
103/8%
41/8%
41/8%
Note
Note
Note
Bond
Bond
Bond
Note
Note
Note
Note
Note
Note
Note
Bond
Bond
Note
Note
2/15/95
2/15/95
2/15/95
2115/95
2/15/95
2/15/95Y
2/28/95
3/31/95
4/15/95
4/30/95
5/15/95
5/15/95
5/15/95
5/15/95
5/15/95
5/31/95
6/30/95
Totals
2.1
Y
6,934
8,344
17,774
102
1,502
2,749
16,613
17,305
7,018
16,797
7,127
8,293
19,152
1,503
1,504
17,527
18,164
168,408
Federal Reserve
& Government
Accounts
1,453
103
2,374
57
182
777
1,146
2,095
370
703
798
273
3,829
417
126
1,227
1,392
17,322
Private
Investors
Foreign ll
Investors
5,481
8,241
15,400
45
1,320
1,972
15,467
15,210
6,648
16,094
6,329
8,020
15,323
1,086
1,378
16,300
16,772
70
433
1,018
0
50
0
1,508
1,419
700
2,063
185
1,021
2,373
4
251
2,813
3,008
151,086
16,916
F.R.s. custody accounts for foreign official Institutions; Included In Pnvate Investors
On October 12, Treasury called for redemption at par the 7 7/8% Sonds 1995-00, Issued
February 15, 1975
Department ot tne Treasury
OffICe ot Mal'1<OI Finance
Janua.ry 30 1995-7
TREASURY MARKETABLE MATURITIES
Privately held, Excludin Bills
$SiI
34
32
30
28
26
24
22
20
18
16
14
12
10
8
6
4
2
0
38
36
34
32
30
28
26
24
22
20
18
16
14
12
10
8
6
4
2
0
28.1
28.2
27.5
.. ""......
-
J
F
Department oflt1e Treasury
Office 01 Marl<el Finance
M
•
Secuntles Issued pnor to 1993
:~~::~:: New Issues calendar year 1994
III!
New Issues calendar year 1993
-.-:-: Issued or announced through January 27,1995
January 30 1995·8
TREASURY MARKETABLE MATURITIES
Privately held, Excluding Bills
$811
30
276
2.
2.
24
22
277
~:~:
..
,.
1997
8"
269
10
30
2.
2.
<>
~:.::
...:..
:::182
20
e
116
106
246
24
22
~?
16
11
3
12
•
2
0
32
34
135
I I- I
I
10
1998
132
120
"
"'::'
,•
34
I
20
1.
1~:~: 11
11
2001
]2
273
2002
32
30
,
30
2.
,•
2.
24
22
,.'.
219
2
0
20
11 9
11 7
•
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January 30, 1995-11
Declaration of Support
Mexico
We support the bold measures being taken to stabilize Mexico's financial market and
to prevent a domino effect in global markets, goals we believe to be urgent U.S. national
interests.
Americans may wonder why the U.S. should provide $40 billion in loan guarantees
to Mexico at a time of cost cutting at home. The rationale is clear. It is much easier to fix
a liquidity crisis now than to fix a much bigger problem later after it has affected financial
markets throughout the world, with great repercussions on the United States. The U.S. is
not offering aid or grants to Mexico, but loan guarantees. The cost of inaction is higher than
the cost of action.
The U.S. has a legitimate interest in guaranteeing that Mexico can honor its
obligations, but we risk courting a backlash that could endanger political stability and
market reforms if punitive conditions are attached to the package. There are limits to the
kinds of conditions a freely elected Mexican government can accept in its dealings with the
United States. The U.S. should not be seen as pushing around a friendly neighbor at a time
of need.
We have confidence in the fundamental soundness of the Mexican economy.
Progress in the transition from a closed economy to a market economy is rarely linear and
setbacks along the way should not be interpreted as a signal to abandon the course. The
Mexican government has already made serious commitments to balancing its federal budget,
exercising monetary restraint, moderating wages and prices, advancing privatization, and
honoring its obligations. We urge the U.S. Congress to take vigorous action to help Mexico
stabilize its economy and thereby promote democracy in the hemisphere.
Presidenls
George Bush
Jimmy Carter
Gerald Ford
Secretaries of Commerce USTR
Secretaries of SlIJte
Secretaries of Treasury
James Baker III
Joseph Barr
Frederick B. Dent
Lloyd Bentsen
Juanita M. Kreps
William D. Eberle
Alexander Haig
Michael Blumenthal
Robert A. Mosbacher
Carla A. Hills
Henry A. Kissinger
Henry H. Fowler
Eliot L. Richardson
Robert S. Strauss
Edmund S. Muskie
David M. Kennedy
Maurice H. Stans
Clayton Yeutter
Lawrence Eagleburger
Cyrus Vance
William E. Brock
Alexander B. Trowbridge
Senior 0fJicWJs
Zbigniew Bnezinski, fomler NSC Advisor; Paul Kirk, fonner Chainnan Democratic National Committee; Sol
Linowitz, fonner US. Ambassador to the OAS; Charles Manatt, fonner Chainnan of the Democratic National
Committee; Charles Pilliod, fonner US. Ambassador to Mexico; Barry Rogstad, American Business Conference;
General Brent Scowcroft, fomler NSC Advisor; Paula Stem, fonner Chainnan of the International Trade
Commission; William Reilly, Jomler EPA Administrator; Andrew Young, Jomler US. Ambassador to the UN.;
Distinguished Scholan
M. Delal Baer, CSIS; John Bailey, Georgetown University; Wayne Bennan, CSIS; Roden'c Ai Camp, Tulane
University; William Cline, Institute Jor International Economics; Wayne A. Cornelius, University of Califomia-San
Diego; Rudiger Dornbusch, M.I. T.; Mark Falcoff, American Enterprise Institute; Georges Fauriol, CSIS; Albert
Fish low, University of California at Berkley; George W Grayson, College oj William and Mary; Peter Hakim, InterAmerican Dialogue; Gary Hufbauer, Institllle Jor Illtemational Economics; Susan Kaufman Purcell, The Americas
Society; Nora Lustig, The Brookings Institution; Edward LlIttwak, CSIS; Bruce MacLaurv, The Brookings Institution;
Franco Mod/gliani, ."'f.1. T.; Douglas North, Washington UniveTS/t\'; Michael Porter, Harvard University; Alan
Reynolds, Hudsoll 11l5tit!lte; Riordall Roett, Joillls Hopkllls Ullivewly; Clint E. Sill ilil , Slallford University; James
Tobin, Yale Universitv; Joseph Tulcilin, Woodrow lViIson Cellter; Sidncv Weintraub, CSIS & University of Texas;
Marilla Whitman, University of Michigan; James Wilkie, Unil'eTsity of CaliJornia.
DEPARTMENT OF THE TREASURY
WASHINGTON
THE MULTILATERAL PROGRAM TO
RESTORE FINANCIAL STABILITY IN MEXICO
o
The United States will use the Exchange Stabilization Fund (ESF) to provide a
program of conditional financial assistance to Mexico.
Three types of support will be provided:
Short term swaps;
Swaps with maturities of three to five years; and
Securities guarantees with maturities of five to ten years.
The Federal Reserve System will provide short-term swaps.
Up to $20 billion in total resources will be made available from the ESF and the
Federal Reserve over a period of 12 months. All of this amount is available in
medium and long-term support.
o
The IMF is preparing an expanded package of support totalling $17.8 billion, which
will include contributions from central banks outside the Bank for International
Settlements. This is a substantial increase over the $7.8 billion stand-by arrangement
proposed last week. The World Bank and the Inter-American Development Bank are
reviewing options for accelerating disbursements under existing programs and
providing other assistance to support reform in Mexico.
o
The central banks of a number of major industrial countries, acting through the Bank
for International Settlements, will consider providing $10 billion in financial
assistance to help restore financial stability in Mexico -- two times their current
commitment. The Bank of Canada has put in place a $1.0"billion swap facility.
o
A group of Latin American countries are arranging a $1.0 billion facility.
o
The major industrial countries, working with the international financial institutions,
will explore on an urgent basis appropriate institutional arrangements to contain the
present crisis and prevent similar situations from developing in the future.
January 31, 1995
DEPARTMENT
OF
THE
TREASURY
NEWS
FOR RELEASE AT 2:30 P.M.
January 31, 1995
CONTACT:
Office of Financing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $27,600 million, to be issued February 9,
1995. This offering will provide about $1,000 million of new
cash for the Treasury, as the maturing 13-week and 26-week bills
are outstanding in the amount of $26,603 million.
In addition to
the maturing 13-week and 26-week bills, there are $16,521 million
of maturing 52-week bills. The disposition of this latter amount
was announced last week.
Federal Reserve Banks hold $11,387 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 $3,456 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 $2,711 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
RR-43
HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED FEBRUARY 9, 1995
January 31, 1995
Offering Amount .
$13,800 million
$13,800 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 R9 7
February 6, 1995
February 9, 1995
May 11, 1995
November 10, 1994
$13,707 million
$10,000
$ 1,000
182-day bill
912794 U4 4
February 6, 1995
February 9, 1995
August 10, 1995
February 9, 1995
$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 standard time
on auction day
Prior to 1:00 p.m. Eastern standard 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
NEWS
'IREASURY
FOR IMMEDIATE RELEASE
February 1, 1995
MEDIA ADVISORY
Deputy Treasury Secretary Frank Newman's speech before the National Association
of Wholesaler-Distributors Washington Conference at 3:45 pm today Wednesday, February
1st, has been cancelled.
-30-
RR-44
() E P :\ ,. R T \. E N T
0 F
THE
T R E ,\ S l' R Y
NEWS
'IREASURY
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASIDNGTON, D.C .• 20220. (202) 622-2960
FOR RELEASE WHEN AUTHORIZED AT PRESS CONFERENCE
February 1, 1995
CONTACT: Office of Financing
202/219-3350
TREASURY FEBRUARY 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-year
bonds to refund $30,487 million of publicly-held securities
maturing February 15, 1995, and to raise about $9,525 million new
cash.
The Treasury will also auction a 64-day cash management
bill on February 9, 1995. Details about the cash management bill
are given in a separate announcement.
I~ addition to the public holdings, Government accounts and
Federal Reserve Banks, for their own accounts, hold $4,169
million of the maturing securities that may be refunded by
issuing additional amounts of the new securities.
The maturing securities held by the public include $1,369
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 7-7/8% Bonds of 1995-00 that were called for redemption
on October 12, 1994, are ctlso being redeemed on February 15,
1995.
This bond, of which $2.0 billion is privately held will be
repaid from available funds.
The 10-year note and 30-year bond being cffered 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
RR-45
HIGHLIGHTS OF TREASURY OFFERINGS TO THE PUBLIC
FEBRUARY 1995 QUARTERLY FINANCING
February 1, 1995
Offering Amcult
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
STRIPS Information:
Minimum amount required
Corpus CUSIP number
Due dates and CUSIP numbers
for additional TINTs
NoncompetItIve bIds
Competitive bids
Maxinun Recognized Bid
at a Single Yield
Maxinun Award . . . . .
Receipt of Tenders:
Noncompetitive tenders
Competitive tenders
Payment Terms . . . . •
$17,000 million
$12,000 million
$11,000 million
3-year notes
\.1-1998
912827 S7 8
February 7, 1995
February 15, 1995
February 15, 1995
February 15, 1998
Determined based on the average
of accepted competitive bids
Determined at auction
August 15 and February 15
10-year notes
A-2005
912827 S8 6
February 8, 1995
February 15, 1995
February 15, 1995
February 15, 2005
Determined based on the average
of accepted competitive bids
Determined at auction
August 15 and February 15
30-year bonds
Bonds of February 2025
912810 ET 1
February 9, 1995
February 15, 1995
February 15, 1995
February 15, 2025
Determined based on the average
of accepted competitive bids
Determined at auction
August 15 and February 15
$5,000
$1,000
None
$1,000
$1,000
None
$1,000
$1,000
None
Determined at auction
Determined at auction
Determined at auction
Not appl i cabl e
Not appl icable
Not applicable
Determined at auction
912820 BM 8
Not appl icable
Determined at auction
912803 BE 2
February 15, 2024 -- 912833 LQ
August 15, 2024
912833 LS 7
February 15, 2025 -- 912833 LU 2
Accepted in full up to $5,000,000 at the average yield of accepted 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.
35% of public offering
35% of public offering
Prior to 12:00 noon Eastern Standard time on auction day
Prior to 1:00 p.m. Eastern Standard 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
NEWS
'IRFASURY
ornCE OF PUBUC AFFAIRS .1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C .• 20220. (202) 622·2960
FOR RELEASE WHEN AUTHORIZED AT PRESS CONFERENCE
February I, 1995
CONTACT: Office of Financing
202/219-3350
TREASURY TO AUCTION CASH MANAGEMENT BILL
The Treasury plans to auction a 64-day cash management bill to be issued February 15, 1995, and to mature
April 20, 1995. The offering amount and other details for
this cash management bill will be announced next Tuesday,
February 7, 1995, at 11:00 a.m.
Noncompetitive tenders will be received at all Federal
Reserve Banks and Branches prior to 11:00 a.m. and competitive tenders prior to 11:30 a.m. on February 9, 1995. The
minimum bid amount will be $10,000 with multiples of $1,000.
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.
000
RR-46
DEPARTMENT
OF
THE
TREASURY
~~/78f9~. . . . . . . . . . . . . . . . . . . . . . . . . . . ..
..............................
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR RELEASE WHEN AUTHORIZED AT PRESS CONFERENCE
February 1, 1995
CONTACT: Office of Financing
202/219-3350
TREASURY FEBRUARY 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-year
bonds to refund $30,487 million of publicly-held securities
maturing February 15, 1995, and to raise about $9,525 million new
cash.
The Treasury will also auction a 64-day cash management
bill on February 9, 1995. Details about the cash management bill
are given in a separate announcement.
I~ addition to the public holdings, Government accounts and
Federal Reserve Banks, for their own accounts, hold $4,169
million of the maturing securities that may be refunded by
issuing additional amounts of the new securities.
The maturing securities held by the public include $1,369
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 7-7/8% Bond~ of 1995-00 that were called for redemption
on October 12, 1994, are also being redeemed on February 15,
1995.
This bond, of which $2.0 billion is privately held will be
repaid from available funds.
The 10-year note and 30-year bond being cffered 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 glven in the attached
offering highlights.
000
Attachment
RR-45
HIGHLIGHTS OF TREASURY OFFERINGS TO THE PUBLIC
FEBRUARY 1995 QUARTERLY FINANCING
February 1, 1995
Offeri ng Amoult
Description of Offering:
Term and type of security
Series
CUSIP number
Auction date
Issue date
Dated date
Matur i ty date
Interest rate
Yield
Interest payment dates
Minimum bid amount
Multiples
Accrued interest payable
by investor
Premium or discount
STRIPS Information:
Minimum amount required
Corpus CUSIP number
Due dates and CUSIP numbers
for additional TINTs
The foLLowing ruLes
Slbnission of Bids:
Noncompetitive bids
Competitive bids
app~
Maxinun Recognized Bid
at a SingLe YieLd
Maxinun Award _ . . . .
Receipt of Tenders:
Noncompetitive tenders
Competitive tenders
Payment Terms . . . . .
$17,000 million
$12,000 million
$11,000 milLion
3-year notes
\.1-1998
912827 S7 8
February 7, 1995
February 15, 1995
February 15, 1995
February 15, 1998
Determined based on the average
of accepted competitive bids
Determined at auction
August 15 and February 15
10-year notes
A-2005
912827 S8 6
February 8, 1995
February 15, 1995
February 15, 1995
February 15, 200S
Determined based on the average
of accepted competitive bids
Determined at auction
August 15 and February 15
30-year bonds
Bonds of February 2025
912810 ET 1
February 9, 1995
February 15, 1995
February 15, 1995
February 15, 2025
Determined based on the average
of accepted competitive bids
Determined at auction
August 15 and February 15
$5,000
$1,000
None
$1,000
$1,000
None
$1,000
$1,000
None
Determined at auction
Determined at auction
Determined at auction
Not appl icable
Not applicable
Not applicable
Determined at auction
912820 BM 8
Not appl i cabl e
Determined at auction
912803 BE 2
February 1S, 2024
912833 LQ 1
August 15, 2024
912833 LS 7
February 15, 2025
912833 LU 2
to aLL securities mentioned above:
Accepted in full up to $5,000,000 at the average yield of accepted 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.
3S% of public offering
35% of public offering
Prior to 12:00 noon Eastern Standard time on auction day
Prior to 1:00 p.m. Eastern Standard 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
1I....................................~~/78~q~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .
OmCE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR RELEASE WHEN AUTHORIZED AT PRESS CONFERENCE
February 1, 1995
CONTACT: Office of Financing
202/219 - 3350
TREASURY TO AUCTI ON CASH MANAGEMENT BILL
The Treasury plans to auction a 64 - day cash management bill to be issued February 15, 1995, and to mature
April 2 0 , 1995. The offering amount and other details for
this cash management bill will be announced next Tuesday,
February 7, 1995, at 11:00 a.m.
Noncompetitive tenders will be received at all Federal
Re s e rve Banks and Branches prior to 11: 0 0 a.m. and competit i ve te nd e rs pri o r t o 11:3 0 a .m. on February 9 , 1 99 5.
The
mi n imum b id a mo unt will be $1 0 , 00 0 with multipl e s of $1,000.
T ~n d ers wi l l n o t be a ccept e d f o r bills t o be maintained on
the book - pnt ry r e cords o f th e De p a rtme nt o f the Treasury
' TREAS UR Y DIRECT) . Te nd er s wil l not be r ec e ived a t the
Bureau o f the Public De bt, Washington, D. C .
Additi o nal amounts o f the bills may be issued to
Federa l Reserve Banks as agents for for e ign and interna t i onal monetary authorities a t the average price of
accepted c o mp e t i tive te nders.
~~is
o ffe r ing o f Trea s ury s e c uriti e s is governed by the
and co ndit i on s set f o rth i n the Unif o rm Off e ring
Ci rcular [ 31 CFR Par t 356 ) f or t h e sal e and i ssue by the
Tr easury to the publi c o f marketable Treasury bills, notes,
an d bo nds.
t~rms
000
RR-46
D E P .\ R T \. E :'\ T
() F
T JI E
IREASURY {(I);
T R E .\ S
r
R Y
NEW S
1789
OmCE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622·2960
FOR IMMEDIATE RELEASE
February 1, 1995
REMARKS BY DARCY BRADBURY
DEPUTY ASSISTANT SECRETARY (FEDERAL FINANCE)
TREASURY QUARTERLY REFUNDING PRESS CONFERENCE
Today, we are announcing the terms of the regular Treasury
February midquarter refunding.
I will also discuss Treasury
financing requirements for the balance of the current calendar
quarter and our estimated cash needs for the April-June 1995
quarter.
1.
We are offering $40.0 billion of notes and bonds to
refund $30.5 billion of privately held notes and bonds maturing
on February 15 and to raise approximately $9.5 billion of cash.
The three securities are:
First, a 3-year note in the amount of $17.0 billion,
maturing on February 15, 1998.
This note is scheduled
to be auctioned on a yield basis at 1:00 p.m. Eastern
time on Tuesday, February 7, 1995.
The minimum
purchase amount will be $5,000 and purchases above
$5,000 may be made in multiples of $1,000.
2
Second, a 10-year note in the amount of $12.0 billion,
maturing on February 15, 2005.
This note is scheduled
to be auctioned on a yield basis at 1:00 p.m. Eastern
time on Wednesday, February 8.
The minimum purchase
amount will be $1,000.
Third, a 30-year bond in the amount of $11.0 billion,
maturing on February 15, 2025.
This bond is scheduled
to be auctioned on a yield basis at 1:00 p.m. on
Thursday, February 9.
The minimum purchase amount will
be $1,000.
2.
We are also announcing that we plan to sell a 64-day
cash management bill, which will be issued on February 15 and
mature on April 20, 1995.
This bill is scheduled to be auctioned
at 11:30 a.m. on Thursday, February 9.
We will announce the
I
amount to be sold at about 10:00 a.m. Eastern time on Tuesday,
February 7.
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.
On October 12, 1994, the Treasury announced that on
February 15 it will call the 7 7/8% bond of 1995-00.
This bond,
of which approximately $2 billion is privately held, will be
3
repaid from available funds.
We estimate that the Treasury is
saving about $35 million by exercising the call.
4.
As announced on Monday, January 30, 1995, we estimate a
net market borrowing need of $93.7 billion for the January-March
1995 quarter.
The estimate assumes a $20 billion cash balance at
the end of March.
Including this refunding, we have raised $31.7
billion of cash from the sale of marketable securities.
This was
accomplished as follows:
raised $4.9 billion from the 2-year notes that settled
January 3 and 31;
raised $14.6 billion from the 5-year notes that settled
January 3 and 31;
raised $2.0 billion from the 52-week bills;
raised $8.0 billion new cash in the regular weekly
bills, including those announced yesterday, January 31;
paid down $7.3 billion in the 7-year note that
matured January 15; and
raised $9.5 billion of cash from the notes and bonds
announced for the refunding today.
5.
The Treasury will need to raise $62.0 billion in market
borrowing during the rest of the January-March quarter.
The
financing remaining to be done before the end of March can be
accomplished through regular sales of 13-,
26-, and 52-week
bills and 2-year and 5-year notes in February and March.
Another
4
cash management bill may be necessary to cover the cash low-point
in early March.
6.
We estimate that the Treasury will paydown $5 to $10
billion in marketable securities in the April-June quarter
assuming a $35 billion cash balance on June 30.
7.
Although the Treasury decided to issue a bond maturing
in February 2025 in the refunding announced today, we do expect
to periodically issue bonds with Mayor November maturity dates
as we did in August of 1994.
This strategy will help to balance
interest payments between the February-August and the MayNovember payment dates and is expected to facilitate stripping of
long-term Treasury securities.
8.
Beginning with the two-year note auctions scheduled for
February 22, 1995, competitive bids in Treasury note and bond
auctions must show the yield bid, expressed with three decimals,
for example, 7.123 percent.
Three-decimal bidding will apply to
all Treasury note and bond auctions.
Competitive bidding in Treasury bill auctions will remain
unchanged.
That is, the bid must show the discount rate bid,
expressed with two decimal places.
noncompetitive bid procedures.
There is no change to
The restriction against using
fractions still applies to bids for all securities.
5
The purpose of three-decimal yield competitive bidding for
notes and bonds is to increase participation in Treasury auctions
and to conform the auctions to market practice for when-issued
trading.
9.
We will accept noncompetitive tenders up to $5 million
for each of the notes and bonds being offered.
10.
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.
11.
I also want to mention that the Treasury is seeking
comments on proposed rules to implement large position reporting.
The Treasury authority to require reporting of large positions in
certain Treasury securities was enacted as part of the 1993
amendments to the Government Securities Act.
Our request for
comments was published in the Federal Register for January 24,
1995, and we want to encourage all interested parties to comment
by April 24, 1995.
12.
The May midquarter refunding press conference will be
held Wednesday, May 3, 1995.
4576
Federal Register I Vol. GO. No. 15 / Tuesday. January 24. 1995 / Proposed Rules
§ 122.61-6 SBA gra~t to inter
marketing. managem nt, and tee
assistance.
(a) General.' * • In addition. eitc
intermediary is au orizcd to exptmd no
more than fifteen ( 5) percent of thp
from SBA to
grant funds receiv
provide informatio and technical
assistance to small usiness concerns
that are prospecti v borrowers under
this program. * *
(b) Amount ofG Ilt. (1) Subject to the
requirement of par graph (b)(2) of this
section. and the av 'Iabi Ii ty of
appropriations. ea h intermediary under
this program shall
eligible to recetve
a grant equal to 25 ercent of the total
outstanding balan
of loans made to it
bv SBA. provided, o wever. that if an
intermediary provi es no less than 25
percent of its loan to small business
concerns located i or owned by one or
more residents of
economically
distressed area. it
all be eligible to
receive an additio al grant from S8:\
equal to 5 percent f the total
outstanding balan
of SBA loans madE'
to the intermedia . The llltcrmC(iJan
shall not be requir' d to match such
grant.
(2) * * * The re uirement that the
intermediary cant bute 25 perCt~nt of
the amount 'of the SA grant is
mapplicable to an ntermediary which
provides not less an 50 percent of I IS
loans to small busi ess concerns located
in or owned bv on or more reslden~s
of an econom(calh distressed an'd.
7. A ne\'\' ~ 122.6 -13 wOIIL1\,..
to read as follows:
dl 1 ,\pd
§ 122.61-13 SBA 9 aranteed loans to
intermediaries.
(a) Purpose. SB, n1JY ~uarJnt!~p n{)~
less than 90 perce t nor m(J[e than lOll
percent of a loan ade to an
Intermediarv by a r-profit or nOI,'
profit entity or by lliances of such
entities.
(b) Number of In ermedJDrws. S13;\
shall not guarante loans to more than
10 intermediaries' urban arRaS or mOff'
than 10 IDtermedi~ ies in rural arRas
(c) Maturity and Repayment of
.\licroJoan Guaran eed Loan. /\n S8:\
guaranteed loan m de to an
intermediary unde this section shall
have a matu'ritv of 0 yearS. During thl~
first year of each s ch-Ioan. the
intermediary shall not be required t[l
repay any iriterest r prinCJPal. cdthough
interest will conti I ue to accrue dunng
this period. Durin the second through
fifth years of such loan. the
lntermediarv shall pay intf~rest on]\, ,
During the sixth through tenth \,f'drS ot
the loan. the intermRdiarv shal] mal,,,,
interest payments and fully ilrn()rtlzl~ tlw
prll1upal.
(d) intprpst rote. The interest [iltc Oil
a SBA guaranteed loan to an
intermediary shall be calculable as spt
h III § 1 2z. 61-6.
(I'
(;uara
ermlnotioll of SBA Authonty to
e, The authority of SBA to
guarantee ans to intermediaries under
this § 122.61
3 shall terminate on
September 30.
7.
<lIJtl<lble for public inspectIon and
LOpVll1g at the Treasury Department
Librar\,. Room 5030. Main Treasurv
Buil(iJ·ng. 1500 Pennsylvania A ven'ue
NW. Washington. D.C. 20220
FOR FURTHER INFORMATION CONTACT: Ken
I'apaj (Director) or Don Hammond
(ASSIstant Director). Government
Securities Regulations Staff, at 202219-3632. (TOO for the hearing
lInpaired is 202-219-3988.)
SUPPLEMENTARY INFORMATION:
Administrator.
IFR Doc. 95-1742 Filed 1-23-95.
BILLING CODE 802~1-M
DEPARTMENT OF THE TREASURY
Office of the Under Secretary for
Domestic Finance
17 CFR Parts 404 and 405
RIN 150S-AA53
Amendments to Regulations for the
Government Securities Act of 1986
AGENCY: Office of the Under Secretar\'
for Domestic Finance. Treasurv.
ACTION: ,,,,"d\'ance notice of proposed
ndemallDg.
SUMMARY: The GO\'f~rnmel1t S':UlfltIPS
/\cl :\rnE'ndrnents of 199:1 authOrize tht'
Secretary of the Treasurv (Tn',1s:ln I til
Prt'SCfI h,' nIlE'S requiring jll:rso!1s
holdine;. lllaintail1In~ or cOl1tr[lIIIn.~
i;lfg" 1'(lSItlUllS 111 t(j~\W-ISSI)(:d or
rt'('cnt1\· I"SIWd Treasurv s('curltll'S t,l
keep [1'[ ords iwd file re"ports of s[lch
Idr~" P'hltlOll", The 1'[(:3SIIn IS I',',l"ll~
this :\d \dIlCe NotIce of Proposp,]
Rui"l1Id)"Il1~ (:\NPR) to ad\'lse !lidrk,'!
partlll;J"ill~ of our intentIon to i"s\Ji'
Llrt'," p,)sition recordkprpIllg <lIlt!
rt:portlng re8ulations. descrIbe tlJl'
purpus"s (,f. and objectives tobr ,
3chl"\ I,d [n·. such rules and idf'lltlfv ~,'\'
dl'llll'Il'S rdated to any rule propus,d
Wt: 111\'ite comments, adVIce and
rrCOllliTl"I1(iJtI[lflS from interrsted
partir'S regardIng how the larg'~ positIO)l
recordkeepwg and reporting
reqUIrements should be structufl~d. To
assIst In the sollcitiltion of comments
and i() facilitate 111 the developmrnt of
ruk,. responses to specific questlolls art'
reljllPsted.
DATES: C:oll1!llt'nts must be rece)\ ed Oil
or befure ,"'"pril 24. 1 995.
ADDRESSES: COllllllents should be sent
to C;(l\ernment Securities Rp~ulatil)llS
:"t"ff. bllfl'aU ()f the Pub:ic Debt,
[JppnflI!lCnt of thf~ Treasurv. 9~lq E Strei'!
NW . KUUTll ,11 '). \Va~hillgt()n. D.C.
:'1):'I'I-IH)!l] C ()I11Illl'nts ff'( pi\I't! I'.d] 1)('
I. Background
The U.S. government securities
market is the largest and most liquid
securities market in the world. The
enormous liquidity and pricing
effiCIenCY of this market provide
lllc,dculable benefits to other finanCIal
Illarkf~ts in the United States, and
throughout the world. by providing J
cOIltinuous benchmark for interest ratr-,
OIl dolJar-denominated instruments
,l( )O;,S the maturity spectrum. The
government securities market has
consistently demonstrated its abilltv til
absorb thl' large amounts of Treasun
securitIes that must be issued to fll1ancl"
the operations of the U.S. Government
In a cost-effective manner for the
taxp,wt:[. which is the market's pr,mall
publiC purpose. However. certam e\ents
that occurred in 1991. speciflcallv a
",hOlt sqlweze'" in two different
Tn'dSII n' sP( uri ties led to the reali zatJ 0;',
th;lt II',i.'r;'\ finanCIal regulators need.
1[,Hll 11!ll', to tlllle. more Information
,Il)II:I' h"ldlIlgs of vcr\, large amoUrlls IJ:
'I if' ,','1[\ SI'Luntles.
..1 E', ,'!I!,
(;'J\'Jng
RlsP t() Larr2P I'r<sltJr"
n,';), ,["!iilL: .. 'uthori(v
"[ iii' ()[ (urrence of short squepzps I:'
tiIl' "iJ\ f'rllll1ent securities market III
1'1'11 IS {:;>;Lu~sed lIJ some detaIl In tll:'
I,,;::t Ft'\Jort un the (;overnment
.'-,1'1 '.;rl:l~s ~larket (joint Report) ~ \\'llJit
\ jl'1 <I , of Tn:asurv securitI~s of slnllbr
1l1.i\1l~Itl' \'Jf\' constantly. there \\'t;re t\\::·
IllSt3ilL~~ Junng the Spring of 1991 In
which pJrtlcular securities traded well
\)1'11)\\' the correspondmg yields for
sI!llIidr $I'curities for an extended Pp[)[)(:
of tiIllt'. In the first case, a short squeezl'
dl~\'f:l[)pt:d in the two-year note
dlILlllJlled on April 24. 1991. When th~'
SqLlf~t'ze first became eyidept in mid,
1\1JI'. thl' \ idd on the April two-veill
",hon "queen' can occur when an e\P!~\
h\' ~hor1 seller.::.. reduce~ the ~urpi:,
"I'r :HltW;" d\d.:ablf' in the markrft}!alf' 11 (.~n 01<...(,
(J( ([If d':..-l re"u II of dellherate beh'3vior O\' unt O~
1/\
Uild\;t;( lUdtt'O
!lIoff'
nl'-\[~t't p:~rtl(\PJnts to rf'~1r)(1 trw
1!\I'~I")\' d~l\ln~
',('{ ,;rJ!!f".,
1)1':)d~lnlt'I\: of
i"\. ~"I;'~I'
\
\\JPP:\
up pflce...,
thp 1 rPdSUf\., ;-,et UfJ1Jt':- .-1r,(1
<Hid H(J,nd llf (>11\ 1'[::1'
,C~::'LI:-",\()!l
!I,,'! 1,\:,.'.1 1\(' .... ':-\1' ~\qt'rIll(JJnt IiI'J" t1 f.'1 ,",
~ '. I, 1.';. , . .' i,!:·
. - " 1( (' ,
(
'.'
I,'
I
Federal Register / Vol. 60, No. 15 / Tuesday, January
note had moved considerablv out of lilH'
from surrounding market rates. and t)1('
notes were "on special" in the
repurchase agreement (repo) market.'
The second incident involved thp
two·year Treasury note auctioned on
May 22,1991. In that auction, Salomon
Brothers Inc. (Salomonl. a major
participant in the market, submitted
large, aggressive bids for itself and two
of its customers and was awarded a
large portion of the amount sold. As a
result of these awards and additional
purchases in the market. there was a
concentration of holdings of the May
two·year notes and the prices of the
notes in the cash and financing markeh
were distorted. At that time, a number
of market participants contacted the
Treasury and the Federal Reserve Ball~
of New York (FRBNY) expressing
concern· about a shortage in the May
two· year note 4
The apparent short squeeze was
serious enough that Treasurv officials
informed staff of the Securities and
Exchange Commission (SEC) of pos"ibl!'
problems and trading irregularitlPs
stemming from the auction and
subsequent trading, Following that
notification. the Treasurv and the
FRBNY activelv monitored the marht
for. the Mav two-year notes and the SEC
and Justice began investig3tlons Thf'
government investigations, and
Salomon's internal re\'If'\\, tl1:;\ \\'J'~
conducted in response to these
Investigations, ultimat p ':\, reo;ultr-r\ In
senes of disclosures h', Sajrl1:1'.111 !::
August 1991 that it ha'd ,,::tJ::~ltt,'d
,
unauthorized customf'r hlC1S 1:1 ,,'\1': '
auctions in 1990 and 1991 '
ThE' events l!l\,olvlnr; th .. l'ldd:w:
Impropnetips of Salom'':1 df:d tlli'
squeezes of TreaSllrv nOi('S ;lj,() f(J(J!',f',:
attention on large inve:;tmr'"t f'ntlt!!',
("hed"e fund,"" bplng on" (If t:,,· :llW'
prorrll'nent types) that I-'!:J" J ;;:l!(lr rf,i,
In the government securrtl"s nr;lr~f:
\1arlV of tht'se in\'estl1ler:~ krlfh,
h)wever, a:-p exempt fr(l'~l []1'J',t T\["
U,S, regulatorv oversl?ht
,
\Vhile large Il1vestment fun(h han'
regularlv placeri bids ill Tf"~',l:\'
iluc:tlons in thp past, it W[1' flot \::r!J! !::"
1990 that these funds l:J('~:1;1 to (,,'
awarded large amounb of ~~'(\lrlllt'S l:
Treasury auctions, sugghtlllg t!:;J\ tl1f'''
\ A c:;en::-I!v :~ <;dlc1 thf! bt' . (I:-~
to
I!~ ,:,(<l:-Cltv,
<,,[)t'(
a hol<1f!r can e:l',,;
,
\\ ','
I;itl!.l r~'~)rl
that sppclflC securJtv <11 <1
and thue:; d lo\\'er fl[:d:'1 ,;"<2
Ifl\"oh'IOg
j(J .... ""'"
If',ter'''':'
(I','
r,~!I'
1:
I
'J.
[):-~·.. ]\lln~ or p'npr<il ft'PO raU'
4!f'.!llr:11d~IOn aoout prir.-:.a;v ~~t',I!':
i n>dSU~V ,)t"'ClIritlf~ IS co!!pctf'n if' " :! .
~ t,(:,,~,~1 Rf'~,t'rvp fI,ln~, nf ~py.; Y(J'"
' ...... pp ~,11(,i!v'n
i·~
Prr<:,<;
Pt'jf'.I('··
1 (1 (. !
(',
had highly leveraged positions, Like
lllost Il1vestors, they typically bid
through major primary dealers. The
combined awards of the investment
fUIld and the dealer which submitted
such bids would often represent a
significant portion of the publicly
offered amount of securities,
Regulators had little, if any. authority
to gain access to information about the
holdings of many major investors,
Investment funds. other than those
required to register under the
Investment Company Act. e,g" mutual
funds, are not generally subject to SEC
oversight 7 The SEC also has little
authority to obtain regular information
on the government securities acti vities
of large investors, Treasury also has
little access to information on their
act I vities. other than auction·related
information, The CFTC is the only
regulatorv age'lq: with regular reporting
cuntact With certain large investors,
However, the CFTC's responsibilities
p,tend prImarily to the futures market
n
Ilt'gulatory Agencies Responses to
,\furi-.t'I {':-ofllems
",' "
[\--1,;
4577
auction process 9 A few of the more
sigl1lEcant reforms that are related to the
issucs addressed in this notice Il1volved
improved surveillance of the market and
the establishment of an automated
s\'stem of auctioning Treasuf\
securities, A new surveillance workll1g
grou p (com prised of Treasury, FRBNY,
SEC, Federal Reserve Board. and CFTC
officials) was formed to improve
suneillance and strengthen regulatory
coordination, FRBNY. acting as
Treasury's fiscal agent, as well as to
support their monetary policy
operations, has enhanced and expanded
its market oversight efforts for collecting
and analyzing information needed for
surveillance purposes, In addition, the
Treasurv increased the maximum
amount-from $1 million to SS million
for noncompetitive tenders: published CJ
thoroughly revised, comprehensive
l' 111 form Offering Circular for Trpasur:
Sf'cGrities to codify and clarify 1 reasur:"uctlon rules: and in August uf 1992,
bpC:oil ductlOrung 2- and 5'vear notes
US1;1I2 a sll1g1e pnce auctIOn (or so·callec
[),,:ch auctIon") experiment
•
l
I
I
l
,r"p'" ,\( t oj 1t.J:U. hed~e lund qr:j(~:'l;-es an'
t·
,jl ::11'\ Cid.':ll ,Hl e,enIO:10:i trorn [<->~ls:er i:'l-'
'11;t""'llt'(~:f' o.,unr,f'r:--Op·(l.OI1 lr):dlnf'~·'
1.,ch2:1l,!e /\L1 of 1~n4. cHICl a hed~p IU::I:
,JdliY ,,',flU
I ~ I I ',\ I'
, I
turt'd
<.,0 (IS
r. t I ~ (\
I -
not to
~ r ,i
I. (:
\ I
t.H'
rl
an
Inn's:mer,t
,\ "", ) : ."
:rl't pc, Id\\'<' <in ;I~pl.\, t() 11I,(l,I...!'
."
"~ ,--,~ (If':,llkrl Cl.~Cll'"
Proposed Rules
(.' CongreSSIOnal Response to MarJ..e!
Bl'grnning in September 1991, the
}','r/,jems-(;m'ernment Securities Ar:
Treasury. the SEC and the Federal
,'\rrlPndments of 1993
Rt>serve' cond ucted a thorough
l'xamination and review of the
T~e short ~eezes of t;;e Spnng of
b!o\'crnment securities market and
1Cl'Jj ,md the re\'elations :n :\ ugust 199:
Illlhlished the foint Report in JanuJ,n
I: ,,, ~(lr.~dolr.~ b:, S;)lomon in the
1 (J'l~ This rr,port contdinpd many
,- :,cj~(' LinG sale ofTrcasG~\' securitle~
1"C:I~L!\lve and regulatory
,;:-cd dlif:ng a penod \\f:erl Con"ress
ll,iJrri:;g govcmrr:e;-,: securit,l:S
,f'l «[lll1lcnciatlClns fur strengthening
,,', ",'.;c.:i;t uf tfw market.' Une
,:,tlun t(" ,,:nullg otLer :~Ings,
'''f,t'lllItH'ndalloll, which IS the focus of
,':,(Iril.f' Trl'ilsuf\"s ruit";:;2klng
"It', ll:-'.r1r,; the'r.S,-\, \,,~,ich \\'ct:. SV
"" ddvilncc notIce of proposed
~ .. f"Ill;l~lng, lf1\'(,lved clarifYing arid
',:)If(' {l:1 October 1, 19'] 1 " Thes'
'.:-"; in t:u,' ;::()\'crnrTIent s~<LLritIE?s
",,'Il(~IIJ:': 'I r(,;l"\l:-V'S :It!thont\' undr,
':,:' (.rl\'r'rnlTlcnt Sr:cufitl(,s :\ct of 1l)P,1,
...•.._< ~r),!r~ PC: In pxtl'll~.":' rC\'ie\'.:Jf'r:!!;();~'"' (f thE~ rndr~J't ~~;:d tr>
(,:,,\j to rCGuirl' rpportl"g b\' all hold!'I'
,1 '~()r adl-:.~1(jn31 rcfor;ns :1-)
f : i,,[,:I' P()Sit!OIlS ill Tredsurv securitll"
..:tr;t'l! li"> ;-r'~ul(tti()ll >. ~~-::l'r(JL~
T: ' 'j r.. :,,;'lr(s auti]()nty tu I-'fcscrib('
::':·P'->~lll:'. :: cun:!nittt,t' rJ':l:-~ngs d:-.
" , 'frdH't'jlIIlg alld repnrtlllg rul!'s un(!r-;
".:1:1\(' r;l,,~~,-llP ~l''''~,:C!:-.S \\'pre he:
(;c,:\, pf)(Jr to tIle an;endments of
'h tIlt' ~Jt':;Jt(' anrlliuu'c uf
: ,"', Ft'[[lllttl'ci a lilrgf' position
','f"f'11\.11 ':l'~ from 1'.12" 1(J~11 thrcL:'
:"ltf':-1l'l~ S\'stI'Ill dpSI~npd to rno"lto,
'1J':I('f';,tratlons of p(lsIti()ns at
fall of 19 rJj
\:';\O\lc: I " 3S r.oted, the T:-casun
,,'\I'[I;lllf'llt Sf'( IIritlf'S brnkl'rs ilnd
',' ,ill'li ,C', e,,,1 fdoll;;> ,:, r"spc;:,,,'
1t' tl t )r
",lllfl1l(j[1 \ IUlatlOns anu short
I h' Tfl,:;;,llr\' also took acllllllllstrJtl'.f'
,,' "Zl'~ t:~l' 'I rcasur\, also requpstp,;
lei fq~u!dton' actions to s:wngthen
, ",:1df I! a:,ri strengther.ed ~pgulatc:-
(f"f'r'dl:t:t and survcillance of thc [1ldr~('t
\" ','.n (l\cr t;iC governme:',t securitl'"
d::ri llldlrltdlJl a fullv competitlvP
[" :: ..... t \\hIUl \\dS realrzeu l:i the
".1 11<' ! IfHestrnr:lt lr.lf'rp<:.ts 1f1 If)\p<;lmei'l
(, ", "rilllll;n: :-Of'cuntles :\u
···'t'i',!'I;''> i:Hl~ not rp~I')tered pursua.nt to ::.1'
, .. ':j(lrnf'!lt~ of 1 qcn ((~S:\,\ I \\'h:(:
-.'If',>
f), : ' .
24. 1995 /
\' I ' , ..
.:
~"
r"
_~ ',t.':- I
I, (,
r
~
','.
u: '
L ...--.,'
.,1
:or\ (' :l'; ,(:l
(1 dJt[l()r;t\. lr'J:;~
l)'.:ut.>t.'f :
Federal Register I Vol. 50. No. 15 I Tuesday. January 24. 1995 I Proposed Rules
4578
signed into law by President
Clinton on December 17.1993. One (If
the major provisions of the GSA:\
authorizes the Treasury to wnte rules
for large position reporting. I I This
provision is intended to improve thp
information available to regulators
regarding very large positions of
recently issued Treasury securities held
bv market participants and to assure
that regulators have the tools necessary
to monitor the Treasury securities
market.
Section 104 of the GSAA. which
amended Section 15C of the Securities
Exchange Act of 1934. authorizes the
Treasury to adopt rules requiring
specified persons holding. maintaining.
or controlling large positions in to-beIssued or recentl \' issued Treasury
securities to file reports regarding such
positions 12 As explained in a floor
statement on this legislation. this ~rant
of authonty " • • • rests on the belief
that the Secretar\' of the Treasur\' lS well
positioned to determine whethe~ large
position reporting is necessary and
appropriate in order to monitor the
Impact in the Treasury securities market
of concentrations of positions and to
assist the SEC in its enforcement of the
Exchange Act. It is our expectatIOn that
substantial deference will be accorded
to any determinatIOn that Treasurv
makes in this re:;:ard" I '
.
Unless other\~15e specified bv the
Treasury, the Idl1'P position reports are
to be filpd with tr:p FRRNY, actin" as
Treas\lr\"s i.lgpnt Such report'> \\ Iii III
turn be provldpd to the SEC b\' the
FRBNY. Th, lecI~;]atlOn also i.lutn()~lz''',
Trei.lsur\' to prp"G;he r,'cordlt'l'l-'I;;~
rulps for holders nf li.lrge posItions til
ensure thilt the\' c..m complv With thl'
reporting requIrements It also perl11lb
the Tn'aSllf\' tn ""·'IIlnt. consistpnt with
~':1t' pubLe l-Il~tlrt'.< ;:1)'d thr:~ pruU> t)()n (/
\\'dS
pstnrs. any pt'rson or class of
l1<'r5ons. or any transi.lction or class of
tr~1llsi.lr.tions, from thc largc position
r"portmg rules. Thc legislation grants
Treasury flexibility and discretion in
detcrminlllg the key requirements and
ft'dtures to be addressed in the rulesdefining which persons (individually or
as a group) hold positions; the size and
types of positions to be reported; the
securities to be covered; the aggregation
of positions and accounts.; and the fonn.
manner and timing of reporting.
To provide the reader with a sense of
the CongreSSional intent and importance
associated with large position reporting,
the following are excerpts from House
Report 103-255. 14
t:1\
In order to monItor developments In the
Treasury securities marketplace and better
polIce against fraud or manipulation. the
Committee believes that the go\'ernment
needs surveillance tools similar to those
emploved in other financial mdr~eh. Une of
the more useful tools that regulators In the
commodities and equities marketlsl currentlv
have IS the abilltv to obtain information
rpgardinf( the tradlOR activities of malor
market partiCIpants. In the government
sPCurllles market, no similar statutory
authorltv has eXIsted which would authorize
federal regulators to requIre all market
partiCIpants to make informatIOn available
[(·gardlng large pOSItions being assumed In
the marketplace, and currently government
securities brokers and dealers only report
su( h :nfonnatlOn on a voluntarv baSIS.
• • • Th" purpose of such reporting
\,(,uld he Similar to the purpose of the
)'<I'11101l [f'Dortn]>:; that is done 10 thp
(U:l:rnu<iJtv futur." fr.ar).."t-It would enable
12',,·,"llfller;t J>:;eflct.}S to mOllllor rnar~ct
{It''.'t'juprnpnt~, p(lrtlcu13.rl~' thoc;p dc.,<.,(H l~dt'd
'.\ ;:h (ull( L'rltrat.:c
t·"
rJ{JSitl011~
• •• L.1rgt' r)()~'1'tlr)[l fl'portlng al(~() wCJuLi
ti,.,.fui In JS~Urt~g that f"guiJtOfs Cd!1
n;orlltor the pOSit lOllS of major mar)..,,!
L'"rtillpJnts ()thPr than gO\,Pfnnlf'n! ",( llr,tlcs
nfnJ...erc: r1!lri c1f.'Alf.l:-s under (t'rLlln
(liCllr11r..;tanCf:>s.
In
p~irtlculdr.
It
wdJ
~Hr)\
](it)
that the government can (om!,,'1
e,sLI,)<;ure uf position informatt'Jn whe;]
lW(PSsa!", frum all large md~ket partJl Ipants.
Ir](Judlllg J group of relatlvelv unrE'gulated
Cltttlt'S called 'hedge funds'.
• • • The Commtttc€ expecls the
Set retarv to take Into acc.ount the (osts and
tJurd.;ns·of the reporting requirement to thp
Investor and its Shareholders or beneficial
()wners as well as the impact on the
efficientv and liquidity of the Treasurv
market. The CommIttee aiso expects that III
prescribtng such rules. the Secretarv wlil
~onsider the views of. and consult \vltrt. the
CommIssion, the Federal Reserve Hoard. and
the Federal Heser\'t~ Bank of .'<CI\' Y()r~.
"SSUfdllc.e
In adr., I :(;I'l II) Ie ~
',:-'" P"Y pro\ ,'iln'\'.., ,-' ': .. ' (,;,;\;\ ,);e" Per:-,,,CI~(:','.
rfaL.;tr.or:zatJun of I:-t'c:s,Jr~"s r',ljerniJ)..lr~~ 2 . . : . ./Jrd\
, I
authonzatlon tll ('Ire~c;-,t").e salPS practIce rUlE'S fu;
the ~o\'ernmflnl ~t-'cu:-:t.es market: lncrfaspd
2:....tt,oflt\' to the SLL I~' :Hf'Vcnt trauduJe;)t a:-.ri
manlPulati\.'e acts d;;l: D:-aCIJCes. prDhlbJ~I()n U;J
fdis€' nnd rnisleacH"~ ,,:a'~men!s In g[werr;.:TiCLt
seCUritIes O[f"rlllgS. 6:,C] Jutnoflt}' to the 2>~C 10
rece~\"e records 01 ~o\.f'rT'.ment securities
trans.actJOns for trace reconstruction purpusec.
" P L. 10}-202. S,'c. 104: 15 U.S C. 7Bo·S,:'
I \ Floor <;Iatemenl oJ;'. S. 422. The Co\'rrnme;.~
~~~U~:tlCS Act Amer:(::~.r'~ts ul 19t)), rerrt'<;e::tlf1.~
tre "ews of the ChalCcr:rln and Ranking :-'Lno'!fv
~.1em6er of the House Commil!f>e on f-~npr~\ ar:d
(.Dmmrrce end the Cha:rrr.all and Ran~lc~ \~.nOfll',
M~mbcr of the House Subcommittee on
T.:lecommunlca!lor.s d;]r1 FInance. Conj.!.w<'::;Jon(]/
Hoccrd (:--;o"cmbf>,:: l'l<J.lI;d H. 10~b7 rur (J!h",
"'~1S1"ttve tmtnr\'. ,pp S. Rpl 1'-,}-1091ltli:- 2-.
1Y~31: ConVrr'ssJ(Jnoll1~<ord (Iulv 27. 1993) al S
(ISF)1-Q8f)6: H. H.ilt 1(1 \-~')~ (~f'ptf>mber :23. lQY L
d::G {.or:r:.rt'\\Wf)rlJ f{, ~ ,'j J)c!obf': S lCY)] at H
-
;' ,I' _ -
ill-,
The Trcasurv ll1tends to prescribe
largp position ~eporting mles that I11Ppt
1..1
House
Co[nml!tee on
Energ.v dnd
C()r:~mt;rl.l',
!'!"nfJr:to:\C( rtrl1 l',1f.·. HR.61R.HR R,·p'
IUI';'.-':J, lOll) (.(JTI~, 1 . . ! :::-/'~s. (>qd/'r::['~'; ~ j 1')'; iJ. ,:~
thl~
mtent of Congress, aft~ not O\l'~,·.
burdensome or costly, do not lmpa:r ~r-Jl;
liquidity of the market and do not
increase borrowing costs to the Fede~(jl
govcrnment. Accordingly. the Treas un
lS soliciting input from market
participants and other interested partIes,
and requesting answers to the specific
qucstions set out below. as to how large
position rules should be structured
D. Large Position and Large Trader
Reporting in Other Markets
Large position and/or large trader
reporting rules are currently in place or
being developed in several other U.S.
markets (e.g .. futures and equity
markets). Readers may wish to
familiarize themselve~ with these 12;-~c
trader and large position reporting
rcquirements in order to better
understand how such reporting S\ stem,
operate and to assist the reader in
commenting on this notice.
C:ITC rules require position repo;-1.lng
bva \'arietv of entities or groupscommodity brokers. contract marlers
ami traders.15 Thc CITC regulation:,
requIre reports when individuals or
gr()up~ acquire specified levels of
futures and options pOSItions in Ll;.,
cOlllIlloditv markets. The levcls ar ..
determincd by the CITC and there eLf.'
diff,!rent amounts for each targeted
COllllllf)dltvarea.
The ~laiket Refoml f\ct of 1990 .3uthnf!zed the SEC to crei.lte i.l lar£.tri.ld,'~ rccorclkecping and r('portln~
5\,51,':11 fur publici\' tradpc! equill"s c.I:
optlllll' on equities. The SEC: prur'osfd
a Ian,.' traclcr rcportlng rLllt~ on l\._~·';c:
2~. 1')'11, and reproposl,d It Oil II': ~~:,~ ..
q 1 ()cJ-i
I'
l'lltiE'r the proposed SEC rules. ',;-,.,.,
lor~f' traders would be rfqulred tr, ;'·c,u;-t
certaIn Information to the SEC: al<
\\CJll}d (Jl' aSSIgned large trdJer
IdentiflLation numbers to nrovide t
l!i.lch brokerage firm whrrd the tracl'~s
ha\'t~ accounts. The firms would tr.(n be
required to maintain, and to report to
tbc SEC on request. records of
transactIons by large traders.
Large positIon reportlllg rules ar"
currpntiv in place in the equity
S()CuritlCS market. The SEC requires
owners that, directly or indirecth .
acquire beneficial control of more tna:,
five percent of a class of a corporatlo:1 S
equit\' securities to make i.l publlc
disclosure of this informatlon.l~ Th·'
" 17CFRPartslS.0(}--180f"
", P L. ~o 101-432, 104 ~t,,1 963 (1990;
I i ~el-\~~.!:Ps Exchange Act R~Jease No 2(J~,'i',
(.\',:~.,,\ 22 1991),56 FR 425')0 ',:\>JRu,t 28. '.';',;
and ~f'("u;:!les Exchange :\ct Rt'.f'dSe ~(). J]r-L"')
!i'dH,,,,,,, U.19<J41. 59 FR 7917 [Fet;,ua;, ,- ; ",;
"15l'SC 7Rm[d).SECR,.,' :,!J 17C':-1(j l \d-~-~·Hl1 id-102
Federal Register I Vol. 60, No. 15 I Tuesday, January 24. 1995 / Proposed Rules
the market for Treasurv s('curitirs and
any implications on the Federal
government's cost of borrowing
The principal purpose of large
position reporting is to enable Treasury
and the other regulators to better
understand the possible reasons for
apparent significant price distortIOns in
to-be-issued and recently issued
Treasury securities, This information
would enable policymakers to make
better decisions concerning any possible
government actions that might be taken
in response to apparent price anomalies,
The ability to identify concentratlOns of
ownership and to obtain informatlOn on
large positions being held or controlled
in to-be-issued or recently issued
II. Purposes. Objectives and Features of T,easury securities is important 1D
Treasury Large Position Rules
enabling regulators responSible for
The Treasurv activelv supported large market surveillance and enforcement to
position reporting dunng the legislative
understand the causes of market
process that resulted in the passage of
shortages.
Another Important goal of largt'
the GSA:\ and is committed to
implementatlOn of rules that make sense position reporting is to assist SeC~f1tles
regulators in conductmg market
from both a regulatorv and market
surveillance, The enactment of tn,s
efficiency perspective. As the agency of
the Federal government most concerned authority was largely based on a bellef
with minimizing the interest cost on the that the government needs sU[\'e;;\ance
tools, similar to those employed 1:1 other
public debt. Treasury believes that the
fmancial markets, in order 10 monltor
U.S. is best served bv an efficient and
developments in the Treasury securities
liquid market for Treasury securities
that is not overburdened with regulation market and to better police ag3il'.st frau l
and manipulation. InfonnallOn about
but. at the same time. is not viewed as
large positions rna\' be critlcal to t.:w
DPing sublect to manipulation.
SEC in carryl11g out i:s enforceme:,\
Luge positlOn rulemaking is a
duties under the feorral seCLlfl t: c laws
complex and Important task. For
Large position rrport:ng w111 at,;,) "llabl"
example. de:iDlI1g a "reportmg entity"
rrglllators to monitor the POS1\:U::, o!
: e .. oersons holJwg, mamtall1l:1g or
m;lJor IT13rket pilrtiupants o~ht:r ::.2.n
controlilr.<;: LlI~e posl:lOns) or
government securities bruK"fs ,,:',:
dt':ermi:1:;.2 \,nilt constltutes a position
dpalprs (e g, bn::c in\cc;tmf':1t f.:. :,; th:,)
::1 a Treasc:.;""· S(,Clfl1V will he ver\,
,~i:fficult ~:\'(':: the n;~n\' issues til-at nped ;-:re largdv·unreglllatt.:J, CllS!uJ:c::' 0,311<1
fOff:lgn and dOIl1Pstic c\.,~tm]J:r, .. :Hli'f
:0 OP cor.·5:~"rt'li :\lth[Jugh e\'crvone
'so'_lId ll~ei\' 3Qr~'e that a'positlO'n \,"ould certa1I1 circumstanccs
Lan.~e positlCln [!~COfOS a;",d fl·::~·r·'·
lr:clude secun!lPS o\\'necl bv and 111 the
c oulo aiso pr,wide fP'2ub: c ,[,,' :-.:<.~:'"
~0~o;PS510:-: O~ elr,\;U: (Jf the [!"?or~;ng
eM]v warIllllg of putf':lual ;;lark·'
~;;tlt\, tr:"~e a;f' Il1a 11 \. news as to
problems. If a problern dc'\ f,!(lf!" ,:iei!
,> .. :-:(\her, a:-:d If so h,,\,', repos, rrn~rse
ft'ceJrds and ff'pons r,"uld :"" s'
~,oDU.-;. \\'r:e:;':'-o,lf,d :rZJJes, futures,
rec;',dd':lrs Ill . .J:lr! [r<;·,J.r tr," ('c;,' ~. iU1\
:r':....varc:is. CD:.:)):"" 1",;d" borrr,\\'rd ar>:
Ill\ rstigatl'Jn
fiiJ~ should b;; :ncludccl in 3 pOSltlOn
It IS ImDortallt to reCCJQ;11ze th.;' .arg"
Determir.l:1s:' r,Oh' to tre3t r,'pos and
pCl;ltiun ieportll1g lll.-'ft' Iv crr'ah'sc
~r.\·ersp rC'';Y;s IS likeh' te) be P3rtlC'ul3rh
requirement to mall1tc:n rcerni, 0..:;0
cOITlDle'\, £i\'1.", the p'utrntial for
rcr ort information about s,;eh p' o.:lons
ilC2.te
~"pr:rt1l1g
of
the
sa:!ne
securit:;
p
L3rg!J pOSitions arp not inherent!:,
:,1 both cJ12:1trro3rti r < D05it1Ons, and
harmful and there is no prcsum," :.on of
tne diffic'_dt\ of defming control for
!113nipulatlve or illeg31Intf'r:t sole;-,
different t\pe3 (Jf rcpo a"rrangement',.
hec:aus(~ a position is large enou~'.~ to \)1'
S'.lch as tr>p,Il'.' r:'poe;
sU\lJcct to wportl11g fllles th;,t me,'. f,'
Treasury p:3n:, to take a measured
nrescri\wd hv the Trl'3SUrV
2pproach 111 exercisi'1g its large !,OSitiOll
:-\cicil t i nna 11 \;. there is no i i'~ ~e n t i CJ :~. u;
reportin" authorit\', In.~ludll1g the
f:,tdi)llS11in~ tradlng or nOSltlon L~~:ts 3'>
reiated r~cordLeeillr.g requirements, and
l':lrt eJf any'ru[p;naKln,,' :\:); IS th'
t') acti\eh 1r.\,01\·e ::carh~t particiF3nts
T;·,:as'ln' pL!ll)lllh~ tu :);St1\:l:" d
.. 1 thc rui·"r.'.ikll1i,; proLeSS. 1 rp"S\ln will
r('((Jrdh'f'illIlg ,1nd rl'Dortlng s\·';:, ::; tll:lt
: __":P into considuatlon thp costs te'
\,;,):],d ft'qulr(' th,.' Id"ntif,,-:tI(lj, ' . ,In;"
~>j;kt't u~; .le.l D:!I; tc,. th': p'ltentia 1
t~ ~ 11'r-..; ()r ttlP r"~l 'rt!:" (If : :~':..)._.-:-. II a~. t ~I:-: : ~~ 'f l ffl ( ! 1 1: C \' f; n ri 11011] (j 1t \. ,f
beneficial owner must file its report
within 10 business days with the SEC.
the issuer and the exchange on which
the securities are traded.
In addition. the FRBNY requires
primary dealers in Treasury securities to
submit several position reports on a
regular basis. These include weekly
reports of positions (with separate
reporting for each when-issued and
recently issued security). cumulative
transactions. and financing transactions
(repos. reverse repos. securities
borrowed and lent. collateralized loans
and matched-book transactions) and a
daily report of when-issued
transactions.
»
c.L
_1
f'
4579
The statutory pro\ )S1On regardll1g th,'
minimum size of a positlOn subject to
reporting is meant to ensure that the
minimum size will be large enough tc)
require reports only of positions that
could be used to slgmficantly affect the
market for a particular securitv, It IS
Treasurv's current \'lew that the size of
a reportable position would most likely
be in the billions of dollars and much
larger than the reporting thresholds in
the futures market. As a result, it is
expected that very few entities would
likely have to file large position reports
The GSAA specifically provides that
the Treasurv shall not be compelled to
disclose publicly any information
required t'D be kept or report~d for largr
position reporting. In particular, such
information is exempt from disclosure
pursuant to Exemption 3 of the Freedom
of InfonnatlOn Act.l 9
The Treasurv contemDlates ?r2;;tmg
cxemptions from the large POSll)(;rl
recordkeepmg and reporting rules for
foreign central bank, forelgn gO\'ernmerd
and officialmternatlOnal financial
Instltution holdings G: ,he FRB\:Y
III. Specific Considerations and
Questions
The Treasurv V>.·elcc~es commen«,.
reactions and sugges::ons on the aoo\'l:
issues. /\dditionalh. aC"lce and
recornmencatJOns rc~,,;(:;ng;]11
approach Gnd struct~~e for a larg"
pOSItion recordkepp::-.; Jnd reportln~
";~\em tf. c,: meet the:: .. :noses,
U\JJl'C\l\'CS a"o featll~':" .0 idres:'f,i 3D(;\ t'
~iIC In,,·!te,i :rom all ;:-.:e~,'sted pr,';[J!;,
Sprcificc,!~", in de\bJ;,.ng sud:
rl'Ulmlllf':-..~ations, S .. =='.'SI10115 J~':
3Jnc.e, CJ.::~rnenters ,c:-' r('quest l ' : : ;.
c.unslCi"r :f.e follO\\':::: ... ;,'stiOJl'
-\ Rppev-' n~ Fnti'· .. ,·...:....l'f'rs[J)·'
h~lclll\\.:, :':~~·;~7a;n)r,'~' 'r c~'~trol'L:
;'.~fC() p'us:~»:l.S, 2S ~:._< t _' t1f? defli:"' 1 il["
r~'Drlr1:n[ "'::tlties Tr.'· ::';"5t1Ol1, I:; thiS
",>;tllln ir" c:rpctf.'d' '.,.-";,j d,·tf':-:;:;;Jln~
',',i,jr.h {,'::.',"5 shou:: : .. ~fif~ctfd i)'; th ..
rfcQulcitlO::S [n Dartlc .. : :~, the CJllP:.tl0n~
f')~us OJ: r.
affi1l3t-"j ':;.tities 3TE: to be
treated. \\:-, entities <.·J'.lld be p'>;':mpt
,1j,d \\h('::-..': classb .: '.::::tl"S m:i:,
c'"
,t
',S,{[~;Hlt s='~'cial trec..:~~:'.':::<-.:
1 H ()\\,':o:1 ou ld \\'r 'c:' ::!, I' C\ ' H,"",[1.1I1";
l:l:llt\·"? S;:ould it b·
~~i;d: to tf,,;
cdirritio:" c,f a bidde~ .~ ;reClsur:- 's fuk~
\2[)\'Crr:inc :::e sdle a;::: :SIIP of Tr r 3S1ln
".1..1:11:1):::.
Gills, not;, :::1cl b0;~(:s
O:fcnng C: :cubr at ::: 1 C~R Part 3 S(J)'
2. What 3QQregJt!l:';-: :- ~les shoulo
appl\' for affiliated (;;".' .'. ,<' :'\SSllr.1ll1S
tnprc ufe 2:2rpgat1Or. r ... ·:S, sllOUld there
b'2 ,]n (".( rJ~J't~()r~ rl:- c:-: ... :tf·S that cannel!
ur 00 nll\ ,':::,~,~ ilitr,r:~~.';fin? for
f':": lInp!\'
.... ct:()t:::
;;f';t'r:t L::, !~,
4580
Federal Register I Vol. 60. No. 15 I Tuesday. January 24. 1995 I Proposed Rules
within a mutual fund family be treated?
Should customer securities that are
subject to a broker-dealer's investment
discre~on be included? Should any
exceptIOn be .the same as the exception
provided for 10 Appendix A to the
Uniform O[f~ring Circular?
3. Should reporting entities that are
foreign-based be treated differently than
domestic entities given the potential
enforce~ent difficulty and geographic
separat~on? Are any exemptions needed
for foreign-based entities regarding
Items such as affiliation rules. location
of records. form of reporting. or
reporting time frames? \'I.'hat would be
the comp?~tions of requiring foreignbased entilles to comply with such rules
as if they were U.S. domestic entities?
4. What exemptions should be
considered beyond any for foreign
central banks. foreign governments and
official international financial
institutions holding at the FRBNY?
B. What constitutes "control"? For the
purposes of this ANPR. "control"
includes the statutory terms "holding"
and "~aintaining". The following
questIOns are deSigned to provide
guidance on when these three statutory
conditions mav be met.
1. Is control-evidenced by beneficial
ownership. investment discretion.
custody or any combination of the
three? Is there the possibility of
ex1ensive double counting? If so, is it a
problem?
2. Should custodial accounts for
which the custodian has no investment
discretion be the [<'porting
responsibility of the custodian. the
customer or both? If the custodian is
responsible for reporting, should all
custody holdings in a specific security
be aggregated. or should the threshold
amount established for reporting be
applied individually to each customer?
C. What securities should be cOi-'cred
and what size is "large"? The questions
In this section seek guidance on the
securities to which the rule should
apply and how to determine the
reporting threshold.
1. How long should a security b~
outstanding before it is no longer
considered recentlv issued? Should the
reopening date of ~otes and bonds that
are reopened by the Treasurv. be the
date from which "recent" is-measured?
2. Should any securities be excluded.
e.g .. Treasury bills, due to the cost/
complexity of calculating a position in
them versus the expected Oencfits of
reporting?
3. How should the "large" threshold
be determined-a percentage of the
i~sue? A standard dollar amount?
Should different classes of securitiesnotes vs. bonds, snort-term notes VS.
intermediate notes-have difforent
definitions of "large"? Should there be
a different reporting threshold for preand post-issuance? Should there be II
different reporting threshold for
securities reopened by the Treasury?
. D. What transactions should be .
Illcluded in a "position"?
1. Should the definition of "position"
deve~oped fO.r this rulemaking be
consistent With the definition of "net
long position" in the Uniform Offering
Ci.rc~lar? If they are generally
conSistent, the following questions
shOUld. be considered as possible
exceptIOns.
, 2. How s~ould when-issued positions
III outstanding securities with the same
CUSIP be treated (i.e .. reopenings)?
3. How should financing transactions,
such as repurchase and reverse
repurchase agreements. dollar rolls and
bonds borrowed. be treated:!l defining
a position? Should more than one
counterparty to the transaction be
required to include the transaction in its
position? Should contract terms. such as
maturity. ~ght to substitute. tn-party
relatIOnships and termination notice. be
considered?
. 4. Should large short positions be
Included in "position"? What amount of
netting should be permitted or should
gross long (short) positions be reported?
5. Should forward contracts. options.
futures. and open fails be included?
Should some of these items only be
Included under certain circumstallces?
For example. only lllclude written (sold)
options or only include fails to deliver
but not fails to receive. If so. what might
these circumstances be?
6. Should the various components of
a large position, such as outright
holdings. repos. fon.... ard contracts. etc ..
be separately identifipd in any re<ldlred
reports?
E. Recordkeeping.
1. What records should be kept by iJ
reportll1g entity? Should th'3
recordkeeping requirement be
dependent on whether the reporting
entitv is regulated? Should the reporting
entity keep copies only of any reports it
has filed. or. in addition. documents
and other records sufficient to
reconstruct the size of its position?
2. Should there be a requirement to
maintain a calculatIOn/worksheet
supporting the detemlinatlOn of a large
position by detailing the elements
comprising any large positions?
3. How long should large position
calculations and supporting records be
retained?
4. Should the records Oe kept in a
standardized format? Would a
requirement to mointain records III
electronic form be feasible and
practical?
5. Should unregulatPd entities b(,
n~quired to submit some form of
independent verification that thf'v h.1\·,'
in place an appropriate record
maintenance system. e.g., an
accountant's letter?
F. Reporting.
1. Should the reporting requirement
be ~utomatic. whereby the reporting
entity would file a report any time it hao
reach:d the threshold for a particular
ISSlle.
2. If reports are periodic at the requcst
of the Treasury. what mechanism
should be used to communicate a
request to the market? How can it be
aSSllTNl that a potential "reporting
entity" receives notice of the request for
a report? How much lead time would bl'
necessary to assure that evervono who
needs to get the notice will receive it'
3. Would it be reasonable for il
reporting entity to comply with a
request for a large position report on (hI'
busmess day immediately following
receipt of tile request? If not, what
would be a reasonable time period?
4. Should requests for reports follow
a sequential process whereby dealers
and. custodians would be asked to report
l!1ltJally followed. where appropriate. bv
B more targeted follow-up as to specifir'
customers? For example. an initial
report indicates that custodian A has
75':0 of an issue. A subsequent request
IS made anI\' to the custodian's
custome~s to determine if anv flfthern
have large positions.
5. Is there a need for the reports to bc
filed USing a standardized format? If so,
should they be made in machine
readable form?
C. Is there a reason io: the Secretar,
to specify that reports would be
.
submitted to parties other than the
FRBNY?
7. Should a request for reports 011 it
specific security be: (i) a one-time
request (snapshot as of a given date); (ii)
an initial report with a continuing
obligation to report subsequent
.
significant changes until further notice:
or (iii) an individually specified request
(I.e., report on any large pOSitions in a
specific security for the next 6 business
days)?
8. Should there be a responsibility for
a broker-dealer to repDrt the name of
any customer whose tradmg activity in
the specified security may indicate 'that
the customer could be a holder of a large
position even if the customer docs not
hold such a position at the broker(kaler?
G. Implementation.
Federal Register / Vol.
I Hm\' much leild-tIIlH' IS I1PU'SSM\
tnr lllarkt't partlcip<1nh to bt' ,Ible to
(ornph' with such a Ill'\\' re~uhtion?
TreJsun stair consulted \\,Ith staff 01
tilt' SEC. F",der,tiRt'sP[\t' Board, FRElN't
<Inc! CFTC III li,,\,'lllpln'.! trw qll",tlOlh
that are cont,111lt'd III thiS :\:\1'1{. /\s thl'
rulpmaktn~ pron~ss COl1tll1UeS 111 tht'
months ahpad, we \\'i II contll1Ue to
solicit the \'iews of tlwsp J;;enues, shan'
InformJtion with them Jnd ll1clude
them in the deliberatin' process
The prelirninarv \'IPWS expressed il1
this notIce ma\' change in lIght of
comments reeel\'ed, In all\' case, the
TreasUf\' \\ill publish proposed large
position reportIng rules for public
comment after wp hJ\'e hJd In
opportuntt\ to renew the comments
that we rec'el\'''' 111 resnOllSP to this
r\NPR
'
List of Subjects
CFR Pnrt
17'
.;0.1
Banks, bankl:l~ Br('''''f' Gcn prnmeIlI
secllritlt's, Rt'pO:\I1I~ Jlhl rl'lordkeeping
requ i re m en t,
17'
CFR Pert
Brokers,
,ur,
Go\t~rI1[]lPI1I
St'lurltIP',
ReportlJ1~ Jnd rt'cordkt'Pplng
60,
No, 15 /
Tuesd(J\, J(JnllCln' 24,
Illll'lldl'd to fI'\ISl' tIll' tiledl pI(lcerl!ll til
hI>' ('OIl,-;lstPllt \\ tilt tlH' t mn"IJrllltillll-'
l'I'\I('r,1I rl')o?ulJtioIlS
DATf;S: \\'rittpn UHlllllf'llh r:lll,t h,·
n'II'1 'I:d h\ 4:()tl P II, .
I . 1.'lrlidr" II
III ,
] q,J.~'
ADDRESSES: \Vrlltl'll U)lllllll'Jlt, -;11()llld
or h3nd dell\'ered tll Th{)llli!'
F, Fillnett ,1t the address listed hl'low
Copies 01 the UtJh program. tht'
proposed nl11endment, nnd illl \\ rittell
comments re~i\'ed in resfJ~lSf' to th!"
dO(llJ1lellt wili be J\'ililnble1or publi(
re\'ip\\, nt the Jddresses listed bcdo\\'
dUring normJI b~:;lness hours. Monda\
through FridilY, exdlldmg holidJ"s
Each reqlle~ter mil\' recei\'e one tree
cOfJv ot tIlt' pr(,pos-ea JJllendmellt b\'
cOllldt tlllg uStvfs h,lh\ICjlll'rque Field
Offll:C,
Thollla~ E. Ehmett. Actmg Oin'L\or.
Albuquerque Field Offlle. Office of
Sllrfdce Mining Reclamauoll ilnd
Eniurcement, :,():; MilrOll<::\\~ :\\'elllll'
1\:\\' . SuItt: L'(JI). :\lbliouer\J\J\', 1\:P\\
(}t' liidiled
1\1<'\1(,087102
'
['tall COJI Reguliltory Pro"rilill. Oi\isloll
uf Oil. GilS and tvllIlingLiS \V~sl
i\orlh Temple. :1 TriJel Center. SUitt'
l:i(). Salt Lilke Cillo Utilh H4]HI)-q2():l
Telephone (Rtll) SlH-:i14()
requ lremen ts
FOR FURTHER INFORMATION CONTACT:
AuthOrIty: ,""c, lUI 1'1,:, L ""-,~-l 1()(J
Stat J~lJY 'S,·, 4:, I',,:, L 1111-4 l~, 104
Stilt lJb 1 S·__ ~ jII~ ,""C 11)1. 1',:11 L lIl,I-:.'Il~
1Q7Std: ~34,;.1'>l ~t -,.-" (hlillitli
ib)(l)[C;
TIlCllllJS [
Datf'(:
fran~ ~
I .• "
; lll.=-,
'\pwman
Dpl-JlJ!\ .'- .~-: :,.
Iff{ One ,-,'·-;t,,-._
r "I:
1-_ -. ,c. 4~ ,,,~:I
BILLING CODE .18' ChJ~
DEPIARTMENT OF THE INTERIOR
Office .f Suriace Mining Reclamation
and EnfOorcement
(~():()
SUPPLEM!:.NTARY INFORMA TION:
I. Back.ground on the ltah Program
()Il IdIlIIJ[\ ~l. ]liHl. 1-" :-)t" ,','1;1[\ u!
titt· lll,.·rlur c:ondltIUllJI:\ ,Ji'fifli\ eO lh.,
l'Ldl jlru~ri!m C;Pflt'rdlll." ~;:ro,:Il,1
"Ii,'rlll,lllflll on Ih,' L'td:1 !'.f.,'.!r:ll:l.
II\( III(\IIH~ the Sl'( rl'~.H\ , : :.d,::~" Ii."
d;'I"I'ltlllll of COIll!:!I'II:' ,: Ii t:,,,
UJlllLtlUllS of ilpPJ()', ,,] u: 'r,·· L :,'
pro'.!rilIIl Ciln he tUlI::d ::: ::.··l':1';,,['" -,
] 'ill] . Federal Rp~l~tHr !.;" FE ~. :"'l(,)
."uh~('ClU(:nt Jr.tlO:h' (Il:: .'~:'.Ir.~ L't.lh ,
!)r()~~ra;Tlllnd pro~r\:'ll ;lr:. r :!.jrr><.t~ (;111
'q,) ,~ c,l'; : I, :111(:
ilr' t(llll1(j at 31) CTE
'I~l '\11
30 CFR Part 944
I!. Propo~ed Amendment
Utah Regulato'1l Program
ACTION: PiCJlJO-;"ri "lilt': r"lllil'lllllg 3nd
extenslO:' o~ jlllhill Hlr;1:-rI,'n t perIod
proposeCl ilmt':~drnenr
Ehllll'tt. Tt'lpphCilIl'
:"fifi-14Kfl
01:
SUMMARY: OS:-'11<; ClnnOli"UClng receipt of
reviSIons and ilddltlonill e q.llJnatory
informatIon [wr:alnlng to 3 previousl\
proposeci amendment to the lJ(ilh
regulnton progrJl11 (herelTlafter. the
"Utah progrnm") under the Sllrfm':t~
Mining Control alld Recl,lnlation A(,:t of
1977 (S~1CR.:\) The re\ ISlon and
ndditlon01 explanatory Idormatloll tOI
Utah's propo~t'd rulE"'; pertain to the
LonfldentlJlit\ of c:o,Ii l'Xploriltlon
Il1fnrmilt: r !l', 'Ii:t, Jf11"fl(l:LPl\t i,
Ih Il'tlt'r dated :')('I,I,,!.
'I
l"'(~
['tilll submitled il prUIll,"
,ill ··,:l:ilt'::!
to itS prOi;rJTll pllrSlI,1flt :" ,,,\!(,R,\
iadlllillistriltl\'e record \1' [-T -C;-1)
UtJh suhmItted the pro[,Chl,d
Jlllendment III re'pon>;l' 10 lilt' :",!lliJl'd
pr02ram ilmendrne:l1 ilt 11) CFE
fJ44 !f,(id, The prO\'I'IOlh (11 t't" L:t:dl
COid !V11Jllflg I{ulps that ['I:til prnl'osl'd
tn fI:\'IS1~ \n:re at LtJh :\dflllllistrall\"
RLlI,' (LJwh Admin R) (;4 ~,-:.:(n-2UI).
CI!JlflrjPlltiJlit\
US~1 df1nOLlIIll'd rlo( ('I:d of t{II'
proposed JmeIldll1f'llt III ti,,' :""I',[I·ndlt'1
~~. IQQ4. Federal R('~istl'r 1-,<) II':
~'1-,:,:-), pro\'irll'd :In "1111:,~';:!1:'" I(JI
1995 / Proposed
RlIll'~
4581
plilill( It''Mir:g or IW'I'II'
.: I:'
'IIilslilllti\ I' ad"qlld(,\. d:;,: ',\ II',
pllltllC (orntl)Ult OIl Ih ,]lkrld:]I,"
(:Irlrnlllistratl\(! r(!((]rci ",.
Ill'callsl: 11(1 rJIIl' rt'qlli"I'
,llId,!.
h"dr:llg 0: llWI,'tlng, IIU!.,' '.\ ;, 11t'11!
plIlJiI! ! Ofllllll'lll pf'rl,"j t" i"d ()l:
Uctul,n :':7. lQQ4,
l"I-"-"
During it<; re\'lt'\\' ()f tL,' drll"lldlll":
U5\1 identified CorHPflh P·iill"I·, 10 I:.,
prm'isJOIls ofUtJh's rule-; cit UtJI!
:\cimin, R, 64Ci-20:1-2()O Jl~d (,-l ~)--,I) '210. Lonfidentinlitv of (u;iI t"plm;!IIII'
illfornwtlon, OS!v1llotitleci L·!.lli c;f t!:.
COIIU'rilS by letter dated :\(1\ e:llh,·; ] ~,
1'1'14 (ildministrJtive record 1\(1 [:T'191) UtJh responded in J Il'lll'r ,! Ii,' ;
/,lflUJn' 5, 1<)94. b\' sllhlllllllll~ d r.'\ 1'1'
dnwnciment Jnd n~jditlOllJI e~fJldlj,:!C.~,
inforlllJtlon (JdrninlstrJli\ e fl'tOrri :\"
['1'-1(03)
Utilh proposes re\'ISICJlh lO U;!I:
.\dmin, It 645-2(l:l-2()ll h\ d"II'liIL
phrasl' "or thilt the inforlllJtloIl 1-;
confidential under thl~ stJnclJrcl, ()f II
Fedpral Act," In Jdditioll ['Iall pr()\ ,,>'JelditlOnal explJnJton' Illlurmill'lull
pertJlfllIlg to UtJh Adllll:) R G4,~'-~I(:
~1ll. b\ stiltIng thnt there IS some
question JS to the repetitious aSpp(h 0:
Lltah :\dlilin R fi4.~-2()]-:'~}I) UtilI.
stJtes thilt UUlh Admin, R ():i4-2IJ '.-.: ]1.
n:qlllfes the Oi\ision of 0.1. Gas JI:O
tv1111lllg (DI\'lsion) to 'kecp' Illtor111:ltIO'
~Oflrldelltiill while Utilh ,~df1ll11, R ri~ -,~~ \-21)1J cilrf"cts ttll' DI\'h.on tf) . I:'"
lil».k.· . information a\:lIiahip
IIl,l"ublic Comment Procedure~
C)s\1
h
fl:ClPt'llillg tht·, "~1)Illt.'I.
IlI'fl()d on IIH' propos,'cl L': ,h
prrl~'
;Jlll"llrinlent to prm'id,' I:,"~ !lllhill ;,.
opportllnlty to reCOI1SICl\'r::lP ,Hi"ll ;-"
I,d Ill" prupo~('ci JnlerlC111:'_'I~1 III Il~:':
till' :1l1dlll()lltilmJteflJls ,',;:Ilnillhl i'
.II I lJrciJnce \\\lIh thp pro" ,S (IllS 01 i
UT~ ~ 32,1 ~(II). USM I, "'Tklll.C;
( clIllillelllS on whether the propUSl·,:
(lmendment sJtisfies the JPplicahilpr(J'~ralll ilppro\'JI eriterl:' (d :1O eFr-:
7:L': 1.~, If Illl' aillendml';l! :, dt:,:Illh'
ildequJte. II \\'ill IW(('Hllt' Dirt of tl,"
[:tah program
\\'rltten comments "lJollid {ll! "per :::.
fJertJin onl\' to the issud fJrOPOSf'O
this rulemilking. and include
,: xp l,lflJ t ions i 11 sup port of thl'
r: () III rn e f1 t e r 's re c () III flU' n d i1 t I (J n s
Comml'nts received Jlter tl:e nml'
indicatl:cl IInder DATES or Jt 10(:"iltlltih
other th;!11 Ihl' :\Ihllqul'rqlll' Fil'ltl Olr:! '
\\'ill not 1l,'I,I",aril\ 1Jl' UJlhlcll'rt,(1 1:1 ti;·'
flll;t! r:ill:n:;lklng o'r illlillci.·d In tIlt,
;ldlllllll,lrill iu' n'Lord
TREASURY FINANCING REQUIREMENTS
October - December 1994
$Bil.
175
Uses
$BiI.
175
Sources
150
150
+
125
100
125
Coupon Refunding
•
•
•
2
4 3/ .
75
100
Savings Bonds
State and Local
75
';2
50
25
Foreign Nonmarketables
+
Net Market Borrowing.
1
Deficit
50
Decrease in
Cash
Balance
25
0
0
1
Includes budget deficit, changes In accrued Interest and checks
outstanding and minor miscellaneous debt transactions.
Oepar1Tnent of !tie Treasury
Otflce 01 Market Finance
$BiI.
Uses
200
175
175
•
150
Coupon Refunding
150
Savings Bonds
•
125
125
1 ';2
100
100
1
75
•
75
Foreign Nonmarketables
50
Net Market. 933/.
BorroWing
Decrease in
Cash
Balance 3
•
25
50
25
6 ';2
o
1
Departrnerrt otlt1e Treasury
OffIce of Market F,nance
0
Includes budget deficit, changes In accrued Interest and checks
outstanding and minor miscellaneous debt transactions.
2
Issued or announced through January 27, 1995.
3
Assumes a $20 billion cash balance March 31, 1995
January 30 1995-17
TREASURY OPERATING CASH BALANCE
Semi- Monthly
$Bil.
60
Without
Total Operating
Balance
-New~
•
50
40
Borrowing
Tax and Loan
!I
•
30
•
20
•
•
10
0
Federal Reserve Account
•,
-10
..
•
-20
•
••
-30
-40
•
...
-50
-60
L -_ _
~
Jan
_ _J -_ _
Feb
~
Mar
_ _- L__- L__
Apr
May
~
__
~
Jun
Jul
1994
__
~
Aug
__
~
Sep
____
Oct
~
__L -__
Nov
~
Dec
__
~
Jan
__
~
Feb
1995
__
YAssumes refunding of matunng Issues.
Oepartmem 01 the Treasury
Offlce 01 MOntOI FInance
TREASURY NET MARKET BORROWING .11
$Bil. , - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - , $ B i l .
Coupons
103.5
DOver 10 yrs.
100
100
5-1oyrs.'v
o
84.6
81.0
0
2 - under 5 yrs
80
•
Bills
80
60
61.2
60
53.4
40
40
20
20
o
o
-20
-20
-40
L _ _ _ _ _-1.._ _ _--:-:-_~~-_:_:_-::_:____;:_~~__;_;___;_;;___;~___;_;;i7 -40
II
III
1991
IV
.11
y
Y
Department of the Treasury
Offlcs 01 MarXel F,f'IIH'lC8
II
III
1992
IV
II
iii
1993
IV
II
III
1994
IV
~
Mar
I
1995
Excludes Federal Reserve and Government Account Transactions
7 year note discontinued after Apnl 1993.
Issued or announced through January 27,1995
Jat'1l1E1ry 30 1995 18
AWARDS IN WEEKLY BILL AUCTIONS
(13- and 26-Week Bills Combined)
$Mil. , - - - - - - - - - - - - - - - - - -_ _ _ _ _ _ _ _ _ _ _ _---, $Mil.
25000
25000
20000
20000
15000
15000
10000
10000
Total CompetitiVe .
5000
5000
1993
Calendar Year
"Data through January 23.1995 AuctIon.
Department of ttoe Treasury
Office 01 Marl<;eT Flnanoe
January 30,1995-28
AWARDS IN 52-WEEK BILL AUCTIONS
$Mil. . - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - ' - - - - - - , $ M i l .
16000
14000
16000
Federal Reserve and Foreign
14000
12000
10000
8000
6000
4000
2000
Calendar Year
'Data through January 5. 1995 AuctIon
D&p&rtmerrt 01 the T f68l1UC'I
OffIC9 01 Maric.el Fmance
January 30 1995-12
NET NEW CASH FROM NONCOMPETITIVE TENDERS IN
WEEKLY BILL AUCTIONSY
$Mil. I-------------.....:....:==-..::....::..=-==--=--=.:....:..::~----700
Net New Cash (left scale)
Discount Rate (nght scale)
o 26 week
600
...
,,.-...
.. , ..,,,
26 week
13 week
13 week
•
Discount Rate %
,e'
...
'
,.--
500
,"
.
....-
..'
5.0
4.5
,.,-"
,-......
300
,.-.---
200
6.0
5.5
~
............
:,................." ... "~
400
6.5
4.0
3.5
...........
3.0
100
2.5
o
-100
Feb
Jan
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
.J.I
Dec
Jan P
1995
1994
Excludes noncompetitive tenders from foreign offiCial accounts and the Federal Reserve account.
p PrelimInary
Departl"nerTf o1lhe Treasury
January 30, 1994-27
Otflce 01 Marll.et Finance
NONCOMPETITIVE TENDERS IN TREASURY NOTES AND BONDSY
$Bil
3.5
_7Year
t·:···:···:···:·] 2 & 5 Year
t::~:'t<3 3, 10 & 30 Year
3.0
2.5
2.0
1.5
1.0
.5
2!Excludes foreign add·ons from noncompetitive tenders
p Preliminary
Treasury Increased the maximum noncompetitive award to any noncompetitive bidder to S5 million eHectlve NovemDer 5 , 991
EHectrve February 11, 1992 a noncompetrtlve bidder may not hold a POSition
nor submit both competitIVe and noncompetrtlve bids for Its own account
Oepart'OOn1 01 tI'1e Treasury
QI11t:e 01 Markel FU·'Ie.nce
H'\
WI trading, futures. or forward contracts
SECURITIES HELD IN STRIPS FORM 1993-1995
Privately Held
$ B i l . r - - - - - - - - - - - - , - - - - - - . : . - - - - - - - - - - - - - - - . . $Bil.
Slrippable
80
Stripped
_As of January 31, 1993: $629.1 billion, $166.5 billion
&:;3 As of January 31, 1994 $694.9 billion, $210.3 billion
~
As of January 20, 1995
$757.7 billion, $226.0 billion
60
40
20
o
Less than 5 years
10-15 years
5-10 years
15-20 years
20-25 years
25-30 years
Years Remaining to Maturity
Note: The STRIPS program was established In Feburary 1985. The 11 518% note of November 15,
1994, Issued on November 15,1984, was the tICst STRIPS-eligible secunty to mature
DepertJ'n&nt of the T raasury
Office 01 Mentsl Fmance
January 30, 1995-30
SECURITIES HELD IN STRIPS FORM 1993-1995
Percent of Privately Held
%'-----------------------------------------~-------------------------------,%
50
50
_
As of January 31,1993
tSJ As of January 31,1994
WB As of January 20, 1995
40
40
30
30
20
10
10
o
Less than 5 years
5-10 years
10-15 years
*
15-20 years
20-25 years
25-30 years
o
Years Remaining to Maturity
• The 11314% bond of 11115109-14 had $4.9 billion (privately-held) available for stnpP,ng, of which
87% was held In stripped fonm.
Note: The STRIPS program was established In Feburary 1985 The 11 518% note of November 15,
1994, Issued on November 15,1984, was the fICst STRIPS-eligible security to mature
Oepartmen1 altha Treasury
Office 01 Mal'l(ot FII'\anca
January 30 1995-29
TREASURY NET BORROWING FROM NONMARKETABLE ISSUES
$Bil. . - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - . , $BiI.
8'---
614.9
r'"""
4~~
2
o ,..
-2
'-
..
-
I-
-10
I-
~
..
4.6
r-
..
'--
-1.1
o
o
State and Local Series
•
Foreign Series
-
6
-
4
-4
'--
'-
-1.7
-2.3
'--
Savings Bonds
8
'--03
'--
-1.1
I-
-8
~
:
-4 -
-6
2.0
-
-6
-4.7
-8
-10
-~A -12
-12 I -
-14 L-_ _ _ _ _L-I_ _ _---:~I_:____:___:__:_:_:___::_;_~
1_-:-:----;-;-;---::;-;--'1---;:--" -14
II
III
IV
II
III
IV
II
III
IV
Ie
II
III
IV
1995
1992
1993
1994
1991
e
estimate
Department of lt1e Treasury
January 30,1995-19
Office 01 Man..el Finance
SALES OF UNITED STATES SAVINGS BONDS
1980 - 1994
$Bil.r-------------.:...::..=-~=-=--:------------I
6
5
•
Total Sales
4
3
2
o~~~~~~~~~~~~==~~~~~~~
1980 1981
1982 1983 1984 1985
End of Quarter
e estimate
DepartmenT olltle Treasury
Office 01 Mar1<et Finance
January 30 19951
STATE & LOCAL GOVERNMENT SERIES
$Bil.l------------------------=-==----~ $Bil.
-
Gross Issues
Redemptions
10
10
5
5
o~~~~~~~~~~~~~~~~~~~============~==~==~o$Bil.
$Bil.
-5
-
-10
~
-5
NetSLGs
____________________________________________________________
II
III
IV
II
1990
III
IV
II
1991
III
IV
II
1992
III
IV
II
1993
III
~_10
IV
1994
Department 011:110 Treasury
Othce 01 Mar1(&! Fln8.f\oo
$Bil
STATE AND LOCAL MATURITIES 1995 -1997
.---------=-------------------------------------------------------, $Bil.
13.3
12.2
12
I-
10 f-
-
12
-
10
-
8
-
6
-
4
-
2
9.4
81-
7.1
6.4
6.2
61-
4.7
.. '
3.8
41-
........
4.1
3.3
3.3
2.6
2~
....... I
1111111
...... .
0L---~··~···~···~··~·i·~;··~···~I·i;2··~··12·v~···--L-~···~···~··~·~···I~·i·~·~·+.·;i~;~~IVf-~--~~~I~I~~II~1~I~V~--~O
1995
Department of the Tre~ury
Office 01 Mar~al Fu,ance
1996
1997
January 30 1995-26
QUARTERLY CHANGES IN FOREIGN AND INTERNATIONAL
HOLDINGS OF PUBLIC DEBT SECURITIES
$Bil. r - - - - - - - - - - - - - - - - - - -___________---, $Bil.
Nonmarketable
o
Marketable
o Net Auction Awards to Foreign J/
35
30
25
•
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- 35
28.:> 30
c::::
25
21.7
21.4
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20
r-
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18.2
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14.5
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-7.9
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I
I
-15L----------L----------~--------~--------~--------~~715
II
III
IV
II
1990
III
IV
II
1991
III
IV
II
1992
III
IV
II
1993
IV u
III
1994
J.I Auction awards to foreign offiCial purchasers netted against holdings of maturing seCUrities.
zJ Data through November 30, 1994.
T,se,SUI'y
[)epe.rtmerrt of 1tIs
January 30, 1995·20
01ftce 01 MSl'lI.sl Flnal'lC8
NET AWARDS TO FOREIGN OFFICIAL ACCOUNTS.u
$Bil.
r--
~1
8
$ Bil.
8.8
6.4
,!:-7
I---
,-
6.0
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,-
1.6
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4
r--
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r--
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6
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-
L
'--
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-
-4
-
-6
-1.0
1-.0
-1.0
Bills
L
L
L...o-
-4.2
II
III
IV
1991
II
III
1992
IV
1
I
I
I
II
III
1993
IV
II
III
1994
12/
IV
-8
1995
Quarterly Totals
y
Department 01 !he Treasury
Otflce 01 Maf'o<sl Finance
Noncompetitive awards to foreign offiCial accounts held ,n custody at the Federal ReselVe In
excess of foreign custody account holdmgs of matunng secuntles
V
4 year notes not Issued after December 31,1990
.V
Through January 27, 1995
Jao~'Y
3iJ 1995."
QUARTERLY CHANGES IN FOREIGN AND INTERNATIONAL
HOLDINGS OF PUBLIC DEBT SECURITIES
$Bil.
$Bil.
Nonmarketable
35
0
Marketable
Net Auction Awards to Foreign .1.1
30
0
•
25
20
5
25
r-
16.2
14.5
F
1~5
15
10.2
-
9.3
-
5.6
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.... ....
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10
-
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-
20
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30
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r-
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:=
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F
15
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5
0.5
- -
-
I-
o
-
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-
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-
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-7.9
I
-15
II III
1990
I
IV
II III
1991
I
IV
II III
1992
I
IV
II III
1993
~ J15
IV""
II III
1994
IV
.11 Auction awards to foreign official purchasers netted against holdings of maturing securities.
2.1 Data through November 30. 1994.
Oepertmerrt 01 the Treasury
0tfI08 01 Market Finance
NET AWARDS TO FOREIGN OFFICIAL ACCOUNTS.!I
$Bil.
6.1
r-
8 r3.6
r-
-8
-
8
-
6
r-
-
4
1.3
-
• It
-
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y
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~
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I
I
II III
1991
r-
2
~
Notes
c=J 5 years and over
c=J 2-4 years Y
Bills
Department o1lhe Treasury
Qtfu::e 01 Manc.et Finance
r-
-
- -I~
rf--
-
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o I---
-6
2.1
r-
f--
-
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-4
3.0
-
r-
r-
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c-
6 r-
-2
r--
r--
-
2
6.4
4.7
6.0
4
$Bil.
~8
II III
1992
IV
II III
1993
Quarterly Totals
j
I
IV
II III
1994
3
IY
1995
IV
-8
Noncompetitive awards to foreign official accounts held ,n custody at the Federal Reserve In
excess of foreign custody account holdings of matunng secuntles
3/
4 year notes not Issued after December 31. 1990
V
Through January 27. 1995.
January 30,1995-21
SHORT TERM INTEREST RATES
Quarterly Averages
%r------------------------------------------------------------------------.
0/0
Prime Rate
12
12
10
10
8
8
6
6
3 Month
Treasury Bill
4
19841985
1986
1987
4
1988
1989
1990
1991
1992
1993
Department 01 the Treasury
OftICEl 01 Mal"o(et F",\8.nce
1994
January 30, 1995-22
SHORT TERM INTEREST RATES
Weekly Averages
%r-------------------------------------------------------------------------, 0/0
8
8
Prime Rate
•
7
Through
January 25
.
6
Commercial
Paper
.................
..
3
•••••••
•
........••• .
•
-.-
.......... ..
6
•••••••••
.
........
....
•..•.......••••......•..
5
4
••"
7
5
~.",.----
3 Month
Treasury Bill
4
Federal Funds
3
2LL~~LL~-L~-L~LL~-L~-L~LL~~~~~~~~~~-U~~2
Apr
May
Jan
1995
Departmem of !tie Treasury
Ofhce of Mar!(el Fmance
January 30, 1995-23
LONG TERM MARKET RATES
Quarterly Averages
%r--------------------------------------------------------------------. 0/0
14
14
13
13
..
12
12
New Aa Corporates
11
~
10 :
Through
January 25
!
9
...
8
7
Treasury
10
9
8
7
30-Year
Municipal Bonds
6
11
6
5L---------~--~----------~--~----~----L----L----~--~~5
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994 95
Department 01 the Treasury
OtfTce of Mark.e! Finance
INTERMEDIATE TERM INTEREST RATES
Weekly Averages'
%r--------------------------------------------------------------------,
..
FHLMC 30-Year Conventional
9
,
,
,
1 ' ... _
."
.,,'\
, ...
,,'"
I' 1
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9
"
AA 10-Year Industrial
8
8
~
- Treasury 10-Year
t
Through
January 25
7
7
Apr
May
Jun
Jul
Aug
1994
Sep
• Salomon 10-yr AA Industrial
Departmen1 of the Treasury
Office of Marxet FlnQl'lOO
IS
Oct
Nov
Dec
~
-
-
~
-
-
-
L -______________________________________________
-
6
~
Treasury 5-Year
6
Jan
1995
a Thursday rate.
January 30 1995 25
MARKET YIELDS ON GOVERNMENTS
8
7
6
-
II
-
January 30, 1995
•
"
...',." ......,'/ .
0)..~~;'k.
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8.0
January 31,1994
8.0
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14
16
1
5
6
18
20
-.l
7
22
24
I
8
26
5.5
28 130
1
10
9
Years to Maturity
Department 01 the Treasury
01tw;e 01 Mar'Ket FINHlC8
January 31, '995-31
PRIVATE HOLDINGS OF TREASURY MARKETABLE DEBT
$Bil.r--_ _ _ _ _ _ _ _ _ _ _BY
_ _MATURITY
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _---,
2800
December 31, 1994
0
Over 10 years
0
2-10 years
0
1-2 years
1800
0
1 year & under
1600
•
Bills
2600
2400
2200
2000
1400
1200
1000
800
600
400
200
o
1983
1984
1985
1986198719881989
1990
1991
199219931994
As of December 31
Oepartment 0'1 the Treasury
Office 01 Market Finance
January 30 1995·5
PRIVATE HOLDINGS OF TREASURY MARKETABLE DEBT
Percent Distribution By Maturity
Coupons
D
DOver 10 years
1-2 years
o 1 year & under
D 2-10 years
•
Bills
100%
15
80
35
60
40
20
o
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
As of December 31
Department 01 tI1e Treasury
January 30, 1995-6
Othce 01 Market Finance
AVERAGE LENGTH OF THE MARKETABLE DEBT
Privately Held
Years
10
Months _ _ _ _ _ _ _ _ _ _ _-.,
5 Months
70
December 31,1994
5 Years, 6 Months
9
8
7
JFMAMJJASOND
6
5
December 1975
4
3
2LLLLLl~~~~~~~-LLLLLLLLLLLLLLLLLLL~~~~~~
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
Deportmem of the Treasury
Office of Market FIMnce
Jllfluery 30 1995-4
MATURING COUPON ISSUES
February - June 1995
(in millions of dollars)
December 31,1994
Held by
Maturing Coupons
Federal Reserve
& Government
Accounts
Private
Investors
6,934
8,344
17,774
102
1,502
2,749
16,613
17,305
7,018
16,797
7,127
8,293
19,152
1,503
1,504
17,527
18,164
1,453
103
2,374
57
182
777
1,146
2,095
370
703
798
273
3,829
417
126
1,227
1,392
5,481
8,241
15,400
45
1,320
1,972
15,467
15,210
6,648
16,094
6,329
8,020
15,323
1,086
1,378
16,300
16,772
70
433
1,018
0
50
0
1,508
1,419
700
2,063
185
1,021
2,373
4
251
2,813
3,008
168,408
17,322
151,086
16,916
Total
11 1/4%
73/4%
51/2%
3
%
101/2%
77/8%
37/8%
37/8%
83/8%
37/8%
11 1/4%
81/2%
57/8%
125/8%
103/8%
41/8%
41/8%
Note
Note
Note
Bond
Bond
Bond
Note
Note
Note
Note
Note
Note
Note
Bond
Bond
Note
Note
2115/95
2/15/95
2/15/95
2115/95
2/15/95
2/15/95V
2128/95
3/31/95
4/15/95
4/30/95
5/15/95
5/15/95
5/15/95
5/15/95
5/15/95
5/31/95
6/30/95
Totals
2J
F.R.s. custody accounts for foreign official Institutions; Included
?J
On October 12, Treasury called for redemption at par the 7 7/8% Bonds 1995-00, Issued
February 15, 1975.
In
Foreign ll
Investors
Pnvate Investors.
Department 01 tne TreaSIJry
Office 01 Mar'o<.et Finance
January 30,1995-7
TREASURY MARKETABLE MATURITIES
Privately held, Excludi
SBII
34
32
30
28
26
24
22
20
18
16
14
12
10
8
6
4
2
0
38
36
34
32
30
28
26
24
22
20
18
16
14
12
10
8
6
4
2
0
Bills
27.5
J
F
Oepartmerrt o1lt1e Treasury
Office 01 Mar-.c.et Finance
M
A
M
J
•
Secuntles Issued pnor to 1993
_
New Issues calendar year 1993
'.:'..:'..:" New Issues calendar year 1994
',",',,'. Issued or announced through January 27, 1995
January 30 1995·8
TREASURY MARKETABLE MATURITIES
Privately held. Excluding Bills
sal
30
2.
r---------------------------------------------__
~
1997
276
2.
2.
22
20
.
I.
,.I.
277
269
~
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1998
34
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246
132
120
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2002
32
30
•
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2001
32
30
2
....:~....
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273
·
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,
219
2
20
0
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120
6
122
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I
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17
i.;
~
36
34
2003
32
30
2
,
277
•
,
•
·
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·
240
2
0
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I
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0
Department of the Treasury
J
F
M
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M
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s
_
Secunlles Issued pnor to 1993
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ill
New Issues calendar year 1993
::::::: Issued or announced through January 27, 1995
I
o
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Office 01 MOl'llat F,naO"lCe
o
January 30 1995-9
TREASURY MARKETABLE MATURITIES
Privately held. Excluding Bills
56,1
20
158
"
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124
2013
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Issued or announced through January 27, 1995
January 30 1995-10
TREASURY MARKETABLE MATURITIES
Privately held, Excluding Bills
SSllr---------------------- r----------------------
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_
Secuntles Issued pnor to 1993
Iii
New Issues calendar year 1993
JFMAMJJASOND
:~-0:::: New Issues calendar year 1994
Issued or announced through January 27, 1995
January 30.1995·\ 1
Office 01 Mal'o<ell="'lBrlCe
SCHEDULE OF ISSUES TO BE ANNOUNCED AND AUCTIONED
IN FEBRUARY 1995 y
1
2
9
10
16
17
7
8
13
14
15 Announce
2 year
5 year
20
21
22
Holiday
3
Auction
52 week Y
6
27
Friday
Thursday
Wednesday
Tuesday
Monday
24
23
Auction
2 year.;}'
Auction
5 year :JI
Announce
52 week Y
28
J/ Does not Include weekly bills
?I For settlement February
9
;V For settlement February 28
Department 01 1:1'1& Treasury
Oft'C8 01 Maflolel Finance
.4' For auction
March 2 and settlement March 9
February 1 199513
SCHEDULE OF ISSUES TO BE ANNOUNCED AND AUCTIONED
IN MARCH 1995 J/
Monday
Tuesday
Wednesday
1
Thursday
2
Friday
3
Auction
52 week9'
6
7
8
9
10
13
14
15
16
17
20
21
22
23
24
27
28
Announce
2 year
5 year
29
Auction
2 year~
Auction
5 year;}'
Announce
52 week
30
Auction
52 week1'
31
Y Does not Include weekly bills
9' For settlement March 9
;}' For settlement March 31
yFor settlement April 6
Department 01 the Trossury
0fflC8 of Mar'llet Finance
February " 199$-14
SCHEDULE OF ISSUES TO BE ANNOUNCED AND AUCTIONED
IN APRIL 1995 11
Monday
Tuesday
Wednesday
Friday
Thursday
3
4
5
6
7
10
11
12
13
14
17
18
19
20
21
24
25
Announce
2 year
5 year
Auction
5 year?!
Y
28
27
26
Auction
2 year?!
Announce
52 week
Auction
52 week~
Does not Include weekly bills
;Y For settlement May 1
~For
Department 01 the Tressw)'
OffICe 01 Mal1<et Flnanco
settlement May 4
February 1 1995--15
REPORT TO THE SECRETARY OF THE TREASURY
FROM THE
TREASURY BORROWING ADVISORY COMMITTEE
OF THE
PUBLIC SECURITIES ASSOCIATION
FEBRUARY 1, 1995
Dear Mr. Secretary:
During the three months since the Committee's last meeting with the
Treasury in November 1994, economic activity has remained robust. Price
increases for final goods are still subdued, but inflationary pressures in raw
materials and intermediate goods are intensifying. In response, the Federal
Reserve has continued to tightened monetary policy, and the Federal funds rate
now stands at 5.5%,0.75% higher than in early November.
Yields on Treasury securities have moved in divergent directions during the
three-month interval. At the extremes, yields on maturities under six months rose
by approximately 75 basis points, whereas yields on maturities o~ ten years and
longer declined by approximately 20 basis points. The result was a substantial
flattening of the yield curve. Its present shape and forward prices for various fixedincome instruments indicate market partiCipants continue to expect further
increases in interest rates in the coming months, but to a lesser extent and at a
slower pace than previously.
Within this context, to refund the $30.5 billion of notes and bonds ma~uring
on February 15, 1995 that are privately held and to raise additional cash of $16.5
billion, the Committee recommends that the Treasury auction $47.0 billion of the
following securities:
• $17.0 billion 3-year notes due February 15, 1998;
• $12.0 billion 1Q-year notes due February 15, 2005;
• $11.0 billion 30 1I4-year bonds due May 15, 2025; and,
• $7.0 billion cash management bills due April 20, 1995.
The Committee was unanimous in its recommendation on the size of each
of the refunding issues and on the maturity of the 3-year offering. With respect to
the 10-year offering. 14 of the 16 Committee members present for the meeting
favored a new issue rather than a reopening of the 7 718% note due November 15,
2004. The principal argument cited in favor of this position was that a reopening
would raise the total amount maturing on that date to over $32 billion. The already
uneven schedule of maturities in the years 2001 to 2004 would be exacerbated
2
while the February 15, 2005 maturity slot would be left vacant. The two remaining
members of the Committee had no strong views on the matter and abstained.
With respect to the bond offering, three options were considered: a new 30
1/4-year issue, a new 30-year issue, and a reopening of the 7 1/2% bond due
November 15, 2024. Nine members of the Committee favored a new 30 1/4-year
issue, Citing the belief that the longer issue with May and November coupons
would be particularly attractive for stripping purposes and possibly as a
consequence be issued at a modestly lower yield. The six members who favored
a reopening of the 7 1/20/0 bond due November 15, 2024 concurred in the
preference for an issue with May and November coupons but thought that the
larger issue which would result from a reopening offered the prospect of greater
liquidity and thus some potential saving in cost.
With the aim of achieving a cash balance of $20 billion on March 31, the
Committee unanimously recommends that for the remainder of the quarter the
Treasury meet its borrowing requirement in the following manner:
•
Two 5-year notes totaling $11.0 billion each, to raise $22 billion
of new cash;
•
Two 2-year notes totaling $17.25 billion each, to raise $3.8
billion of new cash;
One 1-year bill totaling $17.25 billion, to raise $750 million of
new cash;
•
Weekly 3- and 6-month bills totaling $27.6 billion through the
remainder of the quarter, to raise $12.8 billion of new cash;
•
A cash management bill totaling $14.0 billion to mature on April
20 to meet the seasonal cash need in early March; and,
•
Redemption on February 15 of bonds called earlier, to reduce
cash by $2.0 billion.
Including the $16.5 billion raised in the mid-quarter refunding as well as
anticipated foreign add-ons of $4.9 billion, the proposed financing schedule will
raise a total of $72.75 billion. When added to the $21.0 billion already raised or
announced during quarter, this amount will accomplish the total net borrowing
requirement of $93.75 billion.
For the April-June quarter, the Treasury estimates a paydown of $5 to $10
billion of marketable securities with a cash balance of $35 billion at the end of
June. To accomplish the anticipated paydown, the Committee recommends the
following provisional financing schedule:
3
Size
($billions)
Auctions
Refunding:
Other:
Less:
3-year note
10-year note
5-year notes
2-year notes
1-year bills
3- and 6-month bills
Raising
($billions)
17.0
.1£.Q
29.0
(3.1 )
3 x 11.0
3 x 17.25
4 x 17.25
2x27.6
11 x 25.4
33.0
2.6
2.1
(20.1 )
Estimated foreign add-ons
M
Subtotal
20.5
Redemption of April
cash management bills
Redemption of 7-year notes
(21.0)
(7.0)
Total Net Market Paydown
(7.5)
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 formulating its response to the request for the Committee's views on
possible adjustments to the Treasury's borrowing pattern beginning in January
1996, when the 5-year note series will have come full cycle and no longer provide
significant amounts of new cash, the Committee first sought to identify the basic
principles which should guide its recommendations. Committee members agreed
on two areas of major concern: the average length of the debt and the schedule of
maturities.
Although the Committee is aware of no compelling study or argument that
points to an optimal average length for the debt, the present pace of decline, if
continued, will increase the Treasury's exposure to variations in the level of
interest rates and could become a subject of worry to investors. From its recent
peak of 6 years in June 1991, the average length of privately-held marketable debt
has fallen to 5 years, 6 months. If the present borrowing strategy is continued into
1996 and beyond, the pace of the decline would continue unabated. Though it
cannot say when, the Committee does believe that at some stage the trend will
attract the notice of investors in the US and abroad and begin to raise concerns.
The consequences are unknown, but it seems highly likely there would be a
negative effect on the Treasury's cost of borrowing over the longer-term.
This concern led the Committee to the principle of having as one objective
of its recommendations for adjustments to the Treasury's borrowing pattern
4
beginning in January 1996 a slowing or an arresting of the pace of decline in the
average length of the debt.
Of comparable importance in the Committee's judgment is the schedule of
maturities of the marketable debt. For the past several years, the proportion of the
debt maturing under two years, for example, has been reasonably stable at levels
under 50 per cent. With the current borrowing strategy, the proportion is destined
to rise, as it has been recently. While again the Committee knows of no
convincing case that points to some ideal schedule of maturities, a rise in the
proportion of debt maturing within one or two years, especially in conjunction with
a steady decline in the average length of the debt, seems bound ultimately to raise
concerns among investors. In the inevitable periods of stress in the financial
markets, it is likely that a heavy concentration of maturities to be refinanced in the
near-term could add materially to the Treasury's cost of borrowing.
This concern led the Committee to the view that the second objective of its
recommendations for adjustments to the Treasury's borrowing pattern beginning
in January 1996 should be to ensure a more even spread in the schedule of
maturities across the full maturity spectrum and a concomitant avoidance of undue
reliance on short-term financing.
Given these' principles and objectives, the Committee unanimously
recommends that the sources of new borrowing be concentrated in longer-term
maturities. Specifically, consideration should be given to increasing the cycle
frequency of either the 10-year note or 30-year bond. For example, the frequency
of issuance for the 10-year note could be increased to eight times a year, or the
frequency of issuance for the 30-year bond could be returned to four times a year.
To facilitate an increase in the cycle frequency, the size of individual offerings
could be reduced from present levels while enlarging the total amount raised over
the cycle.
In recommending that new borrowing stress longer-term coupon issues, the
Committee rejected the alternative of increasing the frequency and proportionate
sizes of either 52-week bills or 3-year notes or other shorter-term issues.
However, the Committee remains in favor of pursuing the feasibility of issuing new
types of securities, including variable rate notes. which offer the prospect of
lowering the Treasury's cost of borrowing.
Mr. Secretary. that concludes the Committee's report.
questions or comments.
We welcome any
Stephen C. Francis
Chairman
MINUTES OF THE MEETING OF THE
TREASURY BORROWING ADVISORY COMMITTEE
OF THE PUBLIC SECURITIES ASSOCIATION
JANUARY 31 AND PEBRUARY 1, 1995
January 31
The Committee convened at 11:30 a.m.
Department for the portion of the meeting
public. All members were present, except
Kenworthy, Mr. Kessenich, and Mr. Stark.
announcement of the meeting and a list of
attached.
at the Treasury
that was open to the
Mr. Capra, Ms.
The Federal Register
Committee members are
Deputy Assistant Secretary for Federal Finance Darcy
Bradbury welcomed the Committee 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 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
January 30, 1995.
The portion of the meeting open to the public ended at 12:05
p.m.
The committee reconvened in closed session at the Madison
Hotel at 2:15 p.m. The members listed above, Ms. Bradbury, and
Ms. Ouseley were present. Ms. Bradbury gave the Committee its
Charge, which is also attached. The Committee first discussed
the size of the cash balances on March 31 and June 30 and agreed
by consensus to the estimates of $20 billion for March 31 and $35
billion for June 30 assumed by the Treasury. A draft proforma
that had been prepared by a member of the Committee (attached)
was used during the discussion.
February refunding
The Committee next agreed by consensus to recommend a 3-part
midquarter refunding, consisting of $17 billion of 3-year notes,
$12 billion of 10-year notes, and $11 billion of long-term bonds,
for a total of $40 billion. The Committee then turned its
attention to the Treasury's request for recommendations on
reopening the most recently offered 10- and 30-year securities.
The Committee voted by 14 yeas and 2 abstentions to
recommend that the Treasury a new 10-year note. A new note was
preferred to reopening the 7-7/8% note of November 15, 2004,
largely because a heavy volume of issues already mature on
November 15, 2004.
2
The Committee turned to a discussion of whether to recommend
reopening the 7-1/2% bond of November 15, 2024. The consensus
was that there is no shortage of the 7-1/2% bond in the cash or
collateral market. The Committee did not believe that the
Treasury would achieve meaningful savings from issuing a new 30year bond, but thought that there is a need in the STRIPS market
for more long-term bonds with May and November coupons. Nine
members voted to recommend a new 30-1/4 year bond to mature on
May 15, 2025, while 6 voted to reopen the 7-1/2% bond, and 1
voted for a new 30-year bond.
The Committee consensus was that the cash management bill to
be sold as part of the refunding should mature on April 20, after
the April individual tax payment date.
Financing schedule through June
The consensus was that the Treasury can leave the 2- and 5year notes at the size of the most recent offering in February
and March and vary the bill sizes to finance the rest of the
Treasury's borrowing needs in the January-March quarter. Another
cash management bill is expected in early March, also to mature
on April 20.
The committee consensus view is that the Treasury can meet
its April-June borrowing requirements by leaving the coupon sizes
unchanged and reducing bill sizes to allow for the announced
paydown of $5 to $10 billion during the quarter. The possibility
that cash management bills will be needed to bridge the cash low
point in June was also foreseen.
Post 1995 borrowing pattern
The Committee discussed and agreed by consensus to recommend
that, as a general debt management principle, the Treasury
stabilize the maturity distribution of the debt by continuing to
issue securities across the maturity spectrum. The Committee
consensus opposed increasing the frequency of 52-week bill and 3year note offerings, favoring instead increasing the frequency of
10-year notes or 30-year bonds and possibly introducing a new
instrument, such as a floating-rate note with a final maturity in
a range of 2 to 5 years.
May 1995 refunding meeting
Planning ahead, Committee members agreed to discuss the
concept of regular offerings of Treasury inflation-indexed bonds
at its regular quarterly meeting in connection with the May 1995
refunding.
The meeting adjourned at 4:10 p.m.
3
February 1
The committee reconvened at 9:05 a.m. at the Treasury in
closed session. The 16 members who attended the January 31
meeting were present. The Chairman presented the Committee
report (copy attached) to Deputy Secretary Frank N. Newman and
Deputy Assistant Secretary Bradbury.
A discsussion of the refunding recommendations, especially
the recommendation that the Treasury issue a new 30-1/4 year
bond, followed the reading of the Committee report. There was
also discussion of the Committee's view that the Treasury should
issue more securities that mature in 10 or 30 years in order to
prevent the the average life of the marketable debt from
declining (and the proportion maturing within two years from
increasing) substantially further.
The meeting adjourned at 9:35 a.m.
K
Ouseley,
ice of Market
p mestic Finance
ebruary 1, 1995
Attachments
certified by:
Ste en C. Francis, Chairman
Treasury Borrowing Advisory Committee
of the Public Securities Association
February 1, 1995
federal Register
dO
[ngrJ\ .r:g and Pnntwg, Western
Currer.cy Facility, 9000 Blue ~'ound
Road. run Wonh. Texas 75131
Vol. 60. No. 7 / Wednesday, Jdnuary 11
closed to the publiC, pursuant to :;
L.S.c. App. section 10{d)
ThtS notice shall constitute m\
determinatIOn, pursuant to the a'uthurlt\
placed tn heads of depanments b\ j
.
STOIlAGI:
li S C App. section 10(d) and \ested In
Fde blJers, 3 ' J( S 1::Cc\ cards.
me by Treasurv Department Order :\0
nllcrofiche and comp"':f'r records
10 1-(J3. that the <.losed ponlOns of the
I:\dlntained in an automat£'d oatabase
meeting are concerned \\ith informatIOn
that IS exempt from disclosure under 5
II ET AI('; "aA.ITY:
l 5 C 552b(cI(9)(A) The publiC lnterest
Alphabetically bv name and h\ "xldl
requtrE~s that such meetings be closed to
,('cuntv number.
the publIC btKause the Treasun
S"FE~""OS;
Departmcijt requires frank and full
adVice from representatl\ es of the
:\ccess is limned to Office of
finanCIal commuOltv pnor to malun~ Its
Persor.nel and Human Resources
Management DIvision staffs and records final decISIon on malor finanCing
operatIOns. Hlstoncally. llus ad \ Ice has
are maIO tamed ID locled file cabinets
b~n offered by debt management
ar.d sf>c~red data bases
advisory commitl~s establlshed by the
several malor segments of the financial
SYSTEM IlIANAGP(SJ "NO "ODRESS;
communltv. When so utilized. such a
commillee' IS recogOlzed to be an
Chief. Office of Personnel. Bureau of
advisory COIDnlltlee under 5 USC App
Engraving and Printing. 14th and C
section 3
Streets SW. Washington. DC 20228.
Although the TreasUI)'s final
\ianager. Human Resources
announcement of finanCing plans may
~1anagement Division, Bureau of
not reflect the recommendations
Engraving and Printing. Western
provided in reports of the adviSOry
Currency FaCility, 9000 Blue Mound
committee, premature disclosure of the
Road. Forth Worth. Texas 76131
committees deliberatIOns and reports
would be hkely to lead to significant
Dated. January l. 1995.
financial
speculation /0 the securities
.... Iex Rodngua.
market. Thus, these m~ttngs fall within
OepuCl' ,"ssistanl Secretary I Admlnlstnll10n/
the exemptIon covered by 5 U.s.c.
IFR Doc 9s-649 Filed 1-1~95. 8 ~S ami
552b(c)(9)(A).
8llL,lHQ COOE ...o-o'~
The Office of the Under Secretary for
Domestic Finance IS responSIble for
maintainmg records of d~
DepartmentalOfftcee
m~ement advisory committee
meetings and for proViding annual
Debt Man~t Advl8Of'Y
reports settill@ forth a summary of
Commlttllrr, ......ng
committees activities and such other
matters as auv be Informative to the
Notice is hereby given, pursuant to 5
public conslStent Wlth the policy of 5
USc. .'\pp. section 10(a)(2J. that a
U.s.C s.5Zb.
meettng ..... ill be held at the U.S.
Treasury Department. 15th and
Dated' Januarv ~. 1995
Pennsv!vanta Avenue, NW,
Frank N, Newman.
\Vashl·ngton. D.C. on January 31 and
(Acting) SKretary of the Treasul'}
Feoruary 1, 1995, of the follOwing debt
IFRDoc. 9s-618 Filed 1-10-95 8 ~j ami
r.l.lndg~ment adviSOry committee:
IIUM COOl "1~
r _,;,( S.. (urrtles .·,550Clatlon
I~Pd5Ur\ BorrowU18 AdvISOry CDmztuuee
FIMncial Management Service
The agenda for the meetinS provides
j", J tecr..llcal background briefing by
Privacy Act of 1974, New S~tem of
T:(,dsl..~~ staff on January 31. followed
Records
0\ a cr.arge by the Secretary of the
Treasury or his deSIgnate that the
AGENCY: FinanCIal Management Service.
( ommlttee diSCUSS partIcular Issues. and Treasury.
d \\OrklOg sessIOn. On Februar~.. 1, the
ACTION: Notice of proposed svstem of
committee will present a wntten report
records.
cf Its recommenciauons.
SUMMAAY: nus notice sets forth a system
The background briefing by Treasury
Q[ records, the Debt Collecllon
.;taff wtll be held at 11 :30 a.m. Eastern
Operations System. The purpose of this
tl:T)e on January 31 and will be open to
svstem is to maintain a record of
t~e public The remaining sessions on
,ndll lduals and enl.ll.les that are
: In .jar,. 31 and the committee's
Indebted to vaiiOUS Federal GO\ emment
. J,)rtlng session on Februan' 1 \\tIl be
•
1995
I
:\ollces
2809
depanments and agenCIes anJ whns('
duounts are being ~er\'lced [or
c01lecllon bv the FinanCli;1 \1ana~.. m"nt
Ser..lce (FMSl. In accordance With
\\'~I!!t'n dgreements reacht'd between the
rele\ant agency ("client") and FMS The
records ensure thaI: Appropn8tp.
collecllon aellon on cit!blOrs' account:; I=>
taken and proper! ... trac~ed: monies
coll~cted are credited; and accour.b dce
ret urned to the appropnat p agenC\ at
the time [,'le account IS co:;ccted or
closed.
OATES: CommC:1t:i nll,;st oe recci \ ed 110
;ater than Febr\,;arv 10, 1995 The
proposed s\ stem of records wtll be
effective Februarv 21. 1995. unless F\lC;
receives comments which \\ot.:lJ resulr
In a contrary determinatIon.
AOORESSES: Comments must be
submitted to the Debt CollectIOn
Operations Staff, Financial ~1.ln lro~~er.t
SerVice, 401 14th Street SW .. W,If, ~ I j
8, Washington. DC 20227 Comr.,el~'.:o
received will be a\a!lable for In,Of>ctlOn
at the same address between the hour,
of 9 am. and <4 pm. Monda~' through
Friday.
FOR FURn4(A
INF~MATlOH
CONTACT:
Kathleen Downs or Marh' ~1ills. Debt
CollectIOn Operations Staff. (202) 8746670.
SUPPLeMENTARY INFORMATlON: The Debt
CollectlOn Operations System is
established to collect and stoce
Information on individuals and entitles
Indebted to VaIlOUS Federal Gmernmer.l
depanrnents and agenCIes which ha\ e
contracted with the Financial
~lanagement Service (P..1S) for tte
ser;lcing or collection of such
lndebtedness.
The FinanCial Management Ser\lce
has been deSignated by the Office of
Management and Budget as lead agenc~
In crecilt management and debt
collectlOn. In llus capacity, FMS worKs
With other Federal departments and
agencies to Implement sound and
effective credIt management/debt
collectIon poliCies. procedures. and
standards, de\'elops and dlssemmates
procedures and standards. prOVides
trailling to agency personnel on credit·
related subJects: and maintams and
e~hanc~ such debt collectIOn tools a~
Federal employee salary offset. tax
refund offset, and the use of pmate
co IlectlOn agencies. In furtherance of the
goal to improve go ..'emmentwlde credit
managemenUdebt collecuon, F\iS has
de\'eloped the capability to service and
collect the debts of other agencies in
accordance With the requtrements of the
Federal Clauns Coilection Act of 1966.
the Debt Collecuon Act of 1982', as
amended, and the DefiCit ReduCl.lon ,kt
of 1984. as amended.
Treasury Borrowing Advisory committee
of the
Public Securities Association
Chairman
stephen C. Francis
Managing Director
Fischer, Francis, Trees & Watts, Inc.
717 Fifth Avenue
New York, NY 10022
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.
50 Congress Street, Ste. 842
Boston, MA 02109
Kenneth de Regt
Managing Director
Morgan Stanley & Company
1221 Avenue of the Americas,
4th Floor
New York, NY 10020
Thomas Bennett
Partner
Miller Anderson & Sherrerd
One Tow Bridge
West Conshohocken, PA 19428
Barbara Kenworthy
Managing Director
of Mutual Funds - Taxable
Prudential Insurance
McCarter Highway
2 Gateway Center, 7th Floor
Newark, NJ 07102-5029
James R. Capra
Principal
Moore Capital Management
350 Theodore Fremd Avenue
3rd Floor
Rye, NY 10580
Mark F. Kessenich, Jr.
President
Eastbridge Capital, Inc.
135 East 57th Street
New York, NY 10022
Jon S. Corzine
Senior Partner & Chairman
Goldman, Sachs & Company
85 Broad Street
New York, NY 1004
Bruce R. Lakefield
Managing Director
Lehman Brothers
200 Vesey Street, 9th Fl.
New York, NY 10285
2
Richard D. Lodge
President
Banc One Funds Management
Company
100 East Broad street
17th Flo
Columbus, OH 43271-0133
Robert D. McKnew
Executive Vice President
Bank of America
555 California street,
10th Flo
San Francisco, CA 94104
Daniel T. Napoli
Senior Vice President
Merrill Lynch & Company
250 Vesey Street, North Tower
World Financial Ctr, 8th Fl.
New York, NY 10281
William H. Pike
Managing Director
Chemical Bank
270 Park Avenue
New York, NY 10017
Marcy Recktenwald
Managing Director
Bankers Trust Company
1 Appold Street
Broadgate
London EC2A 2HE
England
Richard Roberts
Executive Vice President
Wachovia Bank & Trust Co.,
N.A.
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 Capital International
Group
375 Park Avenue, 18th Floor
New York, NY 10152
Stephen Thieke
Chairman, Market Risk
Committee
JP Morgan & Company, Inc.
60 Wall Street, 20th Floor
New York, NY 10260
craig M. Wardlaw
Executive Vice President
Nations Bank Corporation
Nations Bank Corporate Center
Mail Code NCI 007-0606
Charlotte, NC 28255-0001
January 31, 1995
COMMITTBB CHARGB
The Treasury would like the Committee's specific advice on
the following:
the composition of a financing to refund $30.5 billion of
privately held notes and bonds maturing on February 15 and
to raise about $15 to $17 billion of cash in 3-, 10-, and
30-year notes and bonds, and a cash management bill;
reopening the 7-7/8% note of November 15, 2004;
reopening the 7-1/2% bond of November 15, 2024;
the maturity of the cash management bill to be issued in the
refunding; and
the composition of Treasury marketable financing for the
remainder of the January-March quarter and the April-June
quarter, given the levels of Treasury cash balances on March
31 and June 30.
other topics
We would like to have the Committee's views on possible
adjustments to the Treasury borrowing pattern in 1996 to raise
needed cash in light of the monthly maturities of 5-year notes,
beginning in January 1996. For example, the Treasury might
increase the frequency of 52-week bills or 3-year notes, while at
the same time testing the market for new types of securities.
The Treasury would welcome any comments that the Committee
might wish to make on related matters.
Summary of January to March 1995
Estimated Net Marketable Borrowing
(Billions of dollars)
Net new money raised or announced as of 1/30/95 :
Regular weekly Treasury blils (includes $1.380 rrullion foreign add-ons)
52-week bills
Cash management bills
2-year notes (includes $1,758 million foreign add-ons)
5-year notes (includes $950 rrullion foreign add-ons)*
4-year notes redemption
7-year notes redemption
64
20
0.0
46
23.0
-85
-7.3
20.1
Net new money left to be raised:
Regular weekly Treasury bills
52-week bills
Cash management bills
2- & 5-year notes
Refuncling
9.2
1.0
25.0
25.8
6.7
67.7
Total net marketable borrowing:
(assumes a total of $10 blilion foreign add-ons)
93.7
Note: Assumes an end-ol-quarter cash balance of $20 bLlllOn.
Summary of April to June 1995
Estimated Net Marketable Borrowing
(Billions of dollars)
Net new money to be raised:
Regular weekly Treasury blils
52-week bills
Cash management bills redemption
2- & 5-year notes
Refunding
7-year notes redemption
-14.8
3.1
-250
35.7
-3.2
-70
-11.2
Total net marketable borrowing in quarter:
(assumes a total of $6 billIOn foreign add-ons I
Note. Assumes an end-ol-quarter cash balance of $35 billIOn
-5 2
Estimated Treasury Marketable Borrowing
(Billions at dollars)
January - March 1995
Total estimated marketable borrowing
Total net marketable borrowing issued or announced through
Total rematntng net marketable borrowtng
Cash balance at end of quarter
93.7
20.3
73.4
20.0
January 30, 1995
Amount
Matunng
Amount
OHered
Foreign
Add-Ons
Cash
Raised
Cumulative
Cash Raised
25.3
256
259
26.3
26.5
26.6
27.1
26.2
26.3
26.1
25.9
24.9
24.9
26.8
27.0
27.0
26.9
27.0
27.2
27.2
27.2
272
27.2
27.2
27.2
27.2
12
0.2
0.0
0.0
0.0
0.4
0.4
0.4
0.4
0.4
0.4
0.4
0.4
2.7
1.6
1.0
06
0.5
0.9
0.4
1.4
1.3
1.4
1.7
2.6
2.6
18.7
16.0
16.5
16.5
17.3
173
17.5
0.0
0.2
0.2
1.2
0.9
12
3.3
14.0
0.0
0.0
140
100
15.0
0.0
10.0
15.0
25.0
December 2-Year Note
December 5-Year Note
159
8.5
17.3
11.0
08
0.2
2.1
2.7
January 7-Year Note
January 2- Year Note
January 5- Year Note
7.3
15.7
0.0
0.0
17.3
11.0
1.0
0.7
-7.3
2.5
11.7
;'}l§
MQ~TH
ElILLS
01/05
01/12
01/19
01/26
02102
02109
02116
02123
03/02
03/09
03116
03123
03130
S2-WEE~
ElILL.S
01/12
02109
03/09
~ASI:! MA~AGEME~I ElILLS
Matunty Date
Settlement Date
01/03
02115
03/02
01/19
04/20
·04/20
CQUPQNS
}
33.3
17.0
12.0
1.LQ
40.0
February 2-Year Note
February 5- Year Note
15.4
0.0
March 2-Year Note
March 5-Year Note
February 3-Year Note
February 10-Year Note
February 30-Year Bond
Refunding
Grand Total
33.3
0.7
0.2
M
0.8
7.5
17.3
11.0
0.7
0.2
2.5
11.2
152
00
173
11 0
0.7
0.2
2.7
11.2
46.7
5122
595.9
10.0
93.7
937
Estimated Treasury Marketable Borrowing
(Billions of dollars)
April - June 1995
Total estimated marketable borrowing
Total net marketable borrowing issued or announced through
Total remaining net marketable borrowing
Cash balance at end of quarter
-5.2
0.0
-5.2
35.0
January 30, 1995
Amount
Matunng
Amount
Offered
Foreign
Add-Ons
Cash
Raised
Cumulative
Cash Raised
26.3
26.8
26.6
271
27.5
273
27.5
27.3
27.6
27.7
279
26.8
271
27.2
272
27.2
25.2
252
25.6
25.6
25.6
26.0
260
26.0
26.0
26.0
0.2
0.2
0.2
0.2
0.2
0.2
0.2
0.2
0.2
0.2
0.2
0.2
0.2
1.1
0.6
0.8
-1.7
-2.1
-1.5
-1.7
-1.6
-1.4
-1.6
-1.7
-0.6
-0.9
-12.3
16.6
16.6
16.9
16.8
17.5
175
17.5
17.5
0.2
0.2
0.2
0.2
1.1
11
0.8
0.9
38
10.0
15.0
100
0.0
0.0
10.0
-10.0
-15.0
0.0
-250
7.0
16.0
0.0
00
17.3
11.0
0.0
0.6
0.2
17.0
0.6
JU
~
Q.2
32.2
29.0
0.7
-2.5
May 2-Year Note
May 5-Year Note
16.1
0.0
17.3
11.0
0.6
0.2
1.7
11 .2
June 2-Year Note
June 5-Year Note
16.9
0.0
17.3
11.0
0.6
0.2
0.9
11.2
283
Grand Total
543.8
532.6
6.0
-5.2
-5 2
3M
MQ~TH
BILLS
04/06
04/13
04/20
04/27
05/04
05/11
05/18
05/25
06/01
06/08
06/15
06/22
06/29
~~-WEEK
BIL.LS
04/06
05/04
06/01
06/29
MA~M!EMEt:4I BILLS
Maturity Date
Set1lement Date
04/19
02115
04/20
03/02
04/20
04/03
CASH
CQUeQ~S
Apnl 7-Year Note
April 2-Year Note
AprilS-Year Note
May 3-Year Note
May 10-Year Note
}
-7.0
1.8
11.2
Refunding
DEPARTMENT
OF
THE
NEWS
TREASURY·
OFFICE OF PUBUC AFFAIRS. 1500
PE.NNSVLVAN~AVENUf'
I. .[I
;
~~.
TREASURY
N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
.;; i ·
FOR IMMEDIATE RELEASE
February 1, 1995
JOINT STATEMENT BY TREASURY SECRETARY ROBERT RUBIN
AND COUNCIL OF ECONOMIC ADVISERS CHAIR LAURA D'ANDREA TYSON
The Administration respects the independence of the Federal Reserve and neither
endorses nor criticizes its actions.
In 1994, the American economy enjoyed the best combination of rapid growth and
modest inflation in thirty years. All of the recent statistics indicate that the economy
continues on a healthy course of sound growth with modest inflation and we do not plan
to change our economic forecast as a result of the Federal Reserve's announcement.
The Administration will continue to work for policies that will sustain economic
growth with low inflation and rising incomes for all Americans.
-30-
RR-47
DEPARTMENT
OF
THE
TREASURY
tNEWS
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANiAAvENlm~
.WJ- WASHINGTON, D.C. -
FOR IMMEDIATE RELEASE
February 1, 1995
Contact:
20220 - (202) 622-2960
Jon Murchinson
(202) 622-2960
MEDIA ADVISORY
Treasury Secretary Robert E. Rubin will brief the press tomorrow, Thursday,
February 2, on the upcoming Toronto G-7 meeting.
The briefing will be in Room 3327, Main Treasury, 1500 Pennsylvania Avenue NW,
at 2 p.m.
The Toronto G-7 meeting will be Friday, February 3 and Saturday, February 4.
Cameras should set up between 1: 15 p. m. and 1: 30 p. m. Media without Treasury,
White House, State, Defense or Congressional credentials wishing to attend should contact
the Office of Public Affairs at (202) 622-2960, with the following information: name, Social
Security number and date of birth, by noon tomorrow. This information can be faxed to
(202) 622-1999.
-30RR-48
DEPARTMENT
OF
THE
TREASURY
NEWS
lREASURY
OFFICE OF PUBUCAFFAIRS -1500 PENNSYLVANiA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
February 2, 1995
CONTACT:
Office of Financing
202/219-3350
TREASURY CLARIFIES WHEN-ISSUED TRADING OF CASH MANAGEMENT BILL
On Wednesday, February 1, 1995, Treasury announced a 64-day
cash management bill to be auctioned February 9, 1995, issued
February 15, 1995, and to mature April 20, 1995.
When- issued
trading of this security can begin immediately.
For your infonnation, the CUSIP number for this bill will be
912794R63.
•••
RR-49
UBLIC"DEBT NEWS
FOR IMMEDIATE RELEASE
February 2, 1995
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 52-WEEK BILLS
Tenders for $17,331 million of 52-week bills to be issued
February 9, 1995 and to mature February 8, 1996 were
accepted today (CUSIP: 912 794W91) .
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
6.57%
6.59%
6.59%
Investment
Rate
7.01%
7.03%
7.03%
Price
93.357
93.337
93.337
Tenders at the high discount rate were allotted 76%.
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
RR-50
Received
$51,324,370
AcceI2ted
$17,331,346
$44,869,767
1,643,903
$46,513,670
$10,876,743
1,643,903
$12,520,646
4,400,000
4,400,000
410,700
$51,324,370
410,700
$17,331,346
DEPARTMENT
OF
THE
TREASURY
NEWS
~/7~. . . . . . . . . . . . . ._
................
OmCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AvtNUE,-N.W. - WASHINGTON, D.C. - 20220 - (202) 622·2960
REMARKS AS PREPARED DELIVERY
FOR RELEASE UPON EMBARGO LIFTING
TIME TO BE SET AT BRIEFING
February 2, 1995
REMARKS OF TREASURY SECRETARY ROBERT E. RUBIN
G-7 PRESS BRIEFING
We will have a very full agenda for Toronto. We will discuss Mexico, the various
issues surrounding the economic transformation of Russia and Ukraine, looking at the
global economic outlook which has improved substantially in recent months, and we'll be
talking about Halifax and the future of the international financial institutions.
I believe, and I know from talking with my colleagues in Europe yesterday and
this morning, that it is absolutely critical that we have effective cooperation on these
problems. I will make that as much my priority was it was that of my predecessor.
At the G-7 tomorrow and Saturday we will examine, in the context of Halifax,
how the international financial institutions can be made as modern as the problems they
face. The last few weeks have been a lesson in how important that is.
We have been busy with the situation in Mexico, and I want to dwell on that for a
moment as an example of the importance of global integration.
Increasingly, there is a new economic world, and we've been watching a clear
demonstration of how it is all linked together -- the developing world and the industrial
nations.
We must be forward-looking.
The President understood this and acted boldly and quickly when it became clear
that going the legislative route would take too long and allow the situation to deteriorate
even more. It was a politically tough decision, but it was a necessary one and I think the
right one.
RR-51
2
That is one of the points I will be making in Toronto, how it was necessary to act
quickly and decisively. We did, and so did the IMF. The International Monetary Fund
offered a fast, creative and forceful response to the situation, and we must ensure that
our international institutions have that capacity in the future.
I consider it one of my responsibilities at Treasury to improve public
understanding of this new world, and how it can work for them. I want to work with my
G-7 colleagues to further that understanding and confidence in all societies.
There must be a broad understanding that we are in a new world and we are
depending on other nations in ways we never were before. There must be a broad
understanding of how we're all in a global economy where it will require international
institutions with the appropriate missions and capabilities to deal with the challenges the
new global economy will bring us.
We're at a very good juncture now to effect change. With President Clinton's
leadership, the U.S. economy is stronger than it has been in years. Economies within the
G-7 and elsewhere are strengthening. Now is the time to put in place long term
innovative solutions that will deal with the problems we will face in the coming years.
-30-
BRIEFING
BY TREASURY SECRETARY ROBERT RUBIN
AND
BACKGROUND BRIEFING
BY A SENIOR TREASURY OFFICIAL
ON THE
TORONTO G-7 FINANCE MINISTERS MEETING
HHH
WASHINGTON, D.C.
THURSDAY, FEBRUARY 2, 1995
BRIEFING BY TREASURY SECRETARY
ROBERT E. RUBIN ON TIlE TORONTO G-7 MEETING
Page 1
BRIEFING BY
TREASURY SECRETARY ROBERT E. RUBIN
ON THE
TORONTO G-? MEEnNG
Thursday, February 2, 1995
2:00 P.M
Department 01 the Treasury
t SOO Pennsylvania Avenue, N W
Washington, D.C 20005
Page 2
(I)
PROCEEDINGS
(2) SECRETARY RUBIN: Thank
you,
Joan, Let me (3) start with a few comments, if I may, and then I would (4) be
delighted to take questions and then
after I take (5) questions the Senior Treasury Official would be very (6) happy to
fill in and continue the process.
(7) As you know, we will be going to
Toronto [S) tomorrow, will be there tomorrow night and Saturday (9) for what
will be my first G-7 Finance Ministers (10)
meeting, since the administration took
office, Let me [II) make a couple of
comments about the upcoming meetmg. [1.2) I think it will be a very interesting
meeung. I was 1131 talking to one of the
Finance Ministers today and he 114) said
and I think rightly so, he said these meet:
ing (15) can either be rather, can be interesting but they can 116) have no particular focus or they can really have some
(17) very serious business to deal with
and I think in this liS) instance we do
have very serious business to deal 119)
with.
120) We will certainly discuss Mexico, we
will 121) discuss the various issues surrounding the economic 122) transformation of Russia and the Ukraine and
Page 3
(I) conditions in both those countries.
We will be 121 looking at the global economic outlook, which as you 13) know
has improved substantially in the recent
months 14) and we will be talking about
Halifax and the future of 151 international
financial institutions.
161 I believe and I know from talking with
my 17) colleagues in Europe yesterday
and this morning that lSI they certain
also believe that it's absolutely 19) critical
that we have effective cooperation on
all of (10) these problems and I will make
that a priority every Ill) bit as much as
my predecessor, Roy Bentson, so 1121 effectively did.
113) At the G-7 tomorrow and Saturday,
looking (14) toward Halifax, we are going
to examine the (15) international fmancial institutions and how they can [161 be
made as modern both in their mission
and their (17) capabilities as the
challenges of the global financial [IS)
world, the global financial market~ '1nd
the (19) inter-relationships that now exists between) , "be PO! develooin~
world >
-
and the developed word. In other (21)
words, we need international financial
institutions (22) that are as modern as the
problems that they face.
February 2, 1995
Page 6
extraordinarily bold and Presidential
fashion to deal (2) with this matter in the
manner that is has since been [31 announced and widely discussed.
Page 4
141 The bipartisan leadership came down
)1) Increasingly there is a new economic
to the [51 the White House, they sat with
world. (2) And it really is a world of the President and 161 relevant officials of
inter-relationships. I (3) said in a speech
the administration. They very [71 quickly
yesterday or I referred in a speech [41
understood why the President needed
yesterday to an article that the President
to act (SI and, as you know, they were
circulated (5) about a year ago. The artiextremely supportive and (91 by midday
cle described how the (6) devastation of or a little bit thereafter had all anthe poorest developing countries isn't
nounced 110) their support for this plan.
(7) only a problem for those countries
III I This is one of the matters that we will
but it's a problem IS) even for the most
112) certainly be discussing in Toronto.
prosperous countries, so that [91 diseases
Not only the 113) Mexican situation, but
that begin in the poorest of developing
how the G-7 will function in (14) the new
[~O) countries, ~ith modern transportaworld that we live in where at times it
tIOn can so qUickly [11) spread to the
may be 115) necessary to move very, very
developed world or the destruction of qUickly to avert 116) financial distress
(12) rain forests in South America can
and how can we all cooperate and [17;
effect global [131 warming in the midfunction together in an effective fashion
western United States and on the (14)
when the liS) time pressures are imother segment of the interrelationship
mense.
between the [IS) world economics, we
have the well-known phenomenon of , 1191 In this case the International Monetary 1201 Fund acted very quickly, cre(16) the global financial markets and how
atively and forcefully and 1211 played a
q.uickly ~nd in 1171 what extraordinary
critical role in being able to put together
sIZe capital moves across countries 1181
1221 the package that is responsive to and
in the world that we live in today.
has enabled the
1191 The President has understood this
Page 7
from the [201 very beginning of this adIII world community to in effect deal
ministration and well before i21) the bewith this situation 121 in Mexico.
ginning of this administration. If you
look [221 back at his earlier speeches
131 To sum up and before I take questions,
what you see is a
, our 141 world has changed enormously
10 the ways I just 151 described. The interPage 5
dependencies are now a part of (6) our
daily lives and I think in ways that are
11 I President looking toward the 21 st
very 171 little understood by the general
century, looking [21 toward what he republic, and for IS) understandable reafers as to the new global economy, (3)
sons. It's a very complicated and (9) relaand talking about not only getting this
tively new world.
country back 14) on the right track for
1101 One of my priorities as Secretary of
the short term but also (5) positioning for
The I II) Treasury will be to do everything
the long term, positioning for the (6) kind
I can to try to (12) explain these interof world that I have just described.
dependencies to the public domain [131
17) In this particular case, the Mexican IS)
and try to improve public understandsituation, by Monday night we were told
ing, which in turn (14) will provide, hopethat the, by 19) the congressional leaderfully provide additional support for [151
ship, that Congress was not 110) going to
public policy that is commensurate with
be able to act in a timely fashion relative
the world that [161 we live in.
III I to the circumstances that had devel117) Another subject that I will be discussoped in Mexico. (12) And Mexico as you
ing
[IS) with my G-7 colleagues and that
might remember on Monday had the 113)
came
up this morning (19) in conversalowest Peso in history, its stock market
tion with one of the Finance Ministers is
was off I 114) believe six percent at the
120) that they face exactly the same probclose, something like that. 1151 The Brazillems.
They need (21) far greater underian stock market in sympathy to that was
off [161 eight percent. There were other standing of these interdependencies (22)
in their countries in order to have supeffects in other [171 countries and we felt
we were on the verge, the (IS) possibility port for the
Page 8
of some relatively serious and distressful
1191 circumstances.
II) kinds of policies that are commensurate with the kinds (2) of issues that we
[201 We worked with the President that
face.
evening, (21) we worked with him the
next morning and out of that (22) came
13) To repeat what I said a moment ago,
his decision to act in I think in an
there (4) must be a broad understanding
(11
BRIEFING BY TREASURY SECRETARY
ROBERT E. RUBIN ON TIlE TORONTO G-7 MEETING
February 2, 1995
that we really and truly (5J are in a new
world and a new world where we are (6J
dependent on other nations in ways that
we never were [7J before in which we
have global financial goals and (8J global
goals of trade and services.
(9J Let me close by saying that I think the
G-7 (IOJ is in a very good juncture for
dealing with these (11J issues. The United
States economy is strong and I (I2J think
in some fair measure due to the economic (I3J policies that the President put
in place in 1993 and (14J 1994. The European economies are doing well, the G-7
J15J is functioning economically in a very
positive way and (16J it seems to me it's
at that time that you can best try (17J to
deal with these issues and try to focus
on having (18J the kinds of international
institutions that we are (19J going to need
to go forward.
(2OJ With that I would be delighted to
respond (21J to questions.
I22J QUESTIONER: Mr. Secretary, how
close were
Page 9
we really to a global financial
meltdown and what can (2J the G-7 do to
make sure that this doesn't happen (3J
again?
(4J SECRETARY RUBIN: I don't let
me (5J describe it, respond a linle bit
differently than in (6J the terms that the
question was phrased, but I think [7J it's
an extremely :mportant question. We
felt with [8J the Peso at an all time low
on Monday that the 19J probability was
that we were very close to very IIOJ
serious financial distress in Mexico. We
felt and (l1J have felt all along that the
issue here was partly 112J Mexico and
partly the potential, the potential, for 113J
significant spill-over effects in other developing (14J nations in Latin America
and developing and emerging [15J nations outside of Latin America.
[16J How great those spill-over effects
would be [17J both in terms of the market
and the mind sets of [181 investors with
respect to investing in those countries
119J and the determination of those countries to go ahead [20J with reform I don't
know. But it was certainly our [21J view
that there was the potential for significant (22J adverse impacts in that spillover effect.
Page 10
IIJ QUESTIONER: And what could the
G-7 do to (2J make sure that that doesn't
happen or is there (3J anything?
J4J SECRETARY RUBIN: I think there
are two (5J things we need to do. Number
one, Mexico was the (6J prototype for a
developing country entering the (7J. international financial markets, and I think
that it (8) is critical .
. ..
reversal of the nr~ (9) and more poSluve
mind set toward developing countries
(tOJ in the international finanacial community that (III Mexico's ftnancial distress be arrested and the fact (121 situation be corrected.
[131 The second thing we can do is to
continue (141 on the path that started in
Naples when the President (lSI talked to
the leaders of the other G-7 nations
about (161 modernizing both the mission
and the capabilities of (171 the international financial institutions so that they
(181 would have both a mission and the
capabilities that [191 are commensurate
with the problems that we face. And (20J
that's a very tall order and it's something
I'm sure (211 people will be working on
for a long time to come. (221 But we want
to make a good start in Halifax.
Page
(IJ
111
,
J'
I
11
QUESTIONER: Mr. Secretary, there
have been (2J a number of economic
commentators, including a Wall [31 Street
Journal editorial this morning linking
the 14J Mexican crisis to Canada and
raising similar if lesser [5J concerns about
a lot of external debt. Do you see any [6J
substance to that?
[7J SECRETARY RUBIN: I really don't. I
think [8J Canada is a very different economic situation. I do [9J not believe there
is any substance to that.
ItOl QUESTIONER: Mr. Secretary, are you
going [11J to seek funds among the G-7
for Mexico or that's left 112J to the International Monetary Fund to their 10 billion [13J dollars? And do you think that
the worst is over for 1141 Mexico?
1151 SECRETARY RUBIN: This program
is grounded 1161 in two fundamental
commitments; the United States, 20 117J
billion dollars, and the IMF, which has
approved as 118J you know yesterday,
17.8 billion dollars. So you have (19J 37.8
billion dollars of money that is available
in I20J medium term maturities and that
is the core of this 121J program. There is
also a facility being put together, 1221 a
short-team facility by the BIS that has not
been put
Page 12
(I J together yet but that is in the process
of happening, (2J it's our hopes and expectations that it will happen, [3J but the
core of this program is a 20 billion dollar
(4J Exchange Stabilization Fund commitment from the United (SJ States, 17.8
from the IMF.
[6J QUESTIONER: But is the crisis over
in [7J Mexico? Is the worst over?
[8J SECRETARY RUBIN: We believe this
is a [9J program that will work, so the
answer to your question [tOJ is yes.
(l1J QUESTIONER: Regarding
Mexico,
will the (12J conditions that you talked
ut that will, that the (13J U.S. will
app".y to Mexico, will they be similar if
not 114J identical to the conditions that
the IMF outlined this IISJ morning and
will the U.S. actually publish the (16J
conditions that are going to apply to
Mexico and can 117J you spell them out
a linle more specific than what (18J you
have done so far?
(19J SECRETARY RUBIN: We want to address the (201 same areas that the IMF has
addressed and I think that (2l] it would
be fair to say that although, the IMF (22J
obviously developed ITS conditions on
its own, as it
Page 13
IIJ does and should do, we have worked
and consulted with 12J the IMF. I think
that substantively we are very much (3J
in accord with the IMF conditions but
we haven't (41 finalized our own view
totally so I can't fully (5J respond to that.
All I can tell you is we want to (6J have
conditions in place that fully protect the
loans 171 or loan guaranties that we will
make and I think (8J everything that we
have seen, the IMF has done a very [9J
good job in that respect.
1101 QUESTIONER: Will
you publish
your 1111 condition,,?
112J SECRETARY RUBIN: At an appropriate time 113J our conditions will, I
assume, become public. I think (14J that's
- yes. It would be my expectation that
they 115J will.
116J QUESTIONER: Mr. Secretary, can
you be any 117J more specific about your
own notions as to how the IMF (18J and
The World Bank should be modernized
and would you (19J also comment on Mr.
Candessus' remark this morning (201 that
an earlier than planned quota increase
may well 1211 be necessary?
(221 S'ECRETARY RUBIN: Well, I think I
probably
Page 14
[I J would be wiser not to respond to that.
I heard about [2J the comment and we
have not had a chance to focus on (3) that
comment. In terms of the modernization
of [4J mission and capability,I think with
respect to The [5) World Bank there has
been real progress with respect (6J to
administrative expenses, overhead, project (7J monitoring, the effectiveness of
loan programs. We (8J have urged and I
think with good effect that (9J development be bonom up, not top down, that
it focus (tOJ on education, on training,
that it focus on people (11J rather than
big projects, that it be complimentary to
[12J the private sector not a substitute to
the private [13J sector.
[14[ It's those kinds of things. Focus on
[15J women, the role of women in developing nations. I (16J think environmental
focus is very important, because (17J the
environment issues affect economies
not only of (18J the host countries but
.------~----~--------------~--------------------
BRIEFING BY TREASURY SECRETARY
ROBERT E. RUBIN ON TIlE TORONTO G· 7 MEETING
effect our country as well in 119J the
manner I described. It's those kinds of
concerns 120J that we have.
121J In terms of global financial markets,
I 122J think that the comments that was
made relates really
Page 15
to The World Bank and those kinds of
issues. In terms 12] of the global financial
markets, I think Mexico gives 13J us a very
good experience from which to talk
about how 14] we can work better and
more effectively togetherto IS] deal with
financial market disruptions.
16J QUESTIONER: Mr. Secretary, two
quick 17] questions. One is the U.S. has
raised the issue of [SJ transparency in the
context of the Mexican conditions. [9]
That's not a condition that the IMF has
raised itself. [IOJ And could you tell us
about that condition a little [II} bit more
in terms of the U.S. views and is there
any 112J other conditions that you are
discussing now or that [13] you perhaps
discussed with Mr. Ortiz today that are
114J different from the IMF issues'
115J SECRETARY RUBIN: Deputy Secretary Newman, [16} Undersecretary Summers and Assistant Secretary Shafer ]17}
and I met with Finance Minister Ortiz
and his team [lSI today and we discussed
a number of matters. One of 1191 them
was transparency. We do believe thatnot only [20} transparency but timely
transparency are both very [21[ important. What specifically that will amount
to I [22] think I - first, we haven't fully
worked it out;
IIJ
Page 16
secondly, I think I ought not discuss
it until we do 12] work it out. But he
related to our comments and I [3] don't
think we will have any problems in that
respect.
[4J QUESTIONER: Will you be signing a
document IS} with the Mexicans about
this deal? Will they have to [61 actually
sign on the dotted line'
[7] SECRETARY RUBIN: We
will ultimately have [S[ to have a loan agreement
or loan guaranty agreement or [91 some
kind - a master agreement covering
this [10] relationship, yes.
[llJ QUESTIONER: Mr. Secretary, are you
[12J advocating an increase in the lending
capacity of the [13] IMF or have you
thought through whether that is 114] necessary?
[IS] SECRETARY RUBIN: I don't think
I'm [16J prepared to comment yet on
what I think with respect [17] to the
lending capacity of the !MF. I think the
only [IS] comment I will make is I think
that it is very [19] important that we all
focus on these, as I said [20J before, on
the IMF, The World Bank and these other
.
.
. I I5 tomh!!!
--- thgt bot,JI
[21J mstItuyo
u
IIJ
0_ -
•
February 2, 1995
the mission is 122] properly defined and
the capabilities are adequate and
Page 17
quake which hit Japan
G-7?
[4]
[3]
recently in
SECRETARY RUBIN: I'm sorry?
[5] QUESTIONER: The
economic im[1 J I really think beyond that I would not
pact, inference [6] of the earthquake?
rather comment.
[71 SECRETARY RUBIN: I am really not
12J QUESTIONER: A lot of questions
equipped [S] to discuss - it's obviously
have been 13] raised about the Exchange
a horrendous event with [9J personal and
Stabilization Fund and 141 whether the
economic
consequences that are enoradministration has the authOrity to use
mous [10] but I'm not the right person to
IS] it. Legislation was introduced today to
analyze the economic [11] impact.
try to block 16] you. Are you concerned
1121 QUESTIONER: Could you talk a little
about that or a possible court [71
challenge that could slow this down?
more [13] - are you 1141 SECRETARY RUBIN: Wait a minute.
[SI SECRETARY RUBIN: No.
I didn't [151 call on you. I called on the
19} QUESTIONER: So in other words gentleman in the back.
11O} SECRETARY RUBIN: To
state the
1161 QUESTIONER: Mr.
Secretary, we
obvious, we [II} would not have prohave
had
two
[17] bailouts now or rescue
ceeded if there was a question about [12]
our authority to act and I think if you , packages for Mexico in 13 liS] years. Are
you concerned that Mexico may have a
look at the [13] statement that was signed
1191 psychology that the U.S. will always
by the leaders and the [14] President you
act
as a lender [20] of last resort?
will see the relevant citation.
1211 SECRETARY RUBIN: No.1 think that
liS] QUESTIONER: Sir, could you elabo- '
there [221 was an enormous change
rate on 116} why you think the Canadian
under Mr. Salinas and even to
situation is different from 117] the MexiPage 20
can situation and whether you expect to
[IS] discuss the Canadian dollar at the
III some extent understand his preG-7'
desesor. Good question. [2J I think what
119] SECRETARY RUBIN: Exchange rate I you had in Mexico with the implementamatters may 120] come up at G-7 finance
tion [3] of substantial reforms that efministers meetings. I think 121] it's almost I fected their economy in [4J many, many
inconceivable that they won't, but I ways. They made one very serious set of
don't [221 think there will be any particlSI mistakes and that is related to the
ular focus on the
maintenance of [6J current - the curPage 18
rent account deficit and the effort [7J to
fix the exchanged rate, but I think what
II[ Canadian dollar, no.
you have [S] in Mexico now is a greatly
[2] QUESTIONER: And
why do you
reformed economy, a [9] fundamentally
think the 13] situation is different'
, sound economy, an economy that has
[4] SECRETARY RUBIN: I think it would i the [10] potential for being everything
be like [5] discussing any two economies 'I that we had hoped it [II] could be.1 think
that are very different. [61 I can take what we do need to do is work our 112]
Howard is going to fire me. We will [71 I way through a difficult period and I
take a couple more questions.
. think that the 113] program we put in
[S] QUESTIONER: Do you plan to raise
place will accomplish that. Now we [14]
any [9] objections _
will take one more question. Yes, sir.
[lSI QUESTIONER: Are you saying it
1101 SECRETARY RUBIN: Maybe I will : would be [161 conceivable for the ex- I may 1111 regret this.
: change market _ for the 117] exchange
[12] QUESTIONER: Mr. Secretary, do you
rate to come up at the G-7? How would
plan to [131 raise any objection to the
you [lSI address the exchange rate?
Japanese government's 1141 suggestion of
[191 SECRETARY RUBIN: About
exa tax increase to pay for the Kobe [151
earthquake consequences?
change rates?
[16] SECRETARY RUBIN: We discussed
[20] QUESTIONER: Yes. Would you also
that a [171 little bit this morning. No. I
[211 SECRETARY RUBIN: I have no pardon't think so. But [IS] let me say this. I
ticular [22] views on the EN. All I said was
don't want to - I should really 119] withI think it's unlikely
draw that comment. We discussed that
very briefly 120] this morning. We have
Page 21
not developed a view on that 121] yet. I
[1] that a group of people would get
gOt a little ahead of myself. We need to
I together who spend so [2] much time
122] discuss that.
thinking about exchange rates and the
Page 19
issue [3] would never come up. I suspect
they will discuss 14] exchange rates. I
II] QUESTIONER: Will you talked about
the [2] economic impact of the earthhave no particular views to [5] discuss.
BRIEFING BY TREASURY SECRETARY
ROBERT E. RUBIN ON TIlE TORONTO G-7 MEETING
February 2, 1995
(6) Thank you. Senior Treasury Official,
do (7) you want to (8) SENIOR TREASURY OFFICIAL: We
are going (9) have them turn off the
cameras, first.
(11) (fhere was a pause in the proceedings)
(13) SENIOR TREASURY OFFICIAL:
This is the (14) background. Since Secretary Rubin went on and [IS) answered
quite a number of questions I'm only
going to (16) take a few.
(17) QUESTIONER: For clarification, was
there (18) discussion with the japanese
Finance Minister, between (19) Secretary
Rubin and the japanese Finance Minister?
(20) SECRETARY RUBIN: I expect they
will have (21) an opportunity to meet and
to talk in Toronto.
(22) QUESTIONER: Can you tell us anything more
flow. I think you have got to ask the
question - (10) you have got to ask not
just the question how do you [III respond when the crisis comes but how
do you make the [121 crisis less likely.
[131 QUESTIONER: Senior Treasury Official, (14) could you - the Secretary
talked only briefly about [15J the financial economic outlook in the G-7. Could
you (16) describe it a little bit more? Do
you expect much (17) focus on it at this
meeting?
[18) SENIOR TREASURY OFFICIAL:
There will be [19J the usual surveillance,
the surveillance discussion. [201 I think it
will be taking note of the quite favorable
[21J outlook in the G-7 with the best
combination of growth [221 prospects
and strong growth prospects and low
I
Page 24
[II inflation prospects that we have ,pen
in a number of [21 years. Recovery in the
United States seems to be [3J proceeding
Page 22
very strongly with inflation pressures [41
[I) about the meeting with Ortiz today
still very much quiescent. Growth apand what your time (2) frame is for actupears to have [51 been established in
ally signing an agreement?
Europe and in japan, and in Japan [61 as
[3) SENIOR TREASURY OFFICIAL: No.
well, so 1 would say that there will be a
[4) QUESTIONER: You talked about a
[7J discussion of surveillance but it will
new IMF (5) facility for dealing with
be one that [81 will take note of the fact
short-term liquidity [6) problems. What's
that when you are starting [91 from I
the U.S. view on that?
think a quite strong conjunctural situation, [101 which I think goes back to the
17) SENIOR TREASURY OFFICIAL:
mUlti-pronged growth III J strategy that
Clearly there IS) have been some discus,
you have heard us talk about in the [12J
sions in the past. I think the [9) Mexican
past.
experience is one that will very much
[10) influence any future decision and,
[13J QUESTIONER: Senior Treasury Offifrankly, we have (11) got something we
cial, on [141 the economic conditions on
will be and we suspect other G-7 1121
the Mexican loan, the IMF [I 5J sets forth
som~ limits on say credit growth and
countries will be discussing very intensively in the (13) future how best to re- I stuff [161 in their thing. I'm presuming
from what Mr. Rubin [17J said that those
spond to situations of this kind. [141 I
are very similar to what the U.S. [18J
suspect that there will be a major role
for, a major [IS) role not just for dealing
would insist on.
with crises when they come (16) up but
[19J SENIOR TREASURY OFFICIAL: I
also for anticipating and preventing
think that [201 would be good backthese (17) kinds of situations, which is
ground, yeah.
surely the best way to (18) respond to
[21J QUESTIONER: And he mentioned
them. But beyond that I don't have any
I
transparency [221 as another thing. And
119) details to give you at this point.
obviously there is the
120) QUESTIONER: How could you pre·
Page 25
vent (21) something like this from happening?
[I[ collateral, which is another thing.
(22) SENIOR TREASURY OFFICIAL:
What are some of [2) the other categories
ofthings where the U.S. will Well,Ithink
I
Page
23
[3)
SENIOR TREASURY OFFICIAL: I
[I) that transparency, I think that this is
don't want to [4) go into - before we
something (2) that, in retrospect I think
make disbursement of a long-term [5)
it appears that mistakes (3) were made
nature there will be a memorandum of
during 1994. If there had been more [41
understanding. [6) We will provide a
effective warnings about those mistakes
clear, on a number of issues but I [7J don't
it might have [5) been possible to, by the
want to attempt to anticipate that meminternational financial (6) institutions,
orand urn of 18J understanding at this
that might have had, that might have had
point.
17) some influence. I think there are les(9) QUESTIONER: Secondly, what will
sons for policy [~in emel1!ing market~ Rubin and (10) the Senior Treasury Offi~c~0~un~tn~·~es~fro~'?!~~..:.:t:l::.::ii5s:...:th=a:.:t..::ma::.=:.:y~,..::th_a:.:...t:.:...[;..;9):.:...ma_Y:--._1_L_·,.;}-.:;! tell the G-7 about [II) whether the
U.S. economy has slowed to a sustainable [12J growth rate?
[13J SENIOR TREASURY OFFICIAL: I
think we will [14J say the same kinds of
things that the administration [IS) has
been saying and 1 will leave that to the
[16J administration's domestic spokespersons.
[17J QUESTIONER: Would you be ready
to go along (18) with the demand that
some other G-l 0 countries are (l9) making that the United States make it's
money [201 aavailable on a first-in, last-out
basis'
[211 SENIOR TREASURY OFFICIAL: I
would not 1221 argue in that direction.
Page 26
[IJ QUESTIONER: I wonder if you could
say [21 something more about this question of modernizing [3J international financial institutions and give us a (4) sense
in a little more detail what that might
entail,l')l whether the primarily problem
is financial, whether it [6J it personnel,
whether it's technical capability?
[7)
SENIOR TREASURY OFFICIAL:
Look, I think [81 it's got a variety, I think
it's gOt a variety of [9J elements to it. One
element is the kinds of issues (10) that
come up in discussions of re-invention
of [III governmentment here. Efficiency,
decentralization, [12) leaner, meaner
management, control of administrative
[131 costs, avoidance of duplication.
[141 Another dimension is addressing
problems of [15) the kind that are salient
today but would have been (16) less salient some time ago; some of the global
[171 consequences of problems in developing countries that [18) Secretary Rubin
referred to in his statement.
(19) Another dimension is addressing the
kind of [201 change in the whole nature
of contemporary capital (21) markets
from what would have been the case
five ten or (22) even five years ago and I
think that's what's pointed
Page 27
[II out by the, by the Mexican experience.
(2) QUESTIONER: How will you address
that'
(3) SENIOR TREASURY OFFICIAL: Try
as you will, (4) you are not going to elicit,
you are not going to (5) elicit that.
[61 QUESTIONER: There are concerns
among G-7 [71 countries about rising interest rates in the latter (8) half of the from five percent.
[91 SENIOR TREASURY OFFICIAL:
Good try. (10) Thanks a lot.
[121 (The press conference was concluded at 2:37 p.m)
Page 28
I. ROBERT M JAKUPCIAK. RPR-NOTARY PUBLIC.
DO HEREBY CERnFY THAT THE FOREGOING mAN·
SCRIPTISA
DEPARTMENT
OF
THE
TREASURY
FOR IMMEDIATE RELEASE
February 3. 1995
MEDIA ADVISORY
The Treasury Department will hold a background press briefing Monday,
February 6, on the tax provisions included in President Clinton's fiscal 1996 budget.
The briefing will be in Room 3327, Main Treasury, 1500 Pennsylvania Ave., N.W.
at 1 p.m.
Media without Treasury, White House, State, Defense or Congressional
credentials wishing to attend should contact the Office of Public Affairs at (202) 6222960, with the following information: name, Social Security number and date of birth by
noon ,\1onday. This information can be faxed to (202) 622-1999.
-30-
RR-52
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: 17
Author(s):
Title:
Date:
Briefing by Treasury Secretary Robert Rubin on the Toronto G-7 Finance Ministers Meeting,
Toronto, Ontario
1995-02-04
Journal:
Volume:
Page(s):
URL:
Federal Reserve Bank of St. Louis
https://fraser.stlouisfed.org
NEWS
IREASuRY
omCE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.• 20220. (202) 622-2960
Contact: Scott Dykema
(202) 622-2960
FOR IMMEDIATE RELEASE
February 6. 1995
CLINTON BUDGET PROPOSES $63 BILLION TAX CUT
President Clinton's fiscal 1996 budget package includes a $63 billion tax cut for
working middle class Americans and a new compliance package aimed at curbing lax
avoidance.
".t\fter successfully bringing dOVI/ll the budget deficit, the administration now is
working to boost Americans' :)tandards of living," said Treasury Secretary Robert Rubin.
"It will help Americans get better paying jobs by encouraging them to get the training
and education they need to improve their skills," Rubin said.
A full 86 percent of the benefits will go to families with incomes between $20,000
and $100,000.
"Tnis tax-cutting plan is fiscally responsible. The tax cut for middle in..:ome
families won't add to the budget deficit ana is paid for by $144 billion in spending
reductions over the next five years. In fact, the deficit is projected to shrink by a net $81
billion over the period," Rubin said.
Middle Class Tax Cut
The middle class tax cut plan includes three major elements. All of the cuts can
benefit a taxpayer regardless of whether or not a taxpayer itemizes deductions on the tax
return.
First, a $500 non-refundable credit for each dependent child under the age of 13.
The credit will be phased-out faT taxpayers with adjusted gross income (AGI) between
$60,000 and $75,000. The maximum credit will be $300 in 1996-98 and $500 lbereafter.
Second, a deduction for up to $10,000 spent on post-secondary school education
and training expenses of a taxpayer, a spouse or any dependents. The maximum
(more)
RR-53
-2-
deduction allowed would be phased out for taxpayers filing a joint return with AGI
between $100,000 and $120,000. The maximum deduction will be $5,000 in 1996-98 and
S10,000 thereafter.
Third, expanded individual retirement accounts (IRAs) for families with incomes
under S100,000 and individuals with income under $70,000. Families would get tax
breaks for up to $2,000 a year for contributing to IRAs and, for the first time, could take
money out without a penalty to buy a first home, for education, for medical expenses,
unemployment costs, and nursing home expenses.
Proposals to Prevent Tax Avoidance
The budget includes revenue raising compliance provisions relating to the earned
income tax credit (EITC). The EITC would be denied to undocumented workers.
Under this compliance proposal, only individuals who are authorized to work in the
United States would be eligible for the EITC. In addition, the EITC would be denied to
individuals whose interest and dividend income exceeds $2,500.
Several proposals aimed at curbing offshore tax sheltering also are in the budget
package. One proposal would close a loophole in federal tax law that allows wealthy
Americans to renounce their citizenship and avoid paying billions of dollars in taxes on
appreciated assets. Another would tighten tax rules governing foreign trusts set up by
U.S. taxpayers and foreigners.
Other proposals
Several other revenue proposals also are included in the President's new budget.
These include expanding the number of Empowerment Zones by two and reducing the
manufacturers vaccine excise tax.
More detailed information about all the major tax proposals in the President's
budget is attached.
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ADMINIS...·RATION'S TAX PRI)POSAlS
I. MIDDLE CLASS BILL OF RIGHTS
$500 Child Tax Credit
A $500 non-refundable credit will be allowed for eacn dependent child under the age
of 13. The credit will be phased-out for taxpayers with adjusted gross income (AGI)
between $60,000 and $75,000. No credit will be available to taxpayers with AGI in
excess of $75,000. The maximum credit will be $300 in 1996-98 and $500 thereafter.
Education and Job Training Tax Deduction
A deduction would be permitted for up to $10,000 spent on post-secondary education
and training expenses. The deduction applies to expenses paid for the education or
training of the taxpayer, the taxpayer's spouse, or dependents O.e., persons for whom
the taxpayer is entitled to claim a dependency exemption). This deduction is used in
determining the taxpayer's adjusted gross income (that is, taken above the line) and
is, therefore, available to those who do not itemize their deductions, as well as to
those who itemize. The maximum allowable deduction would be phased out ratably
for taxpayers filing a joint return with adjusted gross income (before the deduction)
between $100,000 and $120,000 (for individuals $70,000 and $90,000). The maximum
deduction will be $5,000 in 1996-98 and $10,000 thereafter.
Expansion of Individual Retirement Accounts
This proposal would expand the availability of traditional deductible individual
retirement accounts (IRAs) to couples with income under $100,000 and individuals with
income under $70,000. These thresholds and the current $2,000 contribution limit
would be indexed for inflation. Everyone eligible for a deductible IRA would have the
option of either deducting the amount deposited or contributing to a new "Special
IRA". There would be no immediate deduction for contributions to a Special IRA, but
all withdrawals after five years would be tax-tree. Early withdrawals from both
deductible and Special IRAs would be permitted penalty-free to the extent they were
used to pay for higher education costs, first-home purchases, unemployment and
catastrophic medical and nursing home costs.
II. OTHER REVENUE PROVISIONS
Additiona, Empowerment Zones. The Secrdary of Housing and Urban
Development would be authorized to designate two urban empowerment zones in
addition to the six urban and three rural zones designated on December 21, 1994.
This would have the effect of extending the empowerment zone tax incentives to
these additional areas. Other current-law limitations, such as those regarding
population, size, poverty, and application requirements, would be applicable to
these areas.
Reduce Vaccine Excise Tax. Under current law, tax is levied on certain vaccines.
-.hec;e taxes are deposited in the Vaccine Injury Compensation Trust Fund and
provide a source of revenue to compensate individuals who sustain certain injuries
following administration of these vaccines. Because of large balances in the trust
fund, the Administration proposes a reduction in these taxes. The decrease will
allow continued program compensation while lowering the costs of vaccines to
botn public and private purchasers.
Earned Income Tax Credit
EITC denied to undocumented workers. Under this compliance proposal, only
individuals who are authorized to work in the United States would be eligible for
the earned income tax credit (EITC). When claiming the EITC, taxpayers would be
required to provide a valid social security number for themselves, their spouses,
and their qualifying children. Only social security numbers that are valid for
employment purposes in the U.S. would enable the individual to claim the EITC. In
addition, the proposal would modify the IRS procedure for processing returns with
erroneous or missing taxpayer identification numbers so as to reduce improperly
claimed credits. These proposals would be effective in 1996.
EITC denied if interest and dividends exceed $2,500. Under current law, an
individual must have earned income in order to be eligible for the EITC. Because
the EITC is designed to benefit low-income workers, the amount of the credit
should decrease as the taxpayer's income increases. A taxpayer with relatively
low earned income, however, may be eligible for the EITC even though he or she
has significant interest and dividend income from investment assets. Under this
proposal, taxpayers would not be eligible to receive the EITC if their combined
interest and dividend income for the year exceeds $2,500. This proposal would be
effective in 1996.
Tax Responsibilities of Americans Who Renounce Citizenship. The proposal would
tax the untaxed gains of U.S. citizens who rer,ounce citizenship. The tax would
also apply to aliens who have been lawful permanent residents for at least ten
years and then cease to be subject to U.S. tax. No tax would be paid on the first
- 2-
$600,000 of gain, and U.S. real estate and pension assets would be exempt.
Canada currently imposes a similar tax.
foreign Trusts. The foreign trust proposal is designed to address two categories of
tax planning opportunities with foreign trusts. First, U.S. persons sometimes
transfer their assets to foreign trusts. The proposal would impose enhanced
information reporting requirements (with penalties for failure to comply) on U.S.
persons who transfer assets to foreign trusts. Also, the proposal clarifies current
tax rules that generally apply to these trusts. The second category involves
foreign families who establish foreign trusts for the benefit of U.S. family
members. Under current law, the United States treats such trust assets as owned
by the forei~n family, and any distribution of income earned by the trust to the
U.S. beneficiary is treated as a nontaxable gift to the U.S. person. The proposal
would tax this trust income.
Extension of Superfund Tax. Four different taxes are imposed under present law
to fund the Hazardous Substance Superfund (Superfund) program including a
corporate environmental income tax equal to 0.12 percent of the amount of
modified alternative minimum taxable income in excess of $2 million, and excise
taxes on domestic or imported crude oil or refined products, certain hazardous
chemicals, and certain imported substances. These taxes are scheduled to expire
generally after December 31, 1995.
-3 -
Revenue E.Uma",
To Legl.laaon Arrec:Ung Receipt.
FY 1... Budget 11
05-Fe~95
05:16 PM
Fiscal Yeart
2000 2001 2002
(S'. in billions)
1995 1996
1997
1998
1999
00
-3.5
~8
~6
-63
-101
-101
Education and training tax deduction
0.0
~.7
-H
-49
-5 7
-75
Expanded indMdual retirement account.
00
0.4
~3
~8
-1 0
0.0
-3.8
-11.8
-124
Incr.... number of empowwrnent ZOOM
-0.1
~.1
~.1
Reduce exciM tIIxM on certain VIICCineI 2J
0_0
~.1
EMled Income tax credit compIianc» propoala
Receipts effect
Outiay ett.ct 31
0.0
0.0
0.0
IntIN'..t and dividend .... for earned Income tax credit
--------
2003
2004
2005
-9 9
-9.7
-9 4
-96
-35.4
-842
-75
-78
-6.1
-63
-64
-23 5
~7
-20
-3 3
-36
-39
-42
-4.5
-3 8
-23 3
-15.1
-196
-209
-21 3
-21-7
-21 9
-'12 7
-62.7
-1712
~.1
~.1
~1
~2
~1
~.1
~.1
~O
~.7
-1.1
~.1
~1
~1
~1
~.1
~1
~.1
~.1
~.1
~.3
~.6
0.0
0.0
0.0
0.4
0.1
0.3
0.5
0.1
04
05
01
04
05
01
04
05
01
04
05
01
04
0.5
0.1
04
05
01
04
05
0.1
0.4
1.9
04
1.5
4.4
1.0
3.4
0.0
0.0
0.0
0.0
0.0
00
03
0.1
02
03
01
03
04
01
03
04
01
03
04
01
03
04
01
03
04
01
03
04
01
03
04
0.1
03
1.4
0.3
1.1
3.4
0.8
2.6
Tax reaponslbilitiea of ~ who renounce citizenlhip 41
01
02
03
04
05
07
08
08
10
11
12
22
6.9
RaviM taxation of foreign tr'UIta 41
0.1
0.3
05
05
0.5
0.6
0.5
05
05
05
05
24
49
0.1
0.1
0.0
04
04
0.0
1.3
08
0.6
15
09
06
17
10
06
1.9
12
07
19
13
07
21
14
07
22
15
07
23
16
07
25
17
0.7
69
43
25
178
11 9
60
0.0
0.3
0.5
05
0.5
0.5
0.2
0.0
0.0
0.0
0.0
2.4
2.7
0.1
0.1
0.0
-3.1
-3.1
0.0
-9.9
-10.5
0.6
-10.3
-10.9
0.6
-12.8
-13.5
0.6
-17.3
-17.9
0.7
-18.7
-19.4
0.7
-19.3
-19.9
07
-19.5
-20.1
07
-19.6
-20.3
0.7
-20.3
-21.0
0.7
-53.4
-55.9
2.5
-150.7
-156.7
60
MJddlt=:C ... , Bill of Rklbta
Tax credit for dependent children
Subtotal, MIdd.CIa.. BiU of Rights
1995 - 2000 1995 - 2005
Other Til Propoll"
Compliance Propoll"
Receipta effect
Outiayeffect 31
Subtotal, Other Tax and Complianc» PropoNla
Recelpta effect
ouUay effect 31
ixtand corporate environmental Income tax
Tobll, Tax Leglalatlon
Receipts effect
ouUa~ effect 31
a;pa;;n;nt Of the Tr• .ury
Uffice of Tex Analyala
!
.OTE: Deblila may
not add to total. due to rounding.
The FY 1996 Budget presents ..veral fees and miscellaneous proposals affecting receipts not shown In this table.
Eatimata Ie net of Income offset.
Reduction In outIaya .. pr-rutd a. a positive number for purposes of this table.
41 Eatlmatae appearing In the FY 1996 Budget _re baaed upon on an incorTect effective date.
.
Example
Head of Household Earning $30,000,
With Two Children Under Age 13
Current
Law
Eamings
Administration
Proposal
30,000
30,000
Standard Deduction
5,750
5,750
Personal Exemptions (3 @ $2,500)
7,500
7,500
16,750
--------------2,513
16,750
--------------2,513
Taxable Income
Federal Income Tax Before Credits
Per Child Credits
Q
Federal Income Tax After Credits
Tax Reduction
2,513
1,000
1,513
1,000
40%
-
Department of the Treasury
Office of Tax AnalysIs
February 3, 1995
Example
Four-Person, Two-Earner Family Earning $80,000,
One Child in College with $10,000 of Education Expenses,
and $4,000 IRA Contribution
Current
Law
80,000
80,000
Deduction for Higher Education Expenses
o
10,000
Deduction for IRA Contributions
o
4,000
12,000
12,000
Earnings
Itemized Deductions
7,500
Personal Exemptions (3 @ $2,500)
Taxable Income
60,500
---------------
Federal Income Tax
T ax Reduction
Department of the Treasury
Office of Tax Analysis
11,870
46,500
--------------7,950
3,920
33%
February 3, 1995
Example
Five-Person, One-Earner Family Earning $55,000,
One Child in College with $10,000 of Education Expenses,
Two Children under Age 13, and $2,000 IRA Contribution
Current
Law
Earnings
55,000
55,000
Deduction for Higher Education Expenses
0
10,000
Deduction for IRA Contributions
0
2,000
6,550
6,550
12,500
12,500
35,950
---------------
---------------
Standard Deduction
Personal Exemptions (5 @ $2,500)
Taxable Income
Federal Income Tax Before Credits
Per Child Credits
Federal Income Tax After Credits
Tax Reduction
Department of the Treasury
Office of Tax Analysis
23,950
5,393
3,593
Q
1,000
5,393
2,593
2,800
52%
February 3, 1995
Example
Four-Person Family Earning $40,000,
With Two Children under Age 13
Administration
Proposal
Current
Law
Earnings
Standard Deduction
Personal Exemptions (4 @ $2,500)
Taxable Income
Federal Income Tax Before Credits
Per Child Credits
Federal Income Tax After Credits
Tax Reduction
Department of the Treasury
Office of Tax AnalYSIS
40,000
40,000
6,550
6,550
10,000
10,000
23,450
--------
23,450
---------------
3,518
3,518
Q
1,000
3,518
2,518
1,000
28%
February 3, 1995
,.",
NEWS
TREASURY
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C .• 20220. (202) 622·2960
Contact: Scott Dykema
(202) 622-2960
FOR IMMEDIATE RELEASE
February 6, 1995
CLI~TON OFFERS PLAN TO CURB OFFSHORE TAX AVOIDANCE
The Clinton Administration is proposing legislation aimed at stopping U.S. multimillionaires from escaping taxes by abandoning their citizenship or by hiding their assets
in foreign tax havens.
The two proposals are included in President Clinton's fiscal 1996 budget package.
The first proposal, effective immediately, would require rich individuals to pay taxes on
gains mainly accumulated while they enjoyed the privileges and protections of American
citizenship. Another set of proposals is aimed at curbing the use of foreign trusts to
avoid federal taxes.
Last year, some 850 Americans abandon their citizenship each year. A few
dozen of these people are wealthy citizens who take advantage of this loophole in federal
tax law. They renounce their citizenship, taking their wealth with them and not paying
any taxes on the appreciation in value of those assets accumulated while they enjoyed the
benefits of U.S. citizenship. By simply renouncing their citizenship -- or in the case of
resident aliens, by giving up green cards -- these people are escaping hundreds of billions
of dollars in U.S. taxes. This proposal would raise about $2.2 billion over 6 years,
ending fiscal year 2000.
The second legislative proposal combats tax avoidance by U.S. citizens funneling
assets and income through foreign trusts in offshore tax havens. A combination of
tougher compliance rules and new restrictions ensuring that the income of a foreign trust
is taxed in the United States would help curb this increasingly popular tax evasion
technique.
Foreign trusts are fast becoming a major way of abusing the federal tax system.
Treasury believes that tens of billions of dollars are in foreign trusts that benefit U.S.
persons.
The administration's proposal is designed to ensure that an appropriate amount of
U.S. tax is paid on income earned by foreign trusts created by Americans and foreign
(more)
RR-S4
-
2 -
trusts created by foreigners for U.S. beneficiaries. This package would raise $2.4 billion
over 6 years, ending fiscal year 2000.
N one of these proposals is designed to prevent Americans from shifting their
assets and citizenship to a foreign country. Rather, the aim is to make sure that
individuals who amassed great wealth through the opportunities and protections offered
by the .American system face their tax responsibilities.
Taken together, these proposals would curb what is becoming an all too common
practice of certain individuals trying to escape income and estate taxes.
Descriptions of the proposals are attached.
-30-
SUMMARY OF THE ADMINISTRATION'S PROPOSALS TO
PREVENT INTERNATIONAL TAX AVOIDANCE BY INDMDUALS
TAX RESPONSIBILITIES OF AMERICANS WHO RENOUNCE CITIZENSHIP
The Administration proposal would require American citizens who relinquish
their citizenship and long-term permanent resident aliens who abandon their U.S.
residence to pay U.S. income tax on gains on appreciated assets while such taxpayers
were subject to U.S. taxing jurisdiction. When a U.S. citizen relinquishes citizenship, all
of the individual's property would be deemed to be disposed of for proceeds equal to its
fair market value. The tax would also apply to lawful permanent residents who leave the
United States if they have been tax residents for at least ten years. This provision is
intended to apply only to wealthy persons. Therefore, the tax would only be levied on
gains in excess of $600,000. Qualified retirement plans and U.S. real property interests
would be exempt from tax. This proposal would be effective for expatriations that occur
on or after February 6, 1995.
FOREIGN TRUSTS
The foreign trust proposal is designed to tax two categories of people. First, U.S.
persons sometimes transfer their assets to foreign trusts to protect them from the reach
of creditors. These people rarely pay the required U.S. tax on trust income. Therefore,
the proposal would require trustees of foreign trusts to file a statement with the Internal
Revenue Service agreeing to appoint a U.S. agent who would provide the IRS with trust
information and to file an annual information return. Creators of such trusts would be
subject to a penalty of 35 percent .of the value of property transferred to the trust if the
transfer is not reported. In addition, if required information is not provided, the
appropriate tax treatment of any trust transactions or operations could be determined by
the IRS. The proposals generally would be effective for taxable years of trusts beginning
after enactment.
In addition, the proposal clarifies current tax rules that generally apply to this first
category of people. A U.S. person who transfers property to a foreign trust with U.S.
beneficiaries generally is taxable on trust income. The proposal would curtail certain
loopholes that have been used to avoid U.S. tax. Under the proposal, U.S. beneficiaries
of a foreign trust created on the death of a U.S. person would be deemed to earn their
proportionate share of trust income. Further, most noncommercial sales of property to
a foreign trust would be transfers subject to the general rule. In addition, a foreign
person who becomes a U.S. person within 5 years of transferring property to a foreign
trust would be taxed on trust income if the trust has U.S. beneficiaries. Finally, if a
domestic trust becomes a foreign trust, U.S. beneficiaries of the resulting foreign trust
would be considered to earn the trust income. Generally, the proposal would be
effective for transfers to trusts on or after February 6, 1995. However, the transfer at
death provision would only apply to assets transferred after the enactment date.
-2-
-The secopd category of people are -; T.S. persons who are members of wealthy
foreign fa.ru.i1es; -Tu.!se forei~ families often establish foreign trusts for a U.S. family
member's benefit. Under current law, the United States treats such trust assets as owned
by the foreign family, and any distnbution of trust income to the U.S. beneficiary is
treated as a nontaxable gift. Under the proposal, foreign persons establishing such trusts
would no longer be considered to earn trust income. Instead, the trust income would be
taxed when distributed to U.S. beneficiaries. The proposed changes would be effective
for all such trusts on the date of enactment.
In additio~ -current tax ru -,es applicable to this second category of foreign trusts
would be revised to increase the interest charge imposed on distributions of accumulated
income and to tax U.S. beneficiaries when they use assets owned by a foreign trust. This
proposal would generally be effective for the trust's taxable years beginning after
enactment.
Finally, the proposal would eliminate ambiguities in the current definition of a
foreign trust. An estate or trust would be considered a domestic estate or trust if it
meets two factors: a court within the United States must be able to exercise primary
supervision over the administration of the estate or trust, and U.S. fiduciaries must have
the authority to control all important decisions of the trust. A foreign trust would be any
trust that is not domestic. This proposal would be effective for taxable years of the trust
that begin after December 31, 1996 to allow taxpayers to adjust to the new rules.
-30-
TAX RESPONSIBILITIES OF AMERICANS RENOUNCING U.S. CITIZENSHIP
PRESS PACKAGE
SUMMARY OF PROPOSAL
Under current law, worldwide gains realized by U.S. citizens and resident aliens
are subject to U.S. tax. However, if a U.S. citizen relinquishes citizenship or an alien
ceases to be a resident, U.S. tax is generally not imposed on accumulated gains. Gains
accruing during the time that a taxpayer was a citizen or long-term permanent resident
should be subject to U.S. tax if those persons abandon their U.S. status.
The Administration proposal would require Americans who relinquish their
citizenship or long-term permanent resident aliens who abandon their residence to pay
U.S. income tax on gains that generally accrued while such taxpayers were subject to
U.S. taxing jurisdiction. When a U.S. citizen relinquishes citizenship, all of that person's
property would be taxed as if it had heen sold at fair market value. The tax would also
apply to la\\ful permanent residents who abandon their green card, if they have been
U.S. tax residents for at least ten years. The departure tax is intended to apply only to
wealthy persons. Therefore, the tax would only be levied on gains in excess of $600,000.
Qualified retirement plans and U.S. real property interests would be exempt from tax.
This proposal would be effective for expatriations that occur on or after February 6,
1995.
Trea..<iury estimates that this proposal would raise $2.2 billion through the year
2000.
H.\CKGRO{j~D
•
In 1994. approximately 850 C.S. citizens renounced or abandoned their U.S.
citizenship. Approximately 3.0()() long-term resident aliens abandoned their green
cards. Only a fe\\.· of these pcr ... ons would he subject to the proposal described
helow.
•
There are many rea-,()n~ to c'r~ltriate other than tax avoidance:
•
a U.S. citizen attain .. a h:~h rank in another country's government or armed
forces
a U.S. citizen wants to necome a citizen of another country which does not
•
permit dual citizenship (e.g., Korea, Mexico, Bahamas)
•
a U.S. citizen acquires a title of nobility in another country, by marriage or
otherwise
•
The Administration proposal is intended to apply only to a small number of
wealthy persons. The proposal applies only if an expatriate has more than
$600.000 in gains (no! S()OO.OOO in gross assets) without regard to retirement plans
-2or real estate holdings. Therefore, the proposal would rarely apply to an
individual whose gross assets are less than $5 million. The Treasury Department
believes that of the nearly 4,000 citizens and long-term resident aliens who
expatriated in 1994, only a few would have been subject to the Administration
proposal.
*
Although there appears to be more expatriations now than a few years ago (858
in 1994 as opposed to 571 in 1990), the 1990s levels of expatriations are lower
than the early 1980s (952 in 1982 and 1446 in 1981). However, because the
number of tax-motivated expatriations is such a small percentage of total
expatriations, the trend in overall expatriations may not be relevant in
determining the tax avoidance trend.
The United States is not a high-tax jurisdiction when compared to other
industrialized countries. Treasury does not believe that expatriates are fleeing a
repressive U.S. tax system: rather, they are fleeing the tax system that all
developed countries must impose to maintain a standard of living demanded by
their citizens and residents -- including those who choose to expatriate.
*
In 1972, Canada enacted a departure tax on all capital assets owned by departing
residents of Canada. In the early 19905, the Canadian authorities examined the
history of their departure tax. and reaffirmed the value of the rule. In 1992, the
Canadian departure tax was expanded to include all of a departing resident's
assets. whether or not the assets are capital assets.
Other countries havc morc limited \'ersion~ of a departure tax. For example, a
departing German resident is deemed to have sold any stock he owns in a
German corporation. A dcpartinf Danish resident moving to a low tax
jurisdiction is deemed to continue to he a tax resident of Denmark for several
Years.
EXA1\lPLE OF TAX A\"O([)A'CE THROUGH EXPATRIATION
In 1960 Mr. Grecnh;ld started J \cry successful retailing business, Retail, Inc.
Ret~lil. Inc. would not h~I\'C pown a" rapidly as it did without the benefits provided by
the U.S. government: prot(,cti()n of ir;mchise rights both in the U.S. and throughout the
worlcJ, access to retail markcl'- in ()!hcr countries. labor laws, etc. Retail, Inc. was a
success largely because of the cJynamlc C.S. economy and a workforce that was educated
in the United States.
Mr. Greenback's stock in Retail, Inc. has significantly grown in value and is now
worth about S2 billion. The United States has never imposed an income tax on the
-3appreciation of Mr. Greenback's stock, allowing him to defer the gain until he sells the
stock or dies (when his estate would be subject to an estate tax). If Mr. Greenback sold
his stock, he would pay approximately $550 million in income taxes. If be retained the
stock until he died, and he then contributed one-half of his stock to the Greenbacks
Foundation and left the remainder to his son, his estate would pay estate taxes of
approximately $550 million. If he decides to remain a U.S. citizen he could avoid such
immediate taxation but would continue to be subject to annual U.S. income tax liability
and estate tax.
Mr. Greenback's salary from Retail, Inc. is $1 million per year and his investment
income totals $30 million per year. He pays U.S. income taxes of approximately $12
million per year.
To save taxes, Mr. Greenback renounces his U.S. citizenship and becomes a
national of a European Union country. Because this new country does not tax its
nationals who do not live in that country, Mr. Greenback is able to travel on a European
Union passport, but live on an island in the Caribbean, where there are no income or
estate taxes. However, Mr. Greenback wants to spend as much time as possible in the
United States. Because his wife retains her U.S. citizenship, Mr. Greenback is able to
travel freely in and out of the United States. He spends 120 days per year in the United
States without becoming a resident of the United States for tax purposes. He retains his
C.S. home. his U.S. country club memberships, his U.S. driver's license, etc.
C nder this new arrangement. Mr. Greenback only pays U.S. tax on the portion of
hi, ,;t1:m that is attributahle to his work within the United States. Thus, one-third of his
annual salary is taxed in the United States. resulting in U.S. taxes of approximately
S 101l.()O(). He invests his passive assets in foreign securities, and thus pays no U.S.
income or withholding taxes on his investment income.
The result of his expatriation is that his annual U.S. income tax liability has been
reduced from 510 million to 5100,000. Funlzer, he has pennanent/y avoided U.S. estate
taxes of 5550 million.
The Administration's proposal would trigger gain on Mr. Greenback's appreciated
assets when he renounces his U.S. citizenship. In this case, Mr. Greenback would be
required to pay income taxes of approximately $550 million.
-30-
FOREIGN TRUSTS PRESS PACKAGE
Foreign trusts are fast becoming a major vehicle for abuses of the U.S. tax system.
Worldwide, promoters claim that there are trillions of dollars in offshore bank accounts - much of it in trusts. In the Cayman Islands alone, $440 billion are on deposit -- 60
percent from U.S. sources. (Barron's, January 4, 1993, pg. 14.) In addition, Luxembourg
has $200 billion on deposit from U.S. sources, and the Bahamas has $180 billion from
U.S. sources. (New York Times, October 29, 1989.) This type of activity seems to be
increasing. "[U.S.] people are hiding money... Legal experts outside the U.S. tell me
that they are getting a 100 percent increase in the business every six months."
(\Vashington Post, August 7, 1993, pg. B6.) One promoter advertises that his firm has
shipped over $4 billion worth of assets to offshore asset protection trusts.
The Administration's foreign trust proposal is designed to ensure that an
appropriate amount of U.S. tax is paid on income earned by (1) foreign trusts created by
U.S. people (outbound trusts), and (2) foreign trusts created by foreign persons for U.S.
beneficiaries (inbound trusts). This background document discusses these trusts
separately.
Treasury estimates these proposals would raise approximately $2.5 billion through
fiscal year 2000.
OUTROU~D
TRUSTS
SUMl\1ARY OF OCTBOUND TRUST PROPOSAL
C.S. persons sometimes transfer their assets to foreign trusts. Although current
law requires U.S. people who create or transfer property to foreign trusts to report those
lran~actions to the IRS, the penalties for noncompliance are minimal.
Foreign trusts set up by U.S. persons are frequently located in tax haven
jurisdictions with stringent hank secrecy laws. Attempts by the IRS to verify income
earned hy foreign trusts are often met with silence or a representation that bank secrecy
laws prevent the U.S. taxpayer from ohtaining required information. Existing penalties
have not proven adequate to encourage many U.S. taxpayers to comply with current
information reporting rules. These people rarely pay the required U.S. tax on trust
Income.
Therefore, the Administration's compliance proposal would require a U.S. person
\I,iho transfers assets to a foreign trust to report that transfer to the IRS. The U.S.
transferor would be subject to a penalty of 35 percent of the value of the transferred
property if the transfer is not reported. In addition, trustees of foreign trusts would be
required to file annual information returns with the IRS and appoint a U.S. agent who
would provide the IRS with access to trust information. If the trustee does not comply,
the appropriate tax treatment of any trust transactions or operations could be determined
-2by the IRS. The proposals generally would be effective for taxable years of trusts
beginning after enactment.
BACKGROUND ON OUTBOUND TRUSTS
*
The U.S. market for asset protection trusts ("APTs") is exploding. Treasury
estimates that assets worth tens of billions of dollars are currently in foreign asset
protection trusts, and the number is growing. Most of these trusts were designed
to protect assets from creditors, not to evade taxes.
*
However, once assets are in a foreign APT and the U.S. grantor receives his
annual report of earnings from the foreign trustee, the grantor often realizes that
the IRS is unlikely to ever know of this income. Thus, the grantor often omits
this income from his tax return.
*
U.S. persons rarely file information on foreign trusts that is required under
current law. In 1990 (the latest year for which information is available), U.S.
persons reported that they created 133 foreign trusts with total assets of
approximately $273 million. On annual information returns, U.S. creators of
foreign trusts reported $3.0 million of income from the trusts they created.
Obviously, these amounts are a very small fraction of the actual numbers.
•
Treasury believes that U.S. people who create foreign trusts are likely to comply
with the new tax rules pertaining to information reporting. Most of these people
set up their foreign asset protection trusts to protect their assets, not to evade
taxes. When presented with the additional information reporting requirements
under the proposal, these people are more likely to report their trust income as
ta.xable income.
•
The Administration's proposed information reporting rules are patterned after a
1989 change to the information reporting rules that apply to foreign corporations
that do business with related U.S. corporations. See section 6038A of the Internal
Revenue Code. Anecdotal data indicates that the foreign corporation information
reporting rule has been very successful in convincing foreign corporations to
appoint a U.S. agent who ha~ access to the foreign corporation's foreign records.
*
\Ve have been told that many reputable U.S. banks and trust companies will
support the Administration proposal. Under the existing system, these banks and
trust companies try to get their U.S. clients to follow the U.S. tax rules. However,
some unscrupulous companies don't. Additional information reporting will create
a more level playing field, allowing reputable banks and trust companies to better
compete with the less reliable ones.
-3-
EXAMPLE OF TAX EVASION USING OUTBOUND TRUSTS
Mr. Jones is a successful U.S. entrepreneur. Each year he earns gross income of
$2 million. He has investments worth $15 million, which generate $2 million of taxable
income each year. He pays annual U.S. income taxes of about $1.3 million.
Mr. Jones transfers 80 percent of his investments to an irrevocable trust in the
Cook Islands for his own benefit. (The Cook Islands is a popular destination for U.S.
asset protection trusts because its fraudulent conveyance laws were drafted by U.S.
lawyers to accommodate U.S. legal concerns.) Although the Cook Islands trustee is not
required to follow Mr. Jones' instructions, it invariably does. Therefore, whenever Mr.
Jones wants cash, he has the property wired to him from the Cook Islands. However,
because his business income is adequate to support his lifestyle, he rarely receives a
distribution from the Cook Islands trust.
Five years later Mr. Jones incurs a debt of $5 million. When the creditor tries to
collect the judgment from the Cook Islands trustee, the trustee replies that it is not in
the "hest interests" of the trust beneficiary (Mr. Jones) to make a distribution at this
time. Mr. Jones settles with the creditor for $750,000, or 15 cents on the dollar. The
S7.50,OOO is paid hy the Cook Islands trust.
After the trust is created. Mr. Jones also pays less U.S. income tax. He continues
to pay U.S. tax on his salary. but he realizes that the IRS will not know about the
investment income in the Cook Islands. Therefore, despite the fact that his lawyer has
informed him that he is required to pay U.S. tax on the trust income, he fraudulently
omits S1.5 million of investment income from his taxable income, saving about $600,000
in income taxes.
Under the Administration's proposal. if Mr. Jones did not report the transfer of
S 12 million to the foreign trust. he would be subject to a tax penalty of more than $4
million. In addition, the Administration proposal would put strong pressure on the Cook
Islands trustee to provide the IRS with an annual information return showing Mr. Jones'
investment income. (If the trustee did not provide this information, the IRS could
impute a rate of return to ~1r. Jone~' assets that he transferred to the trust, and assume
that Mr. Jones earned that amount of income from the trust.) With the information
from the Cook Islands trustee provided to the IRS, Mr. Jones would be likely to
voluntarily report his trust income on his U.S. tax return.
-4-
INBOUND TRUSTS
SUMMARY OF ll"~rsOUND TRUSTS PROPOSAL
Wealthy foreign families often set up foreign trusts which benefit a U.S. family
member. Under current law, the United States treats such trust assets as owned by the
foreign family, and any distribution of trust income to the U.S. beneficiary is treated as a
nontaxable gift.
Current rules are intended to prevent wealthy U.S. persons from creating trusts to
shift taxable income to U.S. beneficiaries who are likely to be paying taxes at lower
marginal tax rates. To avoid this result, the rules treat the creator of the trust as the
owner of the underlying trust assets even where he retains no beneficial interest in the
trust.
These rules apply even to situations that they were not designed to address. Thus,
where a trust is created by a foreign person, existing law allows U.S. beneficiaries, who
enjoy the benefits of residing in the United States, to avoid their U.S. tax responsibilities.
U.S. beneficiaries receiving distrihutions of income from a foreign trust should be
required to pay U.S. tax on the distrihution.
Under the Administration proposal. foreign persons establishing such trusts would
no longer he considered to earn trust income. Instead, the trust income would be taxed
when distrihuted to U.S. heneficiarie~. The proposed changes would be effective for all
such trusts on the date of enactment.
HACKGROL'D 0' .'BOUI'"D TRUSTS
Foreign trusts estahlished hy foreign person.s for U.S. beneficiaries have assets
worth tens of billions of dollars. Little. if any, of the income earned by these
trusts is taxed in the United States - even when the income is distributed to the
U.S. beneficiary.
Under current law, income ~enerated by foreign trust assets frequently is not
taxed in any country. Many foreign jurisdictions do not consider the foreign
grantor to be the owner of the trust a.<;sets, and trusts are normally established in
jurisdictions which do not impose tax on trust income. U.S. beneficiaries receiving
distributions of untaxed income from a foreign trust should pay tax on that
Income.
The Administration proposal is similar to a rule that has existed in the United
Kingdom since 1990.
-5EXAMPLE OF TAX AVOIDANCE USING INBOUND TRUSTS
The Smiths are a wealthy foreign family. The patriarch, Mr. Smith, has liquid
assets in excess of $3 billion. Mr. Smith's eldest son, Patrick, and his family takes up
permanent residence in the United States and become U.S. citizens.
Mr. Smith sets up an irrevocable trust in the Cayman Islands for the benefit of his
offspring. He funds the trust with $1.5 billion. The trust earns $150 million in interest
and dividend income each year. The trust instrument grants broad, discretionary powers
to the Cayman trustee to administer the trust. Mr. Smith gives up all control over the
trust assets, retaining only the power to reacquire trust assets if he substitutes other
property of equivalent value. Although Patrick has no formal powers under the trust
instrument, Mr. Smith gives a letter of wishes to the Cayman trustee which states that
the trust is intended to be for the principal benefit of Patrick and his family and that the
trustee should take all instructions regarding trust investments and distributions from
Patrick. Although not legally bound by this letter, the Cayman trustee follows Mr.
Smith's wishes.
On Patrick's recommendation. the trust purchases a luxury condominium in New
York City, a Florida vacation home and a Rolls Royce, all of which are used exclusively
by Patrick and his family. In addition. the trust makes annual cash distributions for the
benefit of Patrick totalling S2 million. Much of this is made by way of direct payment of
store and credit card charges incurred by Patrick and his family.
Under current law. Patrick pays no U.S. income tax on the cash distributions or
the other benefits he receives from the trust. In fact. despite the wealth subject to his
control, the Internal Revenue Service is unlikely to examine his tax status because
Patrick does not have sufficient taxable income to be required to file a U.S. income tax
return. All of the income generated by the Cayman trust's assets is deemed owned by,
and taxable to, Mr. Smith. who is considered to have made nontaxable gifts to Patrick
and his familv. However. the tax authorities in Mr. Smith's home country do not
consider Mr. 'Smith to own the truq assets. and therefore do not tax that income. In
addition, the Cayman Islands do not tax the trust income. Thus, the trust income of
S 150 million is not taxed anywhere in the world.
The Administration's proposal would tax Patrick on the cash distributions made to
or for his benefit and the fair market value of trust assets available for use by Patrick
and his family.
-30-
UBLIC, DEBT NEWS
,
,-'
Dcpanment of the Treasury • Bureau of the Public Debt • Washington, DC 20239
I.
I
.It
FOR IMMEDIATE RELEASE
February 6, 1995
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $13,848 million of 13-week bills to be issued
February 9, 1995 and to mature May II, 1995 were
accepted today (CUSIP: 912794R97).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.79%
5.83%5.83%-
Investment
Rate
5.96%6.00%
6.00%-
Price
98.536
98.526
98.526
Tenders at the high discount rate were allotted 39%.
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
RR-55
Received
$54,543,591
Acce:gted
$13,848,276
$48,462,425
1,636,556
$50,098,981
$7,767,110
1,636,556
$9,403,666
3,437,110
3,437,110
1,007,500
$54,543,591
1,007,500
$13,848,276
UBLIC DEBT NEWS
Department of the Treasury •
Blu;~a!J,ofthe ~ublic Debt~ • Washington, DC 20239
FOR IMMEDIATE RELEASE
February 6, 1995
1:,,(
,)
.J...
\.;..
I,)
CONTACT: Office of Financing
0.) .j
2 02 - 2 19 - 3 3 5 0
RESULTS OF TREASURY'.5. AUCTION OF 26 - WEEK BILLS
I
'
Tenders for $13,889 million of 26-week bills to be issued
February 9, 1995 and to mature August 10, 1995 were
accepted today (CUSIP: 912794U44).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
6.09%
6.10%
6.10%
Investment
Rate
6.37%
6.38%
6.38%
Price
96.921
96.916
96.916
$2,579,000 was accepted at lower yields.
Tenders at the high discount rate were allotted 77%.
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
RR-56
Received
$51,744,115
Acce12ted
$13,888,908
$45,226,450
1,603,665
$46,830,115
$7,371,243
1,603,665
$8,974,908
3,550,000
3,550,000
1,364,000
$51,744,115
1,364,000
$13,888,908
PUBLIC DEBT NEWS
I
Department of the Treasury • Bureau pf the Public Debt • Washington, DC 20239
i '"'."
",:"
,c
'.)
j
:..J .j " , ,,-'
Contact: Peter Hollenbach
(202) 219-3302
FOR RELEASE AT 3:00 PM
February 6, 1995
PUBLIC DEBT A1~OUNCES ACTMTY FOR
SECURITIES IN THE STRIPS PROGRAM FOR JANUARY 1995
Treasury's Bureau of the Public Debt announced activity figures for the month of January 1995,
of securities within the Separate Trading of Registered Interest and Principal of Securities
program (STRIPS).
Dollar Amounts in Thousands
Principal Outstanding
(Eligible Securities)
$811,131,534
Held in unstripped Form
$584,232,344
Held in Stripped Form
$226,899,190
$8,155,705
Reconstituted in Januar\
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 Monthl" Statement of the Public Deht, 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-174
(RR-57)
TABLE VI--HOLDINGS OF TREASURY SECURITIES IN STRIPPED FORM. JANUARY 31. 1995
[In thousands)
----~------------------------------------------------- -------------------------------------------------------------------
I I
---------------------------------------------------- I I
Totai
PortIon Held In I PortIon Held In I I
PrinCIpal Amount Outstandlng
Loan DeScrlptl0n
Maturlty Date
1 Unstrlpped Form
11-1/4~ Note A-19S5 - ...
11-1/4% Note B-1995 .....
10-1/2% Note C-1995 .....
9-1/2% Note 0-1995
E-7!8~ Note A-199&
7-3/B~; Note (-1996
7-1I~% Nate 0-1996 ...
B-In:; Note' A-1997.
B- 5/8:; Note 6-1997.
6-7/8:; Note (-1997
6-118:~ Note A-199B
9:; Note 0-1996
9-1/4i; Note [-1995
0-718:; Note 0-199E:
5-7I8~ /jote 1.-1999
?-1/8~ Note 8-199~.
8:: Note (-1999 ..
7-7/8',; ~o,e D-199:.
E-!!2:. hote A-200:
e-7iS:' /jote ~-200:
e-~/~:' "'c:e C-2aO:
~-~:2~ hot.e G-200C.
. - 3 / :. ~~
,.,~-,
;'-2C'C:
8:' h:;:e f-2D::
i-7ie;..
~c~e
:-~/2~<
~
- \ I.,.
f
-
... I
10. fOe
..
:-20~:
...... ,:. ['-ZOc:: .
",~."
t.-20e:
~-3/B:' "'o~e ~-20:J2
- . II.,
.....
r - ..
~:J:e
to-2CG3.
. -,. "ote E-200:;
~
::--j/"~
12115/95 .....
15/15/95.
15/15/99
lC.Do!7.iC
5.594.981
4.442.446
4.938.701
3.382.550
7.117.45B
18.141.643
17 .572 .410
8.67B.437
7.769.236
7.385.929
7.967.70B
6.732.387
8.646.646
6.979.675
8.113.223
6.760.703
IB/l5/99
1C.163.6':~
B.157.444
7.770.760
e.791,833
c.050.230
6.042.086
5.628.882
~ . : E: .602
18/15/95 ..
11iii5/95
12115/96
15/15/96.
111115/90
lSI! 5/97 ..
18/15/97.
111/15/97.
12/15/98 .
15/1S/98 ...
18115/95 ...
111/15/95
12115/95
9 . 159. 06E
9.165.367
11.3':Z.64E
9.9CZ.67: ,
9.719.523
111/~5/99.
lC.772.96:
IC.67~.[3:
!5f!5/0C
::.':9E.23:
: : .05: - ,-
18/:S/OC
11:/l5/0:
12;~5/C:
:5/;S/0:
16:lSIC:
; l:,.! 51 S:
:51l5iGZ
18/:S/0<
12/:5/03
18,'15/02.
12/~5/0'
!-:/(~
15115/0.:
~~-
: : . : ~ s .5::
..,a .-' ..... 5::
::.39: ..
· - - -.....
..... :,
ioe
IS/;5/05
18n5/0S
12/; 5/06 ..
11:,': 511 to
12/15115
18/:5115
il1/151!5
121!Sil6
ISI!5116 .
111/15/16
15/;5/!7.
18/1511 7 . ..
15115118 .
\11I1S/18 ..
~.88c.4B3
::.:9:.985 !
::.34D.I02
2~.:Z'-.:::
· . , ..
=~.tS~
·
., -
.
- 53:
...
,
;:~J~.67'
:.
::~::.E:5
2;.2'::.85:
~"
27.E~:.826
2: . : : : .:2:
.'!: : -
' .- ,,-,~~:
18IlS/0~
Il~/~5/0(.
i
9.80S.32~
12/!5/0C
~-7/8:;
,",ate to-200t
hote 8-200'
7-:/.:~ hote C-20C':
i-7!S'" NOte G- 200.: .
: >5/8:': aane 2Co~
:2:- Eiond 2005
1C·- 3I 4:; 50no 2005
~-:;/8:': Dono 2006
j:-.3/~:; Band 2009-14.
Ij-I/a:; Bond 2015.
10-5/8:: Bond 2015 ..
9-7/8:: fiond 2015
!?-1/4J: 50nd 2016 ....
7-1/4;: Bond 2016 ....
7-1/2;: fiond 2016
6-3/4% Bond 2017 ....
6-7/8% Bond 2017 ....
~-l/B% Bond 2018 .......
9% Bond 201B ......
6.933.861
7.127.086
7.955.901
7.318.55C
8.447.058
2D.085.6.l3
20.258.BIO
9.921.237
9.362.83&
·' ,
~
- ,-
,-'
~":,
.-
~.75S~:(
E.OC:.58~
:2.567. ?9~
7.149.916
t.89S.859
7.266.854
lE.B23.55:
JE.85o!.448
IE .19'.16S
1':.016.856
B.708.639
9.032.B70
::.95S.077
1': ."~.372
.:.3o!E.4ii7
, 37::.760
,_. S::::.OOo
-.592.508
4t:: . 713
, 75~ . 764
. 7!:. 184
.272.119
:.718.B76 1
L ':5.059
6.275.654
113.220.351
15.027.648
7.368.729
B.450.458
:.90B.539
1.680.470
-
7c:
~ . ~: ~ eCl"
.: . 2ii: . 7)~
s. 2E:.
I StrIpped Form
I
1. 338.880
Z. 684.640
3.017.200
3.936.000
1.329.600
1. 94'.000
2.686.400
1.242.800
1. 593.600
2.422.400
1.191.360
2.433.000
2.696.000
2.923.200
1.606.400
3.286.400
1. 996.200
3.003.200
:.88:.200
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
I !
I 1
I I
I I
I I
I I
~.440.000
1
.038.560
I
I
890.800
: 3:.200
;:.509.600
;:.IC.20e
.88C.000
86~. 520
907.200
31S.B40
15:.200
L .
1 I
1 I
-D-
-D16.000
44.BOO
25.280
15.000
8.800
75.200
22.400
38.400
77 . B2 5
129.600
800
22.400
46.800
-0- G-
-0-
226.080
!
i !
-c·-
1
10o.BOO
Ill. DOE
-0-
i i
- G-
I
-0741:.BOO
:.667.250
BOE.OOO
1.152
'.29'.':00
7.39S.6BO
5.43: .040
1. 4B4.800
991.200
603.200
835.BOO
10.825.440
480
62.0BO
82.000
27.600
577 . 600
92.800
5~.88C
-G-
-(I-
ReconstItuted
ThIS Month'l
1
I
1 i
I
-G-
-0- G-G-
I
I I
1 I
I 1
1 I
I 1
I I
652.800
1 1
268.BOO
378.400
16.800
154.400
809.440
707.200
121.600
20.BOO
1
I I
I 1
I I
1 I
~.566.400
1 I
6.BOO.OOO
7.352.400
I
I I
-0-
BO.800
-0-
176.800
321.920
-0-
8-7/8X Bond 2019 ..... .
6-1/8X Bond 2019 ... '"
8-1/21 Bond 2020 ....... .
12115119.
18115119
12115/20.
4.940.398
16.819,272
4,596.468
19.?50.798
20.213.832
10.228.868
14.310.400
3,394.560
5.632.400
I I
1I
444.800
250.880
46.800
1 1
1ABLE VI--HOLDINGS OF 1REASURY SECU~lTIES IN STRIPPED FORM, JANUARY 31. 1995
(I n thousands)
------------------------------------------------------------------------.-----------------------------------------------P-lnClpal Amount OutStand1ng
Loan Descrl pt 1 on
!
1
---------------------------------------------------- I I
Tota:
Portlon Held 1n I Portlon Held ln I I
Unstrlpped Form I Str1pped Fonn
I I
Matu r ltj Date
Reeonst1tuted
ThlS "1onth#1
-----------------------------~------------------------ ------------.---------------------.----------------------------.---
5-3/4%
6-3/4%
7-7/8%
e-J /8:.
Bond 2020
Bond 2020
fiond 202:
fiond 202:
E-l/8% fiond 2021.
8:; fiono 2021.
7-1/4% Bone 2022
7- 5/ 8~~ Bond 2022
7-11 8~; Bond 2023
6-1/4~; oon: 2022.
7-1/n Bond 20Zl
15115/20
1811 5!Z0
12115/2;
15/1S/22
i8/15/22
lZ,lE::.45:
i ll/l5/Z1
"C
1~.ISE,8E::
2.395.323
4,481.806
9,817,373
4.108.968
4.981,082
7.407,494
7.982.390
4.258.026
:4.622.361
22,639.156
11,468.462
21.418.60(;
:1.
113,3'~
::.95E.88e
.79E.::9~
18115/22
1:1115/22
12/;5/23
18/15/23
22.9Qa,O'~
111/15/2~
:: . 4E~ 6S:
lC.352.79C
lC.69,?62~
lE.374.35:
lo:a,
584,232.3441
I
I
I I
I I
I
I I
I I
I I
7.762.560
15,936.800
1.296.000
7.849.920
7.182.400
25.390.900
2.370.400
6,441,600
3.752.000
269.888
1. 200
1 I
I I
192,320
544,480
123.200
188.800
142.080
375.600
105.600
-0112,000
45.752
-0-
226.899,190
! I
6.155.705
I I
====~===~===================:==============~==================~==================~=;======================== =============
~::e
G- :ne
l:" .o.~Gaj 0: ea~n
~e::,a-:me~:
n~
montn laD;e
~:
s ~conO:-"'"l':: 5u~le:lr E,oar~ (~E.:
~a~an.:e~
lr !:n1S
~aDje
are suoJe::
(\':' a . . c
,ne
:~
a:'~
e2~.::n"
a":~'"
-J~D"-
c:,;:': a .... : Su2se: . . . e""-
~
DC om eastern t'me on :ne Comnerce
fa- more lnformatlor abou: [BE ~s (202: 452·1986
a:1L<strnen:s
General Explanations
of the
Administration's Revenue Proposals
Department of the Treasury
February 1995
RR-58
Table of Contents
Tax Credit for Dependent Children . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
............................
3
Education and Job Training Tax Deduction
Expanded Individual Retirement Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Increase in Number of Empowerment Zones . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Reduce Vaccine Excise Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Earned Income Tax Credit Compliance Proposals . . . . . . . . . . . . . . . . . . . . . . . . . 13
Interest and Dividend Test for Earned Income Tax Credit . . . . . . . . . . . . . . . . . . . . 15
Tax Responsibilities of Americans Who Renounce Citizenship . . . . . . . . . . . . . . . . . 16
Revise Taxation of Income from Foreign Trusts
. . . . . . . . . . . . . . . . . . . . . . . . . 18
I.
Information Reporting and Foreign Trusts . . . . . . . . . . . . . . . . . . . . 18
II.
Outbound Foreign Grantor Trusts
ID.
Inbound Foreign Grantor Trusts . . . . . . . . . . . . . . . . . . . . . . . . . . 22
IV.
Foreign Nongrantor Trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
V.
Residence of Trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
. . . . . . . . . . . . . . . . . . . . . . . . . 19
Proposals to Improve Tax Administration and Compliance
. . . . . . . . . . . . . . . . . . 27
TAX CREDIT FOR DEPENDENT CHILDREN
Current Law
A tax exemption, in the form of a deduction, is allowed for each taxpayer and for
each dependent of a taxpayer. A dependent includes a child of the taxpayer who is supported
by the taxpayer and is under age 19 at the close of the calendar year or is a student under
age 24. The deduction amount is $2,500 for tax year 1995. This amount is indexed
annually for inflation.
In addition to an exemption for each child, three other tax benefits may accrue to
taxpayers with dependent or otherwise qualifying children:
•
•
•
the credit for child and dependent care expenses,
the exclusion for employer-provided child and dependent care benefits, and
the earned income tax credit (EITe).
The BITe is a refundable tax credit based on the earnings of the taxpayer. The EITe
is restricted to lower-income taxpayers and is phased out when earnings exceed specified
levels. Although the EITe is available for taxpayers without dependents or otherwise
qualifying children, the credit rate and income range of the credit are far greater when the
taxpayer has one or more qualifying children. In addition, the rate and income range are
higher for taxpayers with two or more qualifying children than for taxpayers with only one
qualifying child.
Reasons for Chan&e
Tax relief for middle-class families has been and continues to be an important goal of
this Administration. In 1993, the Administration faced a projection of ever-increasing
deficits. Bringing the deficit under control and providing tax relief for the working poor
through an expansion of the EITe were the first priorities. Having achieved more favorable
than projected results from the deficit reduction program introduced in 1993, the
Administration can now tum to providing tax relief to middle-income families.
Tax relief to taxpayers with children is needed to adjust the relative tax burdens of
smaller and larger families to reflect more accurately their relative abilities to pay taxes.
A vailable resources should be targeted to those in greatest need and at greatest risk.
Proposal
A nonrefundable tax credit, which would be applied after the EITe, would be allowed
for each dependent child under age 13. It would be phased in, at $300 per child for tax
years 1996, 1997, and 1998, and $500 per child for 1999 and thereafter. The credit would
not reduce any alternative minimum tax liability. The credit would be phased out for
-1-
taxpayers with adjusted gross income between $60,000 and $75,000. Beginning in the year
2000, both the amount of the credit and the phase-out range would be indexed for the effects
of inflation.
Taxpayers claiming the dependent child credit would be required to provide valid
social security numbers for themselves, their spouses, and their children who qualify for the
credit. The procedures that would apply for determining the validity of social security
numbers under the EITC, discussed below, would apply for purposes of the dependent child
credit.
Revenue Estimate
(in
billions of dollars)
Fiscal Years
Tax credit for dependent
children
1995
1996
1997
1998
1999
2000
Total
0
-3.5
-6.8
-6.6
-8.3
-10.1
-35.4
-2-
EDUCATION AND JOB TRAINING TAX DEDUCTION
Current Law
Taxpayers generally may not deduct the expenses of higher education and training.
There are, however, special circumstances in which deductions for educational expenses are
allowed, or in which the payment of educational expenses by others is excluded from
income.
Educational expenses may be deductible, but only if the taxpayer itemizes, and only
to the extent that the expenses, along with other miscellaneous itemized deductions, exceed
two percent of adjusted gross income (AGI). A deduction for educational purposes is
allowed only if the education maintains or improves a skill required in the individual's
employment or other trade or business, or is required by the individual's employer, or by
law or regulation for the individual to retain his or her current job.
The interest from qualified U.S. savings bonds is excluded from a taxpayer's gross
income to the extent the interest is used to pay qualified educational expenses. To be
qualified, the savings bonds must be purchased after December 31, 1989, by a person who
has attained the age of 24. Qualified educational expenses consist of tuition and fees for
enrollment of the taxpayer, the taxpayer's spouse, or the taxpayer's dependent at a public or
non-profit institution of higher education, including two-year colleges and vocational schools.
Reasons for Chanee
Deductions for educational expenses combine needed tax relief with preparation for
new economic imperatives. The expenses of higher education place a significant burden on
many middle-class families. Grants and subsidized loans are available to students from lowand moderate-income families; high-income families can afford the costs of higher education.
Well-educated workers are essential to an economy experiencing technological change
and facing global competition. The Administration believes that reducing the after-tax cost
of education for individuals and families encourages investment in education and training
while lowering tax burdens for middle-income taxpayers.
Proposal
A taxpayer would be allowed to deduct qualified educational expenses paid during the
taxable year for the education or training of the taxpayer, the taxpayer's spouse, or the
taxpayer's dependent. The deduction would be allowed in determining AGI. Therefore,
taxpayers could claim the deduction even if they do not itemize and even if they do not meet
the two-percent AGI floor on itemized deductions.
-3-
Qualified educational expenses would be defined as tuition and fees charged by
educational institutions that are directly related to an eligible student's course of study (e.g.,
registration fees, laboratory fees, and extra charges for particular courses). Charges and
expenses associated with meals, lodging, student activities, athletics, health care,
transportation, books and similar personal, living or family expenses would not be included.
The expenses of education involving sports, games, or hobbies would not be qualified
educational expenses unless the education is required as part of a degree program or related
to the student's current profession.
Qualified educational expenses would be deductible in the year the expenses are paid,
subject to the requirement that the education commences or continues during that year or
during the first three months of the next year. Qualified educational expenses paid with the
proceeds of a loan generally will be deductible (rather than repayment of the loan itself).
Normal tax benefit rules would apply to refunds (and reimbursements through insurance) of
previously deducted tuition and fees.
In 1996, 1997, and 1998, the maximum deduction would be $5,000. In 1999 and
thereafter, this maximum would increase to $10,000. The deduction would be phased out
ratably for taxpayers with modified AGI between $70,000 and $90,000 ($100,000 and
$120,000 for joint returns). Modified AGI would include taxable Social Security benefits
and amounts otherwise excluded with respect to income earned abroad (or income from
Puerto Rico or U.S. possessions). Beginning in 2000, the income phase-out range would be
indexed for inflation.
Any amount taken into account as a qualified educational expense would be reduced
by educational assistance that is not required to be included in the gross income of either the
student or the taxpayer claiming the deduction. Thus, qualified educational expenses would
be reduced by scholarship or fellowship grants excludable from gross income under section
117 of the Internal Revenue Code (even if the grants are used to pay expenses other than
qualified educational expenses) and any educational assistance received as veterans' benefits.
However, no reduction would be required for a gift, bequest, devise or inheritance within the
meaning of section 102(a).
An eligible student would be one who is enrolled or accepted for enrollment in a
degree, certificate, or other program (including a program of study abroad approved for
credit by the institution at which such student is enrolled) leading to a recognized educational
credential at an eligible institution. The student must pursue a course of study on at least a
half-time basis, cannot be enrolled in an elementary or secondary school, and cannot be a
nonresident alien. Educational institutions would determine what constitutes a half-time basis
for individual programs.
"~gib~e ~stitution" is defined by reference to section 481 of the Higher Education
Act. Such mstltutlons must have entered into an agreement with the Department of Education
to participate in the student loan program. This definition includes certain proprietary
institutions.
-4-
This proposal would not affect deductions claimed under any other section of the
Code, except that any amount deducted under another section of the Code could not also be
deducted under this provision. An eligible student would not be eligible to claim a deduction
under this provision if that student could be claimed as a dependent of another taxpayer.
Revenue Estimate (in billions of dollars)
Fiscal Years
Education and job training
tax deduction
1995
1996
1997
1998
1999
2000
Total
o
-0.7
-4.7
-4.9
-5.7
-7.5
-23.5
-5-
EXPANDED INDIVIDUAL RETIREMENT ACCOUNTS
Current Law
Under current law, an individual may make deductible contributions to an individual
retirement account or individual retirement annuity (IRA) up to the lesser of $2,000 or
compensation (wages and self-employment income). If the individual (or the individual's
spouse) is an active participant in an employer-sponsored retirement plan, the $2,000 limit on
deductible contributions is phased out for couples filing a joint return with adjusted gross
income (AGij between $40,000 and $50,000, and for single taxpayers with AGI between
$25,000 and $35,000. To the extent that an individual is not eligible for deductible IRA
contributions, he or she may make nondeductible IRA contributions (up to the contribution
limit).
The earnings on IRA account balances are not included in income until they are
withdrawn. Withdrawals from an IRA (other than withdrawals of nondeductible contributions) are includable in income, and must begin by age 70 lh. Amounts withdrawn before
age 59 lh are generally subject to an additional 10 percent penalty tax. The penalty tax does
not apply to distributions upon the death or disability of the taxpayer or withdrawals in the
form of substantially equal periodic payments over the life (or life expectancy) of the IRA
owner or over the joint lives (or life expectancies) of the IRA oWner and his or her
beneficiary .
Reasons for Chan&e
The nation's savings rate has declined dramatically since the 1970s. The
Administration believes that increasing the savings rate is essential if the United States is to
sustain a sufficient level of private investment into the next century. Without adequate
investment, the continued healthy growth of the economy is at risk. The Administration is
also concerned that many households are not saving enough to provide for long-term needs
such as retirement and education.
The Administration believes that individuals should be encouraged to save, and that
tax policies can provide a significant incentive. Under current law, however, savings
incentives in the form of deductible IRAs are not available to all middle-income taxpayers.
Furthermore, the present-law income thresholds for deductible IRAs and the maximum
contribution amount are not indexed for inflation, so that fewer Americans are eligible to
make a deductible IRA contribution each year, and the amount of the maximum contribution
is declining in real terms over time. The Administration also believes that providing
taxpayers with the option of making IRA contributions that are nondeductible but can be
withdrawn tax free will provide an alternative savings vehicle that some middle-income
taxpayers may find more suitable for their savings needs.
-6-
Individuals save for many purposes besides retirement. Broadening the tax incentives
for non-retirement saving can be an important element in any proposal to increase the
nation's savings rate. Expanding the flexibility of IRAs to meet a wider variety of savings
needs, such as first-time home purchases, higher education expenditures, unemployment and
catastrophic medical and nursing home expenses, should prove to be more attractive to many
taxpayers than accounts limited to retirement savings.
Proposal
Expand Deductible [RAs. Under the proposal the income thresholds and phase-out
ranges for deductible IRAs would be doubled; therefore, eligibility would be phased out for
couples filing joint returns with AGI between $80,000 and $100,000 and for single
individuals with AGI between $50,000 and $70,000. The income thresholds and the presentlaw annual contribution limit of $2,000 would be indexed for inflation. As under current
law, any individual who is not an active participant in an employer-sponsored plan and
whose spouse is also not an active participant would be eligible for deductible IRAs
regardless of income.
Under the proposal, the IRA contribution limit would be coordinated with the current
law limits on elective deferrals under qualified cash or deferred arrangements (sec. 40l(k)
plans), tax-sheltered annuities (sec. 403(b) annuities), and similar plans. The proposal also
would provide that the present-law rule permitting penalty-free IRA withdrawals after an
individual reaches age 59 112 does not apply in the case of amounts attributable to contributions made during the previous five years. This provision does not apply to amounts rolled
over from tax-qualified plans or tax-sheltered annuities.
These provisions would be effective January 1, 1996.
Special [RAs. Each individual eligible for a traditional deductible IRA would have the
option of contributing an amount up to the contribution limit to either a deductible IRA or to
a new "Special IRA." Contributions to a Special IRA would not be deductible, but if the
contributions remained in the account for at least five years, distributions of the contributions
and the earnings thereon would be tax-free. Withdrawals of earnings from SpeciallRAs
during the five-year period after contribution would be subject to ordinary income tax. In
addition, such withdrawals would be subject to the lO-percent penalty tax on early
withdrawals unless used for one of the four purposes described below.
The proposal would permit individuals whose AGI for a taxable year did not exceed
the upper end of the new income eligibility limits to convert balances in deductible !RAs into
Special IRAs without being subject to the 10-percent tax on early withdrawals. The amount
transferred from the deductible IRA to the Special IRA generally would be includable in the
individual's income in the year of the transfer. However, if a transfer was made before
January 1, 1997, the transferred amount included in the individual's income would be spread
evenly over four taxable years.
-7-
The Special IRA provisions would be effective January 1, 1996.
Penalty-Free Distributions. Amounts could be withdrawn penalty-free from deductible
IRAs and Special IRAs within the five-year period after contribution, if the taxpayer used the
amounts to pay post-secondary education costs, to buy or build a first home, to cover living·
costs if unemployed, or to pay catastrophic medical expenses (including certain nursing home
costs).
a.
Education expenses
Penalty-free withdrawals would be allowed to the extent the amount withdrawn is
used to pay qualified higher education expenses of the taxpayer, the taxpayer's spouse, the
taxpayer's dependent, or the taxpayer's child or grandchild (even if not a dependent). In
general, a withdrawal for qualified higher education expenses would be subject to the same
requirements as the deduction for qualified educational expenses (e.g., the expenses are
tuition and fees that are charged by educational institutions and are directly related to an
eligible student's course of study).
b.
First-time home purchasers
Penalty-free withdrawals would be allowed to the extent the amount withdrawn is
used to pay qualified acquisition, construction, or reconstruction costs with respect to a
principal residence of a first-time home buyer who is the taxpayer, the taxpayer's spouse, or
the taxpayer's child or grandchild. A first-time home buyer would be any individual (and if
married, the individual's spouse) who (1) did not own an interest in a principal residence
during the three years prior to the purchase of a home and (2) was not in an extended period
for rolling over gain from the sale of a principal residence.
c.
Unemployment
Penalty-free withdrawals could be made by an individual after the individual is
separated from employment if (1) the individual has received unemployment compensation
for 12 consecutive weeks and (2) the withdrawal is made in the taxable year in which the
unemployment compensation is received or the succeeding taxable year.
d.
Medical care expenses and nursing home costs
The proposal would extend to!RAs the present-law exception to the early withdrawal
tax for distributions from tax-qualified plans and tax-sheltered annuities for certain medical
care expenses (deducti~le medical expenses that are subject to a floor of 7.5 percent of AGI)
and exp~d ~e exceptton. for !RAs to allow withdrawal for medical care expenses of the
taxpayer s child, grandchild, parent or grandparent, whether or not such person otherwise
qualifies as the taxpayer's dependent.
-8-
In addition, for purposes of the exemption from the 10 percent tax on early
withdrawals for distributions from IRAs, the definition of medical care would include
expenses for qualified long-term care services for incapacitated individuals. Qualified longterm care services generally would be services that are required by an incapacitated
individual, where the primary purpose of the services is to provide needed assistance with
any activity of daily living or protection from threats to health and safety due to severe
cognitive impairment. An incapacitated individual generally would be a person who is
certified by a licensed professional within the preceding 12-month period as being unable to
perform without substantial assistance at least two activities of daily living, or as having
severe cognitive impairment.
These provisions would be effective January 1, 1996.
Revenue Estimate (in billions of dollars)
Fiscal Years
Expanded individual
retirement accounts
1995
1996
1997
1998
,
1999
2000
Total
o
0.4
-0.3
-0.8
-1.0
-2.0
-3.8
-9-
INCREASE IN NUMBER OF EMPOWERMENT ZONES
Current
Law
The Omnibus Budget Reconciliation Act of 1993 (OBRA '93) authorized a federal
demonstration project in which nine empowerment zones and 95 enterprise communities
would be designated in a competitive application process. Of the nine empowerment zones,
six were to be located in urban areas and three were to be located in rural areas. State and
local governments jointly nominated distressed areas and proposed strategic plans to stimulate
economic and social revitalization. By the June 30, 1994 application deadline, over 500
communities had submitted applications.
On December 21, 1994, the Secretaries of the Department of Housing and Urban
Development and the Department of Agriculture designated the empowerment zones and
enterprise communities authorized by Congress in OBRA '93.
Among other benefits, businesses located in empowerment zones are eligible for three
federal tax incentives: an employment and training credit; an additional $20,000 per year of
section 179 expensing; and a new category of tax-exempt private activity bonds. Businesses
located in enterprise communities are eligible for the new category of tax-exempt bonds.
OBRA '93 also provided that federal grants would be made to designated areas.
Reasons for Chance
Because of the vast number of distressed urban areas and the need to revitalize these
areas, the Administration believes that the number of authorized empowerment zones should
be expanded, subject to budgetary constraints. Extending the tax incentives to economically
distressed areas will help stimulate revitalization of these areas.
Proposal
The proposal would authorize the designation of two additional urban empowerment
zones and would be effective on the date of enactment. No additional federal grants would
be authorized. The sole effect of the proposal would be to extend the empowerment zone tax
incentives to two additional areas.
Revenue &timate (in billions of dollars)
Fiscal Years
Increase in number of
Empowerment Zones
1995
1996
1997
1998
1999
2000
Total
-0.1
-0.1
-0.1
-0.1
-0.1
-0.1
-0.7
-10-
REDUCE VACCINE EXCISE TAXES
Current Law
The Vaccine Injury Compensation Program provides compensation for individuals
who suffer certain injuries following the administration of the following vaccines:
diphtheria, pertussis, and tetanus (DPT); diphtheria and tetanus (On; measles, mumps, and
rubella (MMR); and polio. Compensation is paid from the Vaccine Injury Compensation
Trust Fund (Vaccine Trust Fund), which is funded by net revenues from a manufacturer's
excise tax on DPT, DT, :MMR, and polio vaccines. The excise tax per dose is $4.56 for
DPT, $0.06 for DT, $4.44 for MMR, and $0.29 for polio vaccines. A vaccine for measles
only, mumps only, or rubella only is taxed at the full MMR rate.
The Vaccine Injury Compensation Program provides compensation for adverse
reactions to a vaccine only if the vaccine is included in the Vaccine Injury Table prescribed
by the Department of Health and Human Services and is subject to the vaccine excise tax.
Reasons for Chan&e
The Vaccine Trust Fund is overfunded. At the end of FY 1994 the trust fund balance
was $809 million and, at current tax rates, transfers to the trust fund will continue to exceed
outlays by over $50 million per year. While the current trust fund balance is an appropriate
reserve against any unexpected increase in awards, future transfers to the trust fund should
be brought in line with expected outlays by a reduction in the tax.
It is expected that haemophilis injIuenzae type b (Rib) and hepatitis type B (Rep B)
vaccines, which are now routinely recommended for administration to children, will be added
to the Vaccine Injury Table before the end of 1995. Those vaccines should also be added to
the list of taxed vaccines.
Proposal
The Administration will submit a proposal to restructure the vaccine excise taxes.
Revenues from these taxes will be reduced to approximately half the amounts expected under
current law.
-11-
Revenue Estimate
(in
billions of dollars)l
Fiscal Years
Reduce vaccine excise
1995
1996
1997
~
1999
2000
Total
o
-0.1
-0.1
-0.1
-0.1
-0.1
-0.3
taxes
Net of income tax offset.
-12-
EARNED INCOME TAX CREDIT COMPLIANCE PROPOSALS
Current Law
To be eligible for the Earned Income Tax. Credit (EITC), a taxpayer must reside in
the United States for over six months. Nonresident aliens are not entitled to the EITC
beginning in 1995. Other non-U.S. citizens are eligible for the EITC if, among other things,
they meet a six-month residency requirement and do not file an income tax return as a nonresident alien.
To claim the higher EITC amounts available to taxpayers with qualifying children,
those taxpayers are required to provide taxpayer identification numbers (TINs) for each
qualifying child. Unless otherwise proscribed by regulation, social security numbers serve as
TINs. Some taxpayers are unable to obtain social security numbers. Under section 205(c)
of the Social Security Act, social security numbers are generally issued only to individuals
who are citizens or who are authorized to work in the U.S. Undocumented workers may not
be able to obtain social security numbers.
The IRS must follow deficiency procedures when investigating questionable EITC
claims. First, contact letters are sent to the taxpayer. If the necessary information is not
provided by the taxpayer, a statutory notice of deficiency is sent by certified mail, notifying
the taxpayer that the adjustment will be assessed unless the taxpayer files a petition in Tax
Court within 90 days. If a petition is not filed within that time and there is no other
response to the statutory notice, the assessment is made and the EITC is denied.
Reasons for Chall2e
The Administration believes that the EITC should not be available to individuals who
are not authorized to work in the United States. During the past year, the Administration
and Congress have taken steps to improve the administration of the EITC. Further steps are
desirable to ensure that only the intended beneficiaries receive the EITC.
Proposal
Only individuals who are authorized to work in the United States would be eligible
for the EITe. Taxpayers claiming the EITC Vlould be required to provide a valid social
security number for themselves, their spouses, and qualifying children. Social security
numbers would have to be valid for employment purposes in the United States. Thus,
eligible individuals would include U.S. citizens and lawful permanent residents. Taxpayers
residing in the United States illegally would not be eligible for the credit.
In addition, the IRS would be authorized to use the math-error procedures, which are
simpler than deficiency procedures, to resolve questions about the validity of a social security
number. Under this approach, the failure to provide a correct social security number would
-13-
be treated as a math error. Taxpayers would have 60 days in which they could either
provide a correct social security number or request that the IRS follow the current-law
deficiency procedures. If a taxpayer failed to respond within this period, he or she would be
required to refile with correct social security numbers in order to obtain the EITC.
These provisions would be effective for tax years beginning after December 31, 1995.
Revenue Estimate (in billions of dollars)2
Fiscal Years
~
EITC compliance
proposals
2
o
1996
1997
1998
1999
2000
Total
0
0.4
0.5
0.5
0.5
1.9
Includes reduction in outlays.
-14-
INTEREST AND DIVIDEND TEST
FOR EARNED INCOME TAX CREDIT
Current Law
To be eligible to receive the Earned Income Tax Credit (EITe), an individual must
have earned income. To target the EITe to low-income workers, the amount of the credit to
which a taxpayer is entitled decreases when the taxpayer's earned income (or, if greater,
adjusted gross income (AGI) exceeds certain thresholds. The earned income and AGI
thresholds are indexed for inflation and are also adjusted to take into account qualifying
children. In 1995, a taxpayer with two or more qualifying children will not be eligible for
the BITe if his or her income exceeds $26,673. The income cut-offs decline to $24,396 for
a taxpayer with one qualifying child and $9,230 for a taxpayer with no qualifying children.
Reason for Change
Under current law a taxpayer may have relatively low earned income, and therefore
may be eligible for the EITe, even though he or she has significant interest and dividend
income. The EITe should be targeted to families with the greatest need. Most EITe
recipients do not have significant resources and must rely on earnings to meet their day-today living expenses, but taxpayers with high levels of interest and dividend income can draw
upon the resources that produce this income to meet family needs.
Proposal
Beginning in 1996, a taxpayer would not be entitled to the EITe if his or her
aggregate interest and dividend income during a taxable year exceeds $2,500. This threshold
would be indexed for inflation thereafter.
Revenue Estimate
(in
billions of dollars)3
Fiscal Years
1995
Interest and dividend test
for Earned Income Tax
Credit
o
*
* Revenue gain of less than $50 million
3
Includes reduction in outlays.
-15-
1997
1998
1999
2000
Total
0.3
0.3
0.4
0.4
1.4
TAX RESPONSmn..ITIES OF AMERICANS WHO RENOUNCE CITIZENSHIP
Current Law
Under current law, worldwide gains reaJire<i by U.S. citizens and resident aliens are
subject to U.S. tax. Existing rules recognize that the United States has a tax interest in
preventing tax avoidance through renunciation of citizenship. These rules continue to tax
former U.S. citizens on U.S. source income for ten years following renunciation of
citizenship if one of the principal purposes of the renunciation was to avoid U.S. income tax.
A similar rule applies to aliens who cease to be residents.
Reasons for Chage
Wealthy U.S. citizens and long-term residents sometimes abandon their U.S.
citizenship or status as residents. Existing rules to prevent tax avoidance through
expatriation have proven largely ineffective because departing taxpayers have found ways to
restructure their activities to avoid those rules, and compliance with the rules is difficult to
monitor. Consequently, existing measures need to be enhanced to ensure that gains
generally accruing during the time a taxpayer was a citizen or long-term permanent resident
will be subject to U.S. tax at the time the taxpayer abandons citizenship or residency.
Proposal
Existing rules would be expanded to provide that if aU. S. person expatriates on or
after February 6, 1995, the person would be treated as having sold his or her assets at fair
market value immediately prior to expatriation and gain or loss from such sale would be
recognized and would be subject to U.S. income tax. A U.S. citizen would be considered to
expatriate if the citizen renounces or abandons U.S. citizenship. A resident alien individual
would be taxed under this proposal if the alien has been subject to U.S. tax as a lawful
permanent resident of the United States in at least ten of the prior fifteen taxable years and
then ceases to be subject to U.S. tax as a resident.
For this purpose, a taxpayer would be treated as owning those assets that would be
included in the taxpayer's gross estate (determined as if the taxpayer's estate had been
created on the date of expatriation) as well as, in certain cases, the taxpayer's interest in
assets held in certain trusts (defined below in Section IT of the foreign trust discussion).
Exceptions to the tax on expatriation would be made for most U.S. real property interests
(because they remain subject to U.S. taxing jurisdiction) and interests in qualified retirement
plans. An expatriating individual also would be entitled to exclude $600,000 of gain as
determined under the proposal.
The IRS may allow a taxpayer to defer payment of the tax on expatriation with
respect to interests in closely-held businesses. In those cases, the taxpayer would be required
-16-
to provide collateral satisfactory to the IRS. Payment of tax could not be deferred for more
than five years, and an interest charge would be imposed on the deferred tax.
Solely for purposes of detennining gain or loss subject to the tax on expatriation, a
resident alien individual would be permitted to elect to determine basis using the fair market
value (instead of historical cost) of assets owned on the date when U.S. residence first began.
If made, this election would apply to all of a taxpayer's property.
This proposal would replace existing income tax rules with respect to expatriations on
or after February 6, 1995. Existing rules that apply to taxes other than income taxes would
continue to apply.
Revenue Estimate (in billions of dollars)
Fiscal Years
Tax responsibilities of
Americans who renounce
citizenship
1995
1996
1997
1998
1999
2000
Total
0.1
0.2
0.3
0.4
0.5
0.7
2.2
-17-
REVISE TAXATION OF INCOME FROM FOREIGN TRUSTS
u.s. tax rules applicable to foreign trusts have not been revised for nearly two
decades. New rules are needed to accommodate changes in the use and incidence of foreign·
trusts and to limit the avoidance and evasion of U.S. taxes. The Administration proposals
would reform the taxation of foreign trusts in five respects.
I.
INFORMATION REPORTING AND FOREIGN TRUSTS
Current Law
Under current law, most foreign trusts established by U.S. persons are grantor trusts,
the income of which is taxed to the grantor. U.S. persons who create or transfer property to
foreign trusts are required to report transactions with the foreign trust to the IRS.
Reasons for Cbanee
The existing information reporting statute predates the significant expansion of the
foreign grantor trust rules in 1976. In general, penalties for noncompliance with reporting
requirements are minimal. U.S. grantors of foreign trusts often do not report the income
earned by foreign trusts and often do not comply with required information reporting. These
foreign trusts are frequently established in tax haven jurisdictions with stringent secrecy
rules. Consequently, the IRS's attempts to verify income earned by foreign trusts are often
unsuccessful. Existing penalties have not proven adequate to encourage some U. S. taxpayers
to comply with existing rules.
Proposal
Notice of Transfer. Section 6048 would require U. S. persons transferring property to
foreign trusts to notify the IRS. This notice would identify the trustee of the foreign trust,
indicate the property transferred to the trust, and identify the trust beneficiaries.
If a transferor did not file the required notice, a penalty would be imposed equal to 35
percent of the gross value of the property transferred, valued as of the date of transfer. This
penalty would not be less than $10,000, and could be further increased for continuing
noncompliance.
Trustee Statements. Section 6048 would require trustees of any foreign trust with a
U.S. grantor or a U.S. beneficiary to file two types of statements: a "Section 6048
Statement" and. an annual information return. In the Section 6048 Statement, the trustee
would be requITed to:
-18-
1)
appoint a U.S. agent (whether or not a trustee) who has the ability to provide
any information that reasonably should be available to the trust in response to
requests by the IRS; and
2)
agree to file an annual information return for the foreign trust.
The annual information return would be required to include a full accounting of trust
activities, including separate schedules (K-ls) for income attributable to U.S. grantors or
U. S. beneficiaries, as appropriate. The foreign trust would not be considered to have an
office or pennanent establishment in the United States merely because of the section 6048
activities of its U.S. agent.
There would be two consequences if the trustee of the foreign trust did not file a
Section 6048 Statement or the required annual information return. First, the U.S. settlor of a
foreign trust would be subject to a $10,000 penalty for each failure to file a Section 6048
Statement or annual information return. This penalty would be increased for continuing
noncompliance. Second, the IRS would be authorized to determine, in its discretion, the tax
consequences of any trust transactions or operations to a U.S. grantor or U.S. beneficiary.
Thus, for example, the IRS could impose a gift tax on property transferred to the foreign
trust. In appropriate circumstances, the IRS could also impute taxable income to the U.S.
settlor based on the value of assets transferred to or held in the foreign trust. A distribution
to aU. S. beneficiary could be deemed to come from income accumulated in the year the
trust was organized (or an alien beneficiary's first year of U.S. residence, if later). Although
the trustee would have an incentive to file the trustee statements to avoid adverse U.S. tax
consequences to U.S. grantors and U.S. beneficiaries, there would be no penalties directly
imposed on a trustee for the failure to file those statements.
The Secretary would be authorized to waive any information reporting requirements
when there was no significant U.S. tax interest in obtaining the information. Penalties would
not be imposed if the taxpayer acted with reasonable cause and not willful neglect.
These proposals generally would be effective for trust taxable years beginning after
the date of enactment.
ll.
OUTBOUND FOREIGN GRANTOR TRUSTS
Current Law
Under section 679, a foreign trust established by a U.S. person for the benefit of U.S.
persons generally is a "grantor trust", and the grantor is treated as owner of property
transferred to the trust. There are, however, some transfers that are not covered by this
general rule. First, transfers by reason of death are not subject to section 679. Second,
sales of property to a foreign trust at fair market value are not subject to section 679. Third,
if a foreign person transfers property to a foreign trust for the benefit of a U.S. person and
-19-
then becomes a resident of the United States, section 679 does not apply to the transfer.
Finally, current rules do not clearly address the tax consequences for a domestic trust that
becomes a foreign trust.
Reasons for Cbanle
Tax planning to avoid or defer recognition of income from foreign trusts often utilizes
the exceptions to section 679. For example, a foreign trust may be established by will upon
the death of a U.S. person for the benefit of U.S. persons. Because the trust is not a grantor
trust, the income of the trust is not subject to U.S. tax until distributed to a U.S. person,
even though the trust was created by a U.S. person for the benefit of a U.S. person.
U.S persons also sometimes attempt to avoid section 679 by selling property to a
foreign trust in exchange for a note from the trust. Often, the U.S. transferor does not
intend to collect on the note. In such a case, the purported seller of the assets should be
treated as owning the assets transferred to the trust. (If there is no bono..fide debt, these
transactions are subject to challenge under current law, because the exchange would not be at
fair market value.)
Prior to becoming residents of the United States, foreign persons often put their assets
into irrevocable trusts in tax haven jurisdictions for the benefit of U.S. persons. As a result,
the trust income escapes U.S. tax until distribution.
Further, as tax haven jurisdictions enact legislation to enable U. S. trusts to move to
those jurisdictions, trust migrations are becoming more common. Taxpayers should not be
able to achieve tax results through migration of a domestic trust that they could not achieve
directly by creating a foreign trust.
Finally, the inadequacy of the existing attribution rules as they apply to discretionary
beneficiaries encourages taxpayers to avoid the appropriate tax consequences of their
transactions by disguising true economic ownership of assets through the use of foreign
discretionary trusts.
Proposal
The Administration proposes several changes to section 679, described below.
Transfers at Death. Property transferred to a foreign trust at the death of a trust
grantor (including property in a foreign grantor trust at the grantor's death) would be treated
~ havin~ been transferred .to the trust ~y the beneficiaries in accordance with their respective
lnteres~ m the trust (desc~~ below) m a transaction in which no gain or loss would be
recogruzed. U.S. beneficlanes ~erefore would become grantors for purposes of section 679.
These proposals would be effective for assets transferred to foreign trusts after the date of
enactment.
-20-
Sales to Foreign Trusts. The sale of property to a foreign trust by a u.s. person
would be considered a transfer to a grantor trust under section 679 unless the trust pays the
grantor full fair market value for the property without regard to any debt obligation received
by the transferor issued by the trust, the grantor, a beneficiary, or a person related to the
grantor or beneficiary or guaranteed by any such person. Exceptions would be provided for
legitimate commercial transactions, such as credit extended by unrelated persons. A
transferor would not be treated as receiving fair market value for property transferred in a
deemed sale (pursuant to an election under section 1057 or otherwise). These proposals
would be effective for assets transferred to foreign trusts on or after February 6, 1995.
Pre-immigration Trusts. If a foreign person transfers property to a foreign trust and
becomes a u.s. person within five years of the transfer, the trust would be considered a
grantor trust under section 679 with respect to such transferred assets if the trust has U.S.
beneficiaries after the grantor becomes a u.S. person. This proposal would be effective for
assets transferred to foreign trusts on or after February 6, 1995.
Outbound Trust Migrations. For purposes of section 679, if a domestic trust becomes
a foreign trust, the trust assets would be deemed to have been transferred to the trust by the
beneficiaries in accordance with their respective interests in the trust (defined below) in a
transaction in which no gain or loss is recognized. Thus, any U.S. beneficiaries would be
considered to be grantors of their respective interests in the foreign trust for purposes of
section 679. However, if the IRS determines that the domestic trust was established pursuant
to a plan to retransfer assets to a foreign trust, the IRS would be permitted to treat the u.s.
settlor of the domestic trust as grantor of the foreign trust for purposes of section 679. The
proposal would be effective for assets transferred to foreign trusts on or after February 6,
1995.
Detennination of Respective Interests. For purposes of preventing abusive
transactions designed to avoid section 679 and the tax on expatriation, a beneficiary's
respective interest in a trust would be based on all relevant facts and circumstances, including
the terms of the trust instrument. Other relevant factors may include letters of wishes or
similar documents, patterns of historical trust distributions, and the existence of and functions
performed by a trust protector or any similar advisor. If the respective interests of
beneficiaries in a discretionary trust cannot otherwise be determined, those beneficiaries with
the closest degree of family affiliation to the settlor could be presumed to have equal
proportionate interests in the trust.
The proposal would apply the attribution rules for discretionary beneficiaries only to
the abusive situations under section 679 described above and to the tax on expatriation of
U.S. citizens and residents, but would not directly apply the attribution rules for other
purposes (e.g., to determine if a discretionary beneficiary is a U.S. sh~eh~lder of a
.
controlled foreign corporation that is owned by the trust). The detenrunatIon of respectIve
interests for purposes of the tax on expatriation by u.S. citizens and residents would be
effective for expatriations occurring on or after February 6, 1995.
-21-
ID.
INBOUND FOREIGN GRANTOR TRUSTS
Current
Law
The United States disregards certain "grantor" trusts for income tax purposes. This
treatment is designed to prevent abuses arising from attempts to shift income to beneficiaries
who are likely to be paying taxes at lower rates than the grantor of the trust. Consequently,
under existing anti-abuse rules, the grantor of such a trust is taxed as if he owned the trust
assets directly. Trusts generally are considered grantor trusts if (1) the grantor has a
reversionary interest in trust income or corpus, (2) the grantor or a nonadverse party holds
certain powers over the beneficial enjoyment of trust income or corpus, (3) certain
administrative powers are exercisable for the grantor's benefit (e.g., the grantor can
reacquire trust assets by substituting assets of equivalent value), (4) the grantor or a
nonadverse party has the power to revest trust assets in the grantor, or (5) trust income may
be paid or accumulated for the benefit of the grantor or the grantor's spouse in the discretion
of the grantor or a nonadverse party. A person other than the grantor is treated as owning
trust assets if that person has the power to withdraw trust income or corpus.
The IRS has issued a revenue ruling in which a foreign person funded a foreign
grantor trust for U.S. beneficiaries. The ruling holds that since the foreign person is treated
as the owner of the grantor trust, a U.S. beneficiary is not taxable on trust distributions.
Reasons for Cbanee
Existing law inappropriately permits foreign taxpayers to affirmatively use the
domestic anti-abuse rules concerning grantor trusts. Although current law treats a foreign
grantor as the owner of the trust assets, the foreign grantor generally is not subject to U.S.
tax on income of the trust. These rules therefore permit U.S. beneficiaries, who enjoy the
benefits of residing in the United States, to avoid U.S. tax on trust income. U.S.
beneficiaries should be appropriately taxed in the United States.
Proposal
Under the proposal, a person would be treated as owning trust assets under the
grantor trust rules only if that person is a U.S. citizen, U.S. resident, or domestic
corporation. The IRS may prescribe rules for applying the grantor trust rules to settlors that
are partnerships, trusts, and estates to the extent that the beneficial interests in such entities
are owned by U.S. citizens, U.S. residents, or domestic corporations. A U.S. person
receiving distributions of trust income as result of this provision would be allowed to claim a
foreign tax credit for foreign taxes paid on trust income by the trust or the foreign grantor.
Several related provisions are proposed to enforce these rules. First, enhanced
authority would be granted to the IRS to prevent the use of nominees to evade these rules.
For this purpose, a bona fide settlor of a trust with power to withdraw income or corpus
from the trust would normally not be considered a nominee. Second, new rules would
-22-
harn:onize the treatment of purported gifts by corporations and partnerships with the new
forelgn grantor trust rules. Third, U.S. persons would be required to report the receipt of
what they claim to be large gifts from foreign persons in order to allow the ms to verify that
such purported gifts are not, in fact, disguised income to the U.S. recipients.
If a trust that is a grantor trust under current law becomes a nongrantor trust pursuant
to this rule, the trust would be treated as if it were resettled on the date the trust becomes a
nongrantor trust. Neither the grantor nor the trust would recognize gain or loss. If a
resettled domestic trust that has a foreign grantor became a foreign trust before December
31, 1995, the section 1491 excise tax on outbound transfers of assets would not be applied to
the transfer by the domestic trust to the new foreign trust. Otherwise, this proposal would
be effective on the date of enactment of this provision. These rules would not apply to
normal security arrangements involving a trustee (including the use of indenture trustees and
similar arrangements).
IV.
FOREIGN NONGRANTOR TRUSTS
Current Law
Accumulation distributions. U.S. beneficiaries of foreign trusts are subject to a
nondeductible interest charge on distributions of accumulated income earned by the trust in
earlier taxable years. The charge is based on the length of time the tax was deferred by
deferring distributions of accumulated income. Under existing law, the interest charge is
equal to six percent simple interest per year multiplied by the tax imposed on the
distribution. If adequate records are not available to determine the portion of a distribution
that is accumulated income, the distribution is deemed to be an accumulation distribution
from the year the trust was organized.
Constructive Distributions. The tax consequences of the use of trust assets by
beneficiaries is ambiguous under current law. Taxpayers may assert that a beneficiary's use
of assets owned by a trust does not constitute a distribution to the beneficiary.
Reasons for Chanee
Accumulation distributions. Interest paid by U. S. beneficiaries of foreign trusts should
reflect market rates of interest.
Constructive distributions. If a corporation makes corporate assets available for a
shareholder'S personal use (e.g., a corporate apartment made available rent-free to a
shareholder), the fair market value of the use of that property is treated as a constructive
distribution. Further, if a controlled foreign corporation makes a loan to a U.S. person, the
loan is treated as a deemed distribution by the foreign corporation to its U.S. shareholders.
The use of foreign trust assets by trust beneficiaries should give rise to tax consequences that
are similar to those associated with the use of corporate assets by corporate shareholders.
-23-
Proposal
Accumulation distributions. For periods of accumulation after December 31, 1995, the
rate of interest charged on accumulation distributions would correspond to the interest rate
taxpayers pay on underpayments of tax. If a trust does not provide information required
under section 6048, the distribution would be deemed to be from income accumulated in the
year the trust was organized (or an alien beneficiary's first year of U.S. residence, if later).
If a taxpayer is not able to demonstrate when the trust was created, the IRS may use any
approximation based on available evidence.
Taxpayers have used a variety of methods (e.g., tiered trusts, divisions of trusts,
mergers of trusts, and similar transactions with corporations) to convert a distribution of
accumulated income into a distribution of current income or corpus. The proposal would
authorize the IRS to recharacterize such transactions, effective for transactions or
arrangements entered into after the date of enactment. Transactions that may be entered into
to avoid the interest charge on accumulation distributions (e.g., excessive "compensation"
paid to trust beneficiaries who are directors of corporations owned by the foreign trust) may
be subject to recharacterization.
The proposal also clarifies existing law by providing that if an alien beneficiary of a
foreign trust becomes a U.S. resident and thereafter receives an accumulation distribution, no
interest would be charged for periods of accumulation that predate U.S. residency.
Constructive distributions. If a beneficiary uses assets of a foreign trust, the value of
that use would be a constructive distribution to the beneficiary. Thus, if a foreign trust made
a residence available for use by a beneficiary (or a related person), the difference between
the fair rental value of the residence and any rent actually paid would be treated as a
constructive distribution to that beneficiary. If a foreign trust purported to loan cash (or cash
equivalents) to a U.S. beneficiary, the loan would be treated as a constructive distribution by
the foreign trust to the U.S. beneficiary. These provisions would not apply if constructive
distributions did not exceed $2,500 during a taxable year. The provisions would be effective
for taxable years of a trust that begin after the date of enactment.
V.
RESIDENCE OF TRUSTS
Current Law
Under current law, a "foreign estate or trust" is an estate or trust the "income of
which, from sources without the United States which is not effectively connected with the
conduct o~ a tra~e or business within the United States, is not includable in gross income
under ~u?title A of the Internal Revenue Code. This definition does not provide criteria for
deternurung when an estate or trust is foreign.
Court cases and rulings indicate that the residence of an estate or trust depends on
various factors, such as the location of the assets, the country under whose laws the estate or
-24-
tru~t is ~reated, the residence of the fiduciary, the nationality of the decedent or settlor, the
nanonality of the beneficiaries, and the location of the administration of the trust or estate.
See e.g., B. W. Jones Trust v. Comm ", 46 B. T.A. 531 (1942), affd 132 F.2d 914 (4th Cir.
1943).
'
Reasons for Chanee
Present rules provide insufficient guidance for determining the residence of estates
and trusts. Because the tax treatment of an estate, trust, settlor, or beneficiary may depend
on whether the estate or trust is foreign or domestic, it is important to have an objective
definition of the residence of an estate or trust. Reducing the number of factors used in
determining the residence of estates or trusts for tax purposes would increase the flexibility
of settlors and trust administrators to decide where to locate and in what assets to invest.
For example, if the location of the administration of the trust were no longer a relevant
criterion, settlors of foreign trusts would be able to choose whether to administer the trusts in
the United States or abroad based on non-tax considerations.
Proposal
An estate or trust would be considered a domestic estate or trust if two factors were
present: (1) a court within the United States is able to exercise primary supervision over the
administration of the estate or trust; and (2) a U.S. fiduciary (alone or in concert with other
U.S. fiduciaries) has the authority to control all major decisions of the estate or trust. A
foreign estate or trust would be any estate or trust that is not domestic.
The first factor would be fulfilled only if a U.S. court had authority over the entire
estate or trust, and not if it merely had jurisdiction over certain assets or a particular
beneficiary. Normally, the first factor would be satisfied if the trust instrument is governed
by the laws of a U.S. state. One way to satisfy this factor is to register the estate or trust in
a state pursuant to a state law which is substantially similar to Article vn of the Uniform
Probate Code as published by the American Law Institute. The second factor would
normally be satisfied if a majority of the fiduciaries are U.S. persons and a foreign fiduciary
(including a "protector" or similar trust advisor) may not veto important decisions of the
U.S. fiduciaries. In applying this factor, the IRS would allow an estate or trust a reasonable
period of time to adjust for inadvertent changes in fiduciaries (e.g., a U.S. trustee dies or
abruptly resigns where a trust has two U.S. fiduciaries and one foreign fiduciary).
The new rules defining domestic estates and trusts would be effective for taxable
years of an estate or trust that begin after December 31, 1996. The delayed effective date is
intended to allow estates and trusts a period of time to modify their governing instruments or
to change fiduciaries. Moreover, taxpayers would be allowed to elect to apply these rules to
taxable years of an estate or trust beginning after the date of enactment.
-25-
Revenue Estimate (in billions of dollars)
Fiscal Years
Revise taxation of income
from foreign trusts
(sections I - V)
~
1996
1221
l22R
1222
Z.QQQ
Total
0.1
0.3
0.5
0.5
0.5
0.6
2.4
-26-
PROPOSALS TO IMPROVE TAX ADMINISTRATION AND COrdPLIANCE
The Administration continues to support revenue-neutral initiatives to promote
sensible and equitable administration of the internal revenue laws. These include
simplification, technical corrections, and taxpayer compliance measures, including the
reinstatement of authority to share information on cash transaction reports within the law
enforcement community and to fund undercover operations. In addition, we support and
want to work with Congress on the following proposals:
•
intermediate sanctions and disclosure requirements to improve public charities'
compliance with the requirements for tax-exempt status;
•
a package of compliance and administrative initiatives that would assist the
IRS's efforts to modernize and streamline its operations, to alleviate taxpayer
burdens by facilitating the payment of taxes and filing of tax returns, and to
rationalize existing rules to treat taxpayers more fairly; and
•
modifications to improve compliance with diesel dyeing requirements and to
facilitate refunds of the excise tax on the sale of certain fuels.
-27-
NEWS
'fREASURY·
oma OF PUBUC AFFAIRS • 1100 nNNSn.VANlAAVENuE, N.W•• WASIUNCTON, D.C. • !tHO. (20t) 612-1968
Contact: Scott Dykema
FOR IMMEDIATE RELEASb
February 6, 1995
(202) 622-2960
MEDIA ADVISORY
Copies of the Treasury Department's "green book" explaining the tax proposals in
President Clinton' 5 fiscal 1996 budeet are now available.
Copies of the report, "General Explanations of the Administration's Revenue Proposals,"
may be picked up at the Courier Entrance, Main Treasury, 1500 Pennsylvania Ave., N.W.
A copy of the 27-pa&e report can also be faxed by calling th~Offtce of Public Affairs
24-hour fax service at (202) 622-2040. Key in the number "5S"
number.
-30-
RR-59
when asked
for a document
DEPARTMENT
OF
THE
TREASURY
~NEWS
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C .• 20220. (202) 622-2960
For Release Upon Delivery
Expected at 9;00 am.
February 7, 1995
STATElWENT OF ROBERT E. RUBIN
SECRETARY OF TIlE TREASURY
BEFORE THE SENATE BUDGET COMMITTEE
Mr. Chairman and Members of the Committee:
I am pleased to appear before you today to present the President'S proposed
Budget for the 1996 Fiscal Year. I've been in office less than a month, but I am doing
something not many Treasury Secretaries get to do; presenting a budget that cuts the
deficit and cuts taxes. I am also doing something that you would have to go back 16
Treasury Secretaries to sometime in the Truman Administration to find: announcing that
our budget deficit will decline for three years in a row_
As Treasury Secretary, my testimony will focus on broad policy issues and on the
revenue proposals set fonh in our budget. 0 MB Director Alice Rivlin will testify before
you tomorrow. She will provide greater detail on the program side.
Every Adminjstration's agenda is contained in its proposed budgets. President
Clinton, from the beginning of this Administration, has had a broad-based economic
strategy to stimulate and then protect the recovery, to position the country for the longte~ and to increase the incomes of working Americans_
Prior to joining Treasury, I assisted the President in setting our overall policies. I
know how deeply he feels about continuing to move forward on his full economic
strategy, which includes fiscal discipline, boosting both private and public investment to
increase long-run productivity, opening markets, reforming government and regulation,
and achieving health care and welfare reform.
This morning, I would like to summarize briefly what we have achieved, where we
are now, and where we are headecL with special attention to the-President's proposed
1
RR-60
Middle-Oass Bill of Rights.
What Have We Achieved to Date?
When the President came into office, the economy may have been in recovery,
but the recovery was weak and uncertain. Employment growth, in particular, had lagged
far behind normal expectations. Large federal budget deficits, which were increasing
rapidly as a percent of GDP even as the economy was recovering, created an unstable
economic environment. Escalating structural deficits were a clear signal that the chances
of an eventual severe financial crisis were on the rise. Prudent business people were
reluctant to hire or to invest in this unstable environment. As a result, Americans were
experiencing a jobless recovery.
Thus, the first necessary economic move was to bring the deficit under control.
Working with Congress, we enacted a powerful deficit reduction program. The $505
billion deficit reduction package was achieved largely through spending cuts of $255
billion over five years, including freezing discretionary spending at 1993 levels, and
raising income tax rates on only the 12 percent of Americans with highest incomes.
We also introduced plans to reduce the size of government. The President's
Reinventing Government initiative called for reducing the federal work force by 272,900
over five years, bringing government employment back to levels not seen since John
Kennedy was President.
At the same time that we were cutting spending and government employment, we
were able to reduce taxes for millions of lower- and moderate-income working
individuals and families, and to offer tax relief for small businesses.
The net effect of our plan was to bring the deficit down: from $290 billion in 1992
to what we now project as $193 billion this year. The deficit as a share of GDP went
from 4.9 percent in 1992 to a projected 2.7 percent for 1995.
I worked in financial markets for 26 years, and I have no doubt that our
aggressive deficit reduction program was, in large measure, responsible for the decline in
interest rates which in turn was key to jump-starting the economy in 1993. Deficit
reduction also reduced uncertainty about our fiscal future and restored confidence
conducive to investment.
In addition to addressing the deficit problem, we also made sure that American
businesses had access to the credit they needed. When President Clinton took office,
s~- and medium-sized businesses were facing a "credit crunch." In response, President
Clinton announced a program of regulatory and administrative changes to reduce
impediments and increase the aVailability of credit.
2
The combination of these policies, a sound fiscal environment and increased
avail~bili.ty of credi4 has paid off. We now have a strong investment-led recovery that is
creatIng Jobs. The first chart at the end of this statement shows that business investment
in equipment has increased dramatically under the Clinton Administration. As a percent
of real GDP, business equipment investment is at an all-time high.
Most importan4 as we have cut the deficit and reduced federal employmen4 the
economy has created 5.7 million jobs, putting an end to the jobless recovery. Note that
5.3 million, or 93 percent, of these jobs were created in the private-sector (see attached
chart). At the same time, the unemployment rate has declined from 7.1 percent to 5.7
percent. Some say that all these new jobs are in low-paying industries, but that view is
incorrect. Over the past year, the number of jobs in construction, which pays 30 percent
more than the average wage, has surged by some 325,000. The decline in manufacturing
jobs has turned around: factory employment is up 290,000. The high-paying wholesale
trade and transportation and public utilities industries provided an additional 295,000
jobs.
All this investment and employment growth has occurred in an environment of
low inflation--an absolutely critical objective of this Administration. Even with the
strength of the current recovery, inflation has remained under control. The increase in
the consumer price index has come in under 3.0 percent for each of the last three years.
We see virtually no evidence of cost-push inflation pressure from wages. Growth of the
employment cost index--the most reliable measure of labor costs--was lower in 1994 than
it had been in 1993.
We have also established the basis for growth of future wages and living standards
through our trade liberalization policies. We worked hard to enact NAFfA and GATT
because we believe American workers will benefit. In an increasingly integrated world,
we are going to have to look outward rather than inward if we are going to stay on top.
Moreover, jobs in export industries are more productive than average and pay about 10
to 20 percent more than average. That means shifting the composition of GDP toward
more exports automatically shifts the economy toward better paying jobs.
Where Are We Now?
As successful as economic performance has been in the last two years, getting the
economy moving and creating jobs in the short term was only part of the challenge. In
the longer run, the key test of this Administration will be whether it has succeeded in
raising productivity growth--because that is the only way to create higher wages and
higher standards of living.
I want to emphasize that productivity growth is not an academic abstraction. In
the final analysis, increases in workers' incomes cannot be sustained without increases in
productivity--in the amount produced per hour worked. Productivity growth has been
3
extremely slow over the past twenty years. And slow productivity growth has meant slow
growth in workers' incomes.
This slow growth in average wages has been accompanied by an unequal
distribution of income gains. As you can see from the attached chart, in the past fifteen
years, those with incomes in the lowest fifth of American households have seen their real
incomes fall below the levels attained by their counterparts in 1980; those in the top fifth
have seen their incomes rise by 21 percent; and the middle has stood still.
The unequal distribution of income gains over the past fifteen years has put very
real pressures on middle-class families. Their standards of living have failed to match
their legitimate expectations. Dealing with this problem is at the heart of the President's
budget and his Middle-Class Bill of Rights.
Where Do We Go from Here?
This budget emphasizes a three part strategy to promote growth and improve
middle-class incomes: 1) maintaining long-term fiscal discipline, 2) providing tax relief
for the middle class, and 3) increasing investment in workers through education and
training, as well as in machines and buildings. This is the approach that the President
has outlined in his budget.
Maintaining Fiscal Discipline
This Administration fought hard to break the back of the cycle of ever-increasing
deficits. But it is not enough to reduce the deficit for three years in a row. We are
concerned both about the pattern of projected deficits over the next five years and also
about the pattern after the turn of the century.
For the next five years, this budget maintains the progress on deficit reduction
made in OBRA '93. As I said earlier, our projections show the budget deficit dropping
in 1995 for the third straight year, this time to $193 billion. After 1995, the deficit,
measured in dollar terms, fluctuates in a narrow range before falling back to $194 billion
in 2000.
More important than stabilizing the deficit in dollar terms is reducing the deficit
as a share of GOP. Between 1995 and 2000, the deficit-to-GDP ratio falls from 2.7
percent to 2.1 percent. We haven't seen numbers in that range since 1979.
Further, the attached chart shows that the deficit as a share of GDP has been cut
in half from what was projected before passage of the 1993 deficit reduction package,
fu lfilling the President's promise.
This year, we continue our deficit reduction efforts and lower taxes by making
4
substantial cuts in spending. Budget cuts come from three areas. Restructuring
government saves about $26 billion. Most of that $26 billion is the result of fundamental
changes in five agencies--the Departments of Transportation (DOT). Energy (DOE), and
Housing and Urban Development (HUD), the General Services Administration (GSA),
and the Office of Personnel Management (OPM). Additional efforts are aimed at
terminating certain agencies and programs and restructuring others. In addition, we
propose to turn over to the private sector or to state governments activities that they are
well positioned to carry out themselves.
We have already had real success in this area. The President's reinventing
government initiative has already reduced the federal work force by 102,500 positions.
Currently, the federal work force as a share of total employment is at its lowest point
since the 1930's. In addition, Congress has enacted $63 billion of the $108 billion in
reinventing government savings proposed by the Administration. The goal is to make
government even smaller and to make it work better for all Americans.
In addition, further lowering of discretionary spending caps from 1996 through
1998 and extending them for two years beyond their scheduled expiration in 1998
produces an additional $80 billion in savings. The budget contains specific proposals to
achieve these savings. The net result of extending the caps and making the cuts will be
to keep discretionary spending virtually constant in nominal dollars from 1996 through
2000.
Finally, $32 billion in savings comes primarily from the mandatory side of the
budget through continuing some existing health care savings, imposing user fees for the
lucrative electro-magnetic spectrum., accelerating student loan savings, and reducing
certain agricultural programs. The remaining $5 billion of deficit reduction comes
primarily from lower debt service, as a result of our success in lowering the deficit.
Together, our program cuts and projected debt service reductions save $144
billion between 1996 and 2000. The President has proposed using $63 billion of these
savings to provide tax relief to middle-income families as part of his Middle-Class Bill of
Rights. The remaining $81 billion is for deficit reduction.
If our proposed policies are continued beyond the year 2000, we now project that
the fiscal year 2005 deficit will be only 1.6 percent of GDP. This good news comes from
two developments. First, for the ten-year period from fiscal year 1995 to fiscal year
2005, the President's budget proposals produce substantial deficit reduction. Second, our
new budget baseline projects lower spending for Medicare and Medicaid, based on the
latest growth rate estimates from the actuaries at the Health Care Financing
Administration.
Administration estimates of deficits in the out-years are noticeably lower than
estimates that have been recently produced by the Congressional Budget Office. There
5
are several reasons for this.
First, CBO's baseline, by convention, does not include any deficit reduction
proposals. The President's budget proposes substantial deficit reduction over the next
ten years.
Second, the Administration's baseline estimates include recent revisions to
projected costs of Federal health care programs made by the actuaries at the Health
Care Financing Administration. I do not believe that the latest CBO estimates
incorporate the full revisions from the actuaries.
Third, over the long term, the Admjnistration has a slightly more optimistic rate
of growth for productivity--by one or two tenths of one-percent--than does CBO. By
2005, even very small differences in projected growth rates materially affect deficit
projections.
In other words, there are straightforward explanations of the differences between
our numbers and CBO's, and we are very comfortable with all our projections.
While we are confident that the deficit outlook for the next ten years is good, all
observers agree that the deficit will eventually turn upward. The problems are an
increasingly aging population and rapidly rising health care costs. We cannot do
anything about the projected demographic shifts, but we need to do something about
health care as soon as possible. If we want to maintain fiscal discipline over the long
run, we must reform health care.
Before we leave our deficit discussion, let me make two additional points. First,
let me refer you to an enlightening chart. This chart shows the difference between
program expenditures and revenues for the Clinton Administration and for each of the
last eight Administrations. Under President Clinton-for the first time since the 19605expenditures on government programs are less than the taxes paid by the American
people. We have a deficit solely because of the burden of paying interest on the debt
run up largely as a result of the deficits of the 1980s-not because we're overspending
today.
. The s~con? general point r d like to make is that I believe the way to achieve
defiClt reductton IS through dehberate and thoughtful policy choices, not through a
balanced budget amendment that greatly increases macroeconomic risk in our economy
and involves spending cuts that have not been specified at the time the decision on a
balanced budget amendment is made.
6
Providing Tax Relief for Middle-Income Americans
Let me now tum to the centerpiece of the President's budget. On December 15,
1994, President Clinton announced in an Oval Office address his "Middle-Class Bill of
Rights." A major piece of his initiative is providing tax relief for middle-income families.
A middle-class tax cut has always been a goal of this Administration. In 1993,
however, the Administration faced a deficit crisis larger than had been predicted at the
start of 1992. Bringing the deficit under control, and directing tax relief to lower and
moderate income Americans were our first priorities.
Due to strong, effective leadership and tough choices, the deficit reduction
program has been even more of a success than expected. However, incomes of many
working American families have lagged behind--even in the last two years, when growth
in the economy has been brisk.
The President's tax cuts will not only provide immediate relief to financiallystrapped middle-income families but also will help these families save and invest so that
they will become more productive and enjoy higher future standards of living. Individual
tax relief coupled with savings and investment will boost American productivity,
providing the foundation for sustained increases in real incomes.
The Administration's tax cut is targeted squarely at middle-income families. The
attached chart illustrates that a full 86 percent of the benefits of this tax cut will go to
families with incomes between $20,000 and $100,000.
The tax cuts in the President's Middle-Class Bill of Rights have three elements,
aimed at strengthening families, promoting education, and encouraging savings.
$500 Child Tax Credit: This credit is designed to help younger families, where
economic pressure often tends to be greatest, to better provide child care, after-school
activity, and the other requisites for good child rearing. This is an investment in
children--the future of our country. A $500 (when fully phased in) non-refundable credit
will be allowed for each dependent child under 13. Between 1996 and 1998, the
maximum credit would be $300. This credit would reduce the federal income tax burden
of a typical two-child family with an income of $50,000 by 21 percent. The credit will be
phased out for taxpayers with initial Adjusted Gross Incomes (AGI) between $60,000 and
$75,000. No credit will be available to taxpayers with AGI in excess of $75,000.
Deduction for Post·Secondary Education Expenses: This deduction can be used
for education and training expenses for all members of the family, including spouses and
children, and should better enable middle-income families to obtain the education and
skills that will equip them to function effectively in a modem economy. This deduction
is used in determining a taxpayers AGI (that is, taken above the line) and is, therefore,
7
available to those who do not itemize their deductions as well as to those who do
itemize. The maximum allowable deduction would be phased out ratably for taxpayers
filing a joint filers with AGI (before the deduction) between $100,000 and $120,000
($70,000-$90,000 for individuals). The maximum deduction would be $5,000 in 19961998 and $10,000 thereafter.
This proposed tax deduction of up to $10,000 in tuition and fees can be taken for
study at any college, university, or vocational program eligible for federal assistance.
Expansion of Individual Retirement Accounts: This program will substantially
increase the availability of individual retirement accounts by raising the income ceiling to
$100,000 for joint filers and to $70,000 for individuals. Today, only couples with AGI up
to $40,000 and individuals with AGI up to $25,000 can make fully deductible
contributions. Moreover, the flexibility of the individual retirement account has been
greatly enhanced: an individual can either deduct the amount deposited up front, or
forego this deduction in favor of tax-free withdrawal of all accumulated earnings after
five years. The President's proposal would allow penalty-free withdrawals immediately
for specified purposes such as education, first homes, long-term unemployment, or
certain medical expenses.
Other Revenue Proposals
In addition to the President's proposed middle-class tax cuts, the budget contains
certain other provisions that affect revenues. An Appendix to my testimony provides
further details. But let me note that we are proposing two additional empowerment
zones, thus enlarging empowerment zone tax incentives; reducing a tax on vaccine
manufacturers; denying the Earned Income Tax Credit (EITC) to undocumented
workers, and to those with significant unearned income; changing the tax treatment of
those who renounce their citizenship or use foreign trusts to shelter income; and
supporting the extension of the taxes that finance the "Superfund" that cleans up
hazardous waste sites.
Also, on the subject of taxes, one of the Administration's priorities is to fully
implement the Internal Revenue Service's Tax Systems Modernization (TSM) plan to '
reduce the administrative burden on businesses and individuals and to raise compliance.
Investing for the Future
~iscal discipline and middle class tax relief are necessary elements of any coherent
econonnc strategy. Yet, by themselves, they are not enough to ensure higher standards
of living for all Americans.
Additional investment in the skills and capabilities of America's workers and in
physical capital have always been an integral part of the President's agenda. Today's
8
investments will translate into stronger productivity growth and higher living standards
for years to come. Boosting public investment is an important step towards a rising
standard of living for all Americans.
Let me focus on three areas: investment in human capital; investment in science
and technology; and investment in infrastructure.
Human Capital: The President has consistently emphasized the importance of
"lifelong learning" in an economy which favors the highest skilled workers. The budget
proposes $47.3 billion in 1996 for investment in education and training. This represents
a $5.4 billion increase, or 13 percent, over 1993 levels. Working with Congress, the
Administration has already launched legislation from expansion of the Head Start
program to cutting the cost of higher-education loans for students.
This year, the President will focus on better opportunities for adults already in the
work force. The President's proposal--the "G.I. Bill for America's Workers"--will
consolidate and streamline a patchwork of some 70 job training programs. The "G.!.
Bill" will offer dislocated and low-income workers "skill grants" through which they can
make their own choices about the training they need to find new and better jobs.
Two other Presidential initiatives also deserve mention here.
Welfare reform fits into the over-arching strategy of raising economic growth.
The current welfare system costs taxpayers a great deal of money and actually
discourages work by participants. This Administration wants to work with Congress to
make welfare a temporary safety net only, through time limits and through making work
pay. If we succeed, we will both raise the standard of living of participants and lower the
tax burden on average Americans.
Similarly, health care reform is not only essential to maintaining long-term fiscal
stability, but also important for the take-home wages of the average American. If
employees' health insurance costs keep rising, workers' wages won't. Health care cost
containment will payoff in higher wages as well as in a more stable fiscal environment.
Science and Technology: We know that the rates of return for R&D are high in
the private sector. Industry R&D may have accounted for as much as a quarter of
overall productivity growth in recent decades. Commercial firms cannot reap the entire
rewards of basic research, however, because other :firms easily learn and use the
knowledge generated. Despite high rates of return, the private sector does too little
basic research to meet all of society's needs.
Thus, the federal government plays an important role in promoting and investing
in R&D. Federal spending accounts for nearly 40 percent of the nation's R&D
spending. This budget proposes $69.4 billion in 1996 for research and development--an
9
increase of $3.74 billion in nondefense R&D over 1993.
Through the President's National Science and Technology Council, the
Administration seeks to support the best possible science on a tight budget. The science
and technology program pursues advances in health, business, the environment,
information technology, national security, and basic science itself.
In addition, because of the importance of R&E to the nation's economy, we
support the extension of the R&E tax credit on a revenue neutral basis, and we will work
with Congress to pay for it.
Infrastructure: Infrastructure is one area where the government must play an
important role--the private sector could not profitably run many of our nation's roads
and bridges or the treatment plants needed to provide clean water. The budget proposes
$58.8 billion for 1996 for infrastructure investment--up $8.6 billion from 1993.
While infrastructure spending can be among the most effective ways to boost
productivity, projects must be chosen carefully. The Administration proposes to
restructure the Transportation Department, consolidating its infrastructure activities into
a single transportation block grant. Local governments will have more flexibility to
direct resources to areas which best address community needs. Our goal is more and
better infrastructure, at less cost and with less red tape.
Conclusion
In conclusion, let me make three points:
First, you can read the priorities of this Administration in its budget. This
President is committed to raising standards of living for all Americans, and the policy
objectives pursued through the budget--deficit reduction; the middle-class tax cuts; public
investments in workers, in knowledge, and in infrastructure; Reinventing Government-are all aimed at attaining that goal.
Second, this budget maintains the ground won in the struggle to reduce the deficit
in 1993. We project that, with the deficit-reduction policies in the budget, the federal
deficit will remain below $200 billion in nine of the next ten years, and will shrink to 1.6
percent of GDP in fiscal 2005. We as a country simply cannot afford to return to the
days of rising, uncontrolled deficits of the 1980s or early 1990s. 1bis budget will keep us
on a sound trajectory that reduces the deficit.
We do this by taking step-by-step reductions in spending programs and in cutting
the size of government itself. Reinventing government not only saves money, but also
makes government efficient. As a result of the Administration's actions to date we are
reducing the deficit and do not need a balanced budget amendment to enforce
fiscal
10
discipline. This is the right way to cut the deficit.
Third, we take a crucial step toward addressing the economic concerns of working
families by cutting their taxes. Our proposals are targeted to the people who need them
the most when they need them the most. These cuts will help families with young
children, people who are paying for education, and those who want to save for the
future.
This budget builds upon what has been achieved. It is the next step in the logical
sequence of policies designed to raise the living standard for all Americans. It reinforces
fiscal restraint. It provides tax relief to millions of Americans who have seen their
incomes stagnate for a generation. And it invests in education, infrastructure, and
technology.
Much has been accomplished in the past two years, but much remains to be done.
I look forward to working with you on a bi-partisan basis to continue moving forward.
11
APPENDIX: OTIlER REVENUE PROVISIONS
Additional Empowerment Zones. The Secretary of Housing and Urban Development
would be authorized to designate two urban empowerment zones in addition to the six
urban and three rural zones designated on December 21, 1994. 1bis would have the
effect of extending the empowerment zone tax incentives to these additional areas.
Other current-law limitations, such as those regarding population, size, poverty, and
application requirements, would be applicable to these areas.
Reduce Vaccine Excise Tax. Under current law, a manufacturer's tax is levied on
vaccines used to prevent diphtheria, pertussis, tetanus, measles, mumps, rubella or polio.
These taxes are deposited in the Vaccine Injury Compensation Trust Fund and provide a
source of revenue to compensate individuals who sustain certain injuries or to families of
individuals who die following administration of these vaccines. Because of large balances
in the trust fund, the Administration proposes a reduction in revenues from these taxes.
The decrease will allow continued program compensation while lowering the costs of
vaccines to both public and private purchasers.
Earned Income Tax Credit
EITC denied to undocumented workers. Under this compliance proposal, only
individuals who are authorized to work in the United States would be eligible for the
earned income tax credit (EITC). When claiming the EITC, taxpayers would be
required to provide a valid social security number for themselves, their spouses, and their
qualifying children. Only social security numbers that are valid for employment purposes
in the U.S. would enable the individual to claim the EITC. In addition, the proposal
would modify the IRS procedure for processing returns with erroneous or missing
taxpayer identification numbers so as to reduce improperly claimed credits. These
proposals would be effective in 1996.
EITC denied if interest and dividends exceed $2,500. Under current law, an individual
must have earned income in order to be eligible for the EITC. Because the EITC is
designed to benefit low-income workers, the amount of the credit should decrease as the
taxpayer's income increases. A taxpayer with relatively low earned income, however,
may be eligible for the EITC even though he or she has significant interest and dividend
income from investment assets. Under this proposal, taxpayers would not be eligible to
receive the EITC if their combined interest and dividend income for the year exceeds
$2,500. This proposal would be effective in 1996.
12
Tax responsibilities of Americans who renounce citizenship. The proposal would tax the
untaxed gains of V.S. taxpayers who renounce citizenship. The tax would also apply to
aliens who have been lawful permanent residents for at least ten years and then cease to
be subject to V.S. tax. This tax is intended to apply only where very substantial gains are
involved and, thus, an exemption is provided for up to $600,000 of gain. U.S. real estate
and pension assets would also be exempt.
ForeilW Trusts. The foreign trust proposal is designed to increase compliance for taxing .
two categories of people. First, U.S. persons sometimes transfer their assets to foreign
trusts and rarely pay tax on the trust income. The proposal would impose enhanced
information reporting requirements (with penalties for failure to comply) on U.S. persons
who transfer assets to foreign trusts. The second category of taxpayers are U.S. persons
who are members of wealthy foreign families. Foreign families often establish foreign
trusts for the benefit of U.S. family members. Under current law, the United States
treats such trust assets as owned by the foreign family, and any distribution of income
earned by the trust to the U.S. beneficiary is treated as a nontaxable gift to the U.S.
person. The proposal would tax this trust income.
Extension of Superfund Tax. Four different taxes are imposed under present law to
fund the Hazardous Substance Superfund (Superfund) program including a corporate
environmental income tax equal to 0.12 percent of the amount of modified alternative
minimum taxable income in excess of $2 million, and excise taxes on domestic or
imported crude oil or refined products, certain hazardous chemicals, and certain
imported substances. These taxes are scheduled to expire generally after December 31,
1995. The Administration supports the extension of the corporate environmental income
tax through taxable years begjnning before January 1, 2001, and the Superfund excise
taxes through December 31, 2000.
13
Business Investment Has Surged
Percent------------------.
10
Real Business Investment in Equipment
as a Percent of GOP
9
8
7 .-
61980 1982 1984 1986 1988 1990 1992 1994
93 Percent of the 5.7 Million New Jobs
Have Been in the Private Sector
Job Growth Since January 1993
Millions - - - - - - - - - - - - - - - - - ,
: [
5.3 Million
4
3
2
0.5 Million
1
0
-0.1 Million
-1
-2
Private Sector
State & Local
Government
Federal Government
Middle Class Incomes Were Stagnant, 1980-93
Change in Average Real Household Income
Percent
20.8%
20
15
10
5
0.6%
o
-5
-2.1 %
-1.0%
-10'L------------------------------------~
Lowest f;fth
Second
Third
Fourth
Highest fifth
The Deficit Has Been Cut in Half
as a Share of GOP
Percent------------------------------~
Projected baseline before
1993 deficit reduction package
6
--------------------------. ------------
5
4
3
0 -
2
1
~
---~~----~~- ------ ~~-----------
Administration's Budget Proposal
1992
1994
1996
Fiscal Years
1998
2000
Spending on Government Programs Is Less
than Taxes for the First Time Since the 1960·s
Revenues Minus Program Spending as a Share of GDP
Percent
1.9%
"
"
"
"
II
o I'····· .. ·.. ·,
1. 0 %
0.60/0
,..........., -0.1%
-2.2%
-5
-10
-4.4%
-4.9%
I
-9.0%
1962-65 1966-69 1970-73 1974-77 1978-81 1982-85 1986-89 1990-931994-95*
Fiscal Years
Tax Cut Targeted
to Middle-Income Families
Family Income
Over $100,000
Family Income
Under $20,000
1%
Family Income
$20,000 .. $100,000
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C. • 20220 • (202) 622-2960
For Release Upon Delivery
Expected at 10:30 am.
February 7, 1995
STATEMENT OF ROBERT E. RUBIN
SECRETARY OF THE TREASURY
BEFORE THE HOUSE WAYS AND MEANS COl\1MITIEE
Mr. Chairman and Members of the Committee:
I am pleased to appear before you today to present the President's proposed
Budget for the 1996 Fiscal Year. I've been in office less than a month, but I am doing
something not many Treasury Secretaries get to do: presenting a budget that cuts the
deficit and cuts taxes. I am also doing something that you would have to go back 16
Treasury Secretaries to sometime in the Truman Administration to find: announcing that
our budget deficit will decline for three years in a row.
As Treasury Secretary, my testimony will focus on broad policy issues and on the
revenue proposals set fonh in our budget. OMB Director Alice Rivlin v,.ill testify before
you Thursday. She will provide greater detail on the program side.
Every Administration's agenda is contained in its proposed budgets. President
Ginton, from the beginning of this Administration, has had a broad-based economic
strategy to stimulate and then protect the recovery, to position the country for the longterm, and to increase the incomes of working Americans.
Prior to joining Treasury, I assisted the President in setting our overall policies. I
know bow deeply he feels about continuing to move forward on his full economic
strategy, which includes fiscal discipline, boosting both private and public investment to
increase long-run productivity, opening markets, reforming government and regulation.
and achieving health care and welfare reform.
This morning, I would like to summarize briefly what we have achieved, where we
are now, and where we are headed, with special attention to the President's proposed
1
RR-61
Middle-Class Bill of Rights.
What Have We Achieved to Date?
When the President came into office, the· economy may have been in recovery,
but the recovery was weak and uncertain. Employment growth, in particular, had lagged
far behind normal expectations. Large federal budget deficits, which were increasing
rapidly as a percent of GDP even as the economy was recovering, created an unstable
economic environment. Escalating structural deficits were a clear signal that the chances
of an eventual severe financial crisis were on the rise. Prudent business people were
reluctant to hire or to invest in this unstable environment. As a result, Americans were
experiencing a jobless recovery.
Thus, the first necessary economic move was to bring the deficit under control.
Working with Congress, we enacted a powerful deficit reduction program. The $505
billion deficit reduction package was achieved largely through spending cuts of $255
billion over five years, including freezing discretionary 'spending at 1993 levels, and
raising income tax rates on only the 12 percent of Americans with highest incomes.
We also introduced plans to reduce the size of government. The President's
Reinventing Government initiative called for reducing the federal work force by 272,900
over five years, bringing government employment back to levels not seen since John
Kennedy was President.
At the same time that we were cutting spending and government employment, we
were able to reduce taxes for millions of lower- and moderate-income working
individuals and families, and to offer tax relief for small businesses.
The net effect of our plan was to bring the deficit down: from $290 billion in 1992
to what we now project as $193 billion this year. The deficit as a share of GDP went
from 4.9 percent in 1992 to a projected 2.7 percent for 1995.
I worked in financial markets for 26 years, and I have no doubt that our
aggressive deficit reduction program was, in large measure, responsible for the decline in
interest rates which in turn was key to jump-starting the economy in 1993. Deficit
reduction also reduced uncertainty about our fiscal future and restored confidence
conducive to investment.
In addition to addressing the deficit problem, we also made sure that American
businesses had access to the credit they needed. When President Clinton took office,
s~all- and medium-sized businesses were facing a "credit crunch." In response, President
Clinton announced a program of regulatory and administrative changes to reduce
impediments and increase the availability of credit.
...,
The combination of these policies, a sound fiscal environment and increased
availability of credit, has paid off. We now have a strong investment-led recovery that is
creating jobs. The first chart at the end of this statement shows that business investment
in equipment has increased dramatically under the Clinton Administration. As a percent
of real GDP, business equipment investment is at an all-time high.
Most important, as we have cut the deficit and reduced federal employment, the
economy has created 5.7 million jobs, putting an end to the jobless recovery. Note that
5.3 million, or 93 percent, of these jobs were created in the private-sector (see attached
chart). At the same time, the unemployment rate has declined from 7.1 percent to 5.7
percent. Some say that all these new jobs are in low-paying industries, but that view is
incorrect. Over the past year, the number of jobs in construction, which pays 30 percent
more than the average wage, has surged by some 325,000. The decline in manufacturing
jobs has turned around: factory employment is up 290,000. The high-paying wholesale
trade and transportation and public utilities industries provided an additional 295,000
jobs.
All this investment and employment growth has occurred in an environment of
low inflation--an absolutely critical objective of this Administration. Even with the
strength of the current recovery, inflation has remained under control. The increase in
.the consumer price index has come in under 3.0 percent for each of the last three years.
We see virtually no evidence of cost-push inflation pressure from wages. Growth of the
employment cost index--the most reliable measure of labor costs--was lower in 1994 than
it had been in 1993.
We have also established the basis for growth of future wages and living standards
through our trade liberalization policies. We worked hard to enact NAFfA and GATT
because we believe American workers will benefit. In an increasingly integrated world,
we are going to have to look outward rather than inward if we are going to stay on top.
Moreover, jobs in export industries are more productive than average and pay about 10
to 20 percent more than average. That means shifting the composition of GDP toward
more exports automatically shifts the economy toward better paying jobs.
Where Are We Now?
As successful as economic performance has been in the last two years, getting the
economy moving and creating jobs in the short term was only part of the challenge. In
the longer run, the key test of this Administration will be whether it has succeeded in
raising productivity growth--because that is the only way to create higher wages and
higher standards of living.
I want to emphasize that productivity growth is not an academic abstraction. In
the final analysis, increases in workers' incomes cannot be sustained without increases in
productivity--in the amount produced per hour worked. Productivity growth has been
3
extremely slow over the past twenty years. And slow productivity growth has meant slow
growth in workers' incomes.
This slow growth in average wages has been accompanied by an unequal
distribution of income gains. As you can see from the attached chart, in the past fifteen
years, those with incomes in the lowest fifth of American households have seen their real'
incomes fall below the levels attained by their counterparts in 1980; those in the top fifth
have seen their incomes rise by 21 percent; and the middle has stood still.
The unequal distribution of income gains over the past fifteen years has put very
real pressures on middle-class families. Their standards of living have failed to match
their legitimate expectations. Dealing with this problem is at the heart of the President's
budget and his Middle-Class Bill of Rights.
Where Do We Go from Here?
This budget emphasizes a three part strategy to promote growth and improve
middle-class incomes: 1) maintaining long-term fiscal discipline, 2) providing tax relief
for the middle class, and 3) increasing investment in workers through education and
training, as well as in machines and buildings. This is the approach that the President
has outlined in his budget.
Maintaining Fiscal Discipline
This Administration fought hard to break the back of the cycle of ever-increasing
deficits. But it is not enough to reduce the deficit for three years in a row. We are
concerned both about the pattern of projected deficits over the next five years and also
about the pattern after the turn of the century.
For the next five years, this budget maintains the progress on deficit reduction
made in OBRA '93. As I said earlier, our projections show the budget deficit dropping
in 1995 for the third straight year, this time to $193 billion. After 1995, the deficit,
measured in dollar terms, fluctuates in a narrow range before falling back to $194 billion
in 2000.
More important than stabilizing the deficit in dollar terms is reducing the deficit
as a share of GOP. Between 1995 and 2000, the deficit-to-GDP ratio falls from 2.7
percent to 2.1 percent. We haven't seen numbers in that range since 1979.
Further, the attached chart shows that the deficit as a share of GOP has been cut
in half from what was projected before passage of the 1993 deficit reduction package,
fulfilling the President's promise.
This year, we continue our deficit reduction efforts and lower taxes by making
4
substantial cuts in spending. Budget cuts come from three areas. Restructuring
government saves about $26 billion. Most of that $26 billion is the result of fundamental
changes in five agencies--the Departments of Transportation (DOT), Energy (DOE), and
Housing and Urban Development (HUD), the General Services Administration (GSA),
and the Office of Personnel Management (OPM). Additional efforts are aimed at
terminating certain agencies and programs and restructuring others. In addition, we
propose to turn over to the private sector or to state governments activities that they are
well positioned to carry out themselves.
We have already had real success in this area. The President's reinventing
government initiative has already reduced the federal work force by 102,SOO positions.
Currently, the federal work force as a share of total employment is at its lowest point
since the 1930's. In addition, Congress has enacted $63 billion of the $108 billion in
reinventing government savings proposed by the Administration. The goal is to make
government even smaller and to make it work better for all Americans.
In addition, further lowering of discretionary spending caps from 1996 through
1998 and extending them for two years beyond their scheduled expiration in 1998
produces an additional $80 billion in savings. The budget contains specific proposals to
achieve these savings. The net result of extending the caps and making the cuts will be
to keep discretionary spending virtually constant in nominal dollars from 1996 through
2000.
Finally, $32 billion in savings comes primarily from the mandatory side of the
budget through continuing some existing health care savings, imposing user fees for the
lucrative electro-magnetic spectrum, accelerating student loan savings, and reducing
certain agricultural programs. The remaining $S billion of deficit reduction comes
primarily from lower debt service, as a result of our success in lowering the deficit.
Together, our program cuts and projected debt service reductions save $144
billion between 1996 and 2000. The President has proposed using $63 billion of these
savings to provide tax relief to middle-income families as part of his Middle-Class Bill of
Rights. The remaining $81 billion is for deficit reduction.
If our proposed policies are continued beyond the year 2000, we now project that
the fiscal year 200S deficit will be only 1.6 percent of GDP. This good news comes from
two developments. First, for the ten-year period from fiscal year 1995 to fiscal year
200S, the President's budget proposals produce substantial deficit reduction. Second, our
new budget baseline projects lower spending for Medicare and Medicaid, based on the
latest growth rate estimates from the actuaries at the Health Care Financing
Administration.
Administration estimates of deficits in the out-years are noticeably lower than
estimates that have been recently produced by the Congressional Budget Office. There
S
are several reasons for this.
First, CBO's baseline, by convention, does not include any deficit reduction
proposals. The President's budget proposes substantial deficit reduction over the next
ten years.
Second, the Administration's baseline estimates include recent revisions to
projected costs of Federal health care programs made by the actuaries at the Health
Care Financing Administration. I do not believe that the latest CBO estimates
incorporate the full revisions from the actuaries.
Third, over the long term, the Administration has a slightly more optimistic rate
of growth for productivity-by one or two tenths of one-percent-than does CBO. By
2005, even very small differences- in projected growth rates materially affect deficit
projections.
In other words, there are straightforward explanations of the differences between
our numbers and CBO's, and we are very comfortable with all our projections.
While we are confident that the deficit outlook for the next ten years is good, all
observers agree that the deficit will eventually turn upward. The problems are an
increasingly aging population and rapidly rising health care costs. We cannot do
anything about the projected demographic shifts, but we need to do something about
health care as soon as possible. H we want to maintain fiscal discipline over the long
run, we must reform health care.
Before we leave our deficit discussion, let me make two additional points. First,
let me refer you to an enlightening chart. This chart shows the difference between
program expenditures and revenues for the Clinton Administration and for each of the
last eight Administrations. Under President Clinton--for the first time since the 1960s-expenditures on government programs are less than the taxes paid by the American
people. We have a deficit solely because of the burden of paying interest on the debt
run up largely as a result of the deficits of the 1980s--not because we're overspending
today.
The second general point I'd like to make is that I believe the way to achieve
deficit reduction is through deliberate and thoughtful policy choices, not through a
balanced budget amendment that greatly increases macroeconomic risk in our economy
and involves spending cuts that have not been specified at the time the decision on a
balanced budget amendment is made.
Providing Tax Relief for Middle-Income Americans
Let me now turn to the centerpiece of the President's budget. On December 15,
6
1994, President Clinton announced in an Oval Office address his "Middle-Class Bill of
Rights." A major piece of his initiative is providing tax relief for middle-income families.
A middle-class tax cut has always been a goal of this Administration. In 1993,
however, the Administration faced a deficit crisis larger than had been predicted at the
start of 1992. Bringing the deficit under control, and directing tax relief to lower and
moderate income Americans were our first priorities.
Due to strong, effective leadership and tough choices, the deficit reduction
program has been even more of a success than expected. However, incomes of many
working American families have lagged behind--even in the last two years, when growth
in the economy has been brisk.
The President's tax cuts will not only provide immediate relief to financiallystrapped middle-income families but also will help these families save and invest so that
they will become more productive and enjoy higher future standards of living. Individual
tax relief coupled with savings and investment will boost American productivity,
providing the foundation for sustained increases in real incomes.
The Administration's tax cut is targeted squarely at middle-income families. The
attached chart illustrates that a full 86 percent of the benefits of this tax cut will go to
families with incomes between $20,000 and $100,000.
The tax cuts in the President's Middle-Class Bill of Rights have three elements,
aimed at strengthening families, promoting education, and encouraging savings.
$500 Child Tax Credit: This credit is designed to help younger families, where
economic pressure often tends to be greatest, to better provide child care, after-school
activity, and the other requisites for good child rearing. This is an investment in
children--the future of our country. A $500 (when fully phased in) non-refundable credit
will be allowed for each dependent child under 13. Between 1996 and 1998, the
maximum credit would be $300. This credit would reduce the federal income tax burden
of a typical two-child family with an income of $50,000 by 21 percent. The credit will be
phased out for taxpayers with initial Adjusted Gross Incomes (AGI) between $60,000 and
$75,000. No credit will be available to taxpayers with AGI in excess of $75,000.
Deduction for Post-Secondary Education Expenses: This deduction can be used
for education and training expenses for all members of the family, including spouses and
children, and should better enable middle-income families to obtain the education and
skills that will equip them to function effectively in a modem economy. This deduction
is used in determining a taxpayers AGI (that is, taken above the line) and is, therefore,
available to those who do not itemize their deductions as well as to those who do
itemize. The maximum allowable deduction would be phased out ratably for taxpayers
filing a joint filers with AGI (before the deduction) between $100,000 and $120,000
7
($70,000-$90,000 for individuals). The maximum deduction would be $5,000 in 19961998 and $10,000 thereafter.
This proposed tax deduction of up to $10,000 in tuition and fees can be taken for
study at any college, university, or vocational program eligible for federal assistance.
Expansion of Individual Retirement Accounts: This program will substantially
increase the availability of individual retirement accounts by raising the income ceiling to
$100,000 for joint filers and to $70,000 for individuals. Today, only couples with AGI up
to $40,000 and individuals with AGI up to $25,000 can make fully deductible
contributions. Moreover, the flexibility of the individual retirement account has been
greatly enhanced: an individual can either deduct the amount deposited up front, or
forego this deduction in favor of tax-free withdrawal of all accumulated earnings after
five years. The President's proposal would allow penalty-free withdrawals immediately
for specified purposes such as education, first homes, long-term unemployment, or
certain medical expenses.
Other Revenue Proposals
In addition to the President's proposed middle-class tax cuts, the budget contains
certain other provisions that affect revenues. An Appendix to my testimony provides
further details. But let me note that we are proposing two additional empowerment
zones, thus enlarging empowerment zone tax incentives; reducing a tax on vaccine
manufacturers; denying the Earned Income Tax Credit (EITe) to undocumented
workers, and to those with significant unearned income; changing the tax treatment of
those who renounce their citizenship or use foreign trusts to shelter income; and
supporting the extension of the taxes that finance the "Superfund" that cleans up
hazardous waste sites.
Also, on the subject of taxes, one of the Administration's priorities is to fully
implement the Internal Revenue Service's Tax Systems Modernization (TSM) plan to
reduce the administrative burden on businesses and individuals and to raise compliance.
Investing for the Future
Fiscal discipline and middle class tax relief are necessary elements of any coherent
economic strategy. Yet, by themselves, they are not enough to ensure higher standards
of living for all Americans.
Additional investment in the skills and capabilities of America's workers and in
physical capital have always been an integral part of the President's agenda Today's
investments will translate into stronger productivity growth and higher living standards
for years to come. Boosting public investment is an important step towards a rising
standard of living for all Americans.
8
Let me focus on three areas: investment in human capital; investment in science
and technology; and investment in infrastructure.
Human Capital: The President has consistently emphasized the importance of
"lifelong learning" in an economy which favors the highest skilled workers. The budget
proposes $47.3 billion in 1996 for investment in education and training. This represents
a $5.4 billion increase, or 13 percent, over 1993 levels. Working with Congress, the
Administration has already launched legislation from expansion of the Head Start
program to cutting the cost of higher-education loans for students.
This year, the President will focus on better opportunities for adults already in the
work force. The President's proposal--the "G.1. Bill for America's Workers"-will
consolidate and streamline a patchwork of some 70 job training programs. The "G.1.
Bill" will offer dislocated and low-income workers "skill grants" through which they can
make their own choices about the training they need to find new and better jobs.
Two other Presidential initiatives also deserve mention here.
Welfare reform fits into the over-arching strategy of raising economic growth.
The current welfare system costs taxpayers a great deal of money and actually
discourages work by participants. This Administration wants to work with Congress to
make welfare a temporary safety net only, through time limits and through making work
pay. If we succeed, we will both raise the standard of living of participants and lower the
tax burden on average Americans.
Similarly, health care reform is not only essential to maintaining long-term fiscal
stability, but also important for the take-home wages of the average American. H
employees' health insurance costs keep rising, workers' wages won't. Health care cost
containment will payoff in higher wages as well as in a more stable fiscal environment.
Science and Technology: We know that the rates of return for R&D are high in
the private sector. Industry R&D may have accounted for as much as a quarter of
overall prodUctivity growth in recent decades. Commercial firms cannot reap the entire
rewards of basic research, however, because other firms easily learn and use the
knowledge generated. Despite high rates of return, the private sector does too little
basic research to meet all of society's needs.
Thus, the federal government plays an important role in promoting and investing
in R&D. Federal spending accounts for nearly 40 percent of the nation's R&D
spending. This budget proposes $69.4 billion in 1996 for research and development--an
increase of $3.74 billion in nondefense R&D over 1993.
Through the President's National Science and Technology Council, the
Administration seeks to support the best possible science on a tight budget. The science
9
and technology program pursues advances in health, business, the environment,
information technology, national security, and basic science itself.
In addition, because of the importance of R&E to the nation's economy, we
support the extension of the R&E tax credit on a revenue neutral basis, and we will work
with Congress to pay for it.
Infrastructure: Infrastructure is one area where the government must play an
important role--the private sector could not profitably run many of our nation's roads
and bridges or the treatment plants needed to provide clean water. The budget proposes
$58.8 billion for 1996 for infrastructure investment-up $8.6 billion from 1993.
While infrastructure spending can be among the most effective ways to boost
productivity, projects must be chosen carefully. The Administration proposes to
restructure the Transportation Department, consolidating its infrastructure activities into
a single transportation block grant. Local governments will have more flexibility to
direct resources to areas which best address community needs. Our goal is more and
better infrastructure, at less cost and with less red tape.
Conclusion
In conclusion, let me make three points:
First, you can read the priorities of this Administration in its budget. This
President is committed to raising standards of living for all Americans, and the policy
objectives pursued through the budget--deficit reduction; the middle-class tax cuts; public
investments in workers, in knowledge, and in infrastructure; Reinventing Govemmentare all aimed at attaining that goal.
Second, this budget maintains the ground won in the struggle to reduce the deficit
in 1993. We project that, with the deficit-reduction policies in the budget, the federal
deficit will remain below $200 billion in nine of the next ten years, and will shrink to 1.6
percent of GDP in fiscal 2005. We as a country simply cannot afford to return to the
days of rising, uncontrolled deficits of the 1980s or early 1990s. This budget will keep us
on a sound trajectory that reduces the deficit.
We do this by taking step-by-step reductions in spending programs and in cutting
the size of government itself. Reinventing government not only saves money, but also
makes government efficient. As a result of the Administration's actions to date, we are
reducing the deficit and do not need a balanced budget amendment to enforce' fiscal
discipline. This is the right way to cut the deficit.
.
Third, we take a crucial step toward addressing the economic concerns of working
families by cutting their taxes. Our proposals are targeted to the people who need them
10
the most when they need them the most. These cuts will help families with young
children, people who are paying for education, and those who want to save for the
future.
This budget builds upon what has been achieved. It is the next step in the logical
sequence of policies designed to raise the living standard for all Americans. It reinforces
fiscal restraint. It provides tax relief to millions of Americans who have seen their
incomes stagnate for a generation. And it invests in education, infrastructure, and
technology.
Much has been accomplished in the past two years, but much remains to be done.
I look forward to working with you on a bi-partisan basis to continue moving forward.
11
APPENDIX: OTHER REVENUE PROVISIONS
Additional Empowerment Zones. The Secretary of Housing and Urban Development
would be authorized to designate two urban empowerment zones in addition to the six
urban and three rural zones designated on December 21, 1994. This would have the
effect of extending the empowerment zone tax incentives to these additional areas.
Other current-law limitations, such as those regarding population, size, poverty, and
application requirements, would be applicable to these areas.
Reduce Vaccine Excise Tax. Under current law, a manufacturer's tax is levied on
vaccines used to prevent diphtheria, pertussis, tetanus, measles, mumps, rubella or polio.
These taxes are deposited in the Vaccine Injury Compensation Trust Fund and provide a
source of revenue to compensate individuals who sustain certain injuries or to families of
individuals who die following administration of these vaccines. Because of large balances
in the trust fund, the Administration proposes a reduction in revenues from these taxes.
The decrease will allow continued program compensation while lowering the costs of
vaccines to both public and private purchasers.
Earned Income Tax Credit
EITC denied to undocumented workers. Under this compliance proposal, only
individuals who are authorized to work in the United States would be eligible for the
earned income tax credit (EITe). When claiming the EITC, taxpayers would be
required to provide a valid social security number for themselves, their spouses, and their
qualifying children. Only social security numbers that are valid for employment purposes
in the U.S. would enable the individual to claim the EITC. In addition, the proposal
would m.odify the IRS procedure for processing returns with erroneous or missing
taxpayer identification numbers so as to reduce improperly claimed credits. These
proposals would be effective in 1996.
EITe denied if interest and dividends exceed $2.500. Under current law, an individual
must have earned income in order to be eligible for the EITC. Because the EITe is
designed to benefit low-income workers, the amount of the credit should decrease as the
taxpayer's income increases. A taxpayer with relatively low earned income, however,
may be eligible for the EITe even though he or she has significant interest and dividend
income from investment assets. Under this proposal, taxpayers would not be eligible to
receive the EITC if their combined interest and dividend income for the year exceeds
$2,500. This proposal would be effective in 1996.
12
Tax responsibilities of Americans who renounce citizenship. The proposal would tax the
untaxed gains of U.S. taxpayers who renounce citizenship. The tax would also apply to
aliens who have been lawful permanent residents for at least ten years and then cease to
be subject to U.S. tax. This tax is intended to apply only where very substantial gains are
involved and, thus, an exemption is provided for up to $600,000 of gain. U.S. real estate
and pension assets would also be exempt.
Foreim Trusts. The foreign trust proposal is designed to increase compliance for taxing
two categories of people. First, U.S. persons sometimes transfer their assets to foreign
trusts and rarely pay tax on the trust income. The proposal would impose enhanced
information reporting requirements (with penalties for failure to comply) on U.S. persons
who transfer assets to foreign trusts. The second category of taxpayers are U.S. persons
who are members of wealthy foreign families. Foreign families often establish foreign
trusts for the benefit of U.S. family members. Under current law, the United States
treats such trust assets as owned by the foreign family, and any distribution of income
earned by the trust to the U.S. beneficiary is treated as a nontaxable gift to the U.S.
person. The proposal would tax this trust income.
Extension of Superfund Tax. Four different taxes are imposed under present law to
fund the Hazardous Substance Superfund (Superfund) program including a corporate
environmental income tax equal to 0.12 percent of the amount of modified alternative
minimum taxable income in excess of $2 million, and excise taxes on domestic or
imported crude oil or refined products, certain hazardous chemicals, and certain
imported substances. These taxes are scheduled to expire generally after December 31,
1995. The Administration supports the extension of the corporate environmental income
tax through taxable years beginning before January 1, 2001, and the Superfund excise
taxes through December 31, 2000.
13
Business Investment Has Surged.
Percent - - - - - - - - - - - - - - - - - ,
Real Business Investment in Equipment
as a Percent of GDP
10
0--
9
8
70~
61980 1982 1984 1986 1988 1990 1992 1994
93 Percent of the 5.7 Million New Jobs
Have Been in the Private Sector
Job Growth Since January 1993
Millions - - - - - - - - - - - - - - - - - - - - - ,
!-
6
5-
5.3 Million
4
3
2
0.5 Million
1
0
-0.1 Million
-1
-2
Private Sector
State & Local
Government
Federal Government
Middle Class Incomes Were Stagnant, 1980-93
Change in Average Real Household Income
Percent
20.8%
20
15
10
0-
5
0.6%
o
-5
-10
-2.1 %
-1.0%
~,--------------------------------------------~
Lowest fifth
Second
Third
Fourth
Highest fifth
The Deficit Has Been Cut in Half
as a Share of GDP
Percent - - - - - - - - - - - - - - - - - - - ,
Projected baseline before
1993 deficit reduction package
6
5
------------
4
3
,
2
1
-- -------
-.-~~
~-
------
-~
~~
~
~~
--
-~
~~
-------'"
',-----"-----------Administration's Budget Proposal
1992
1994
1996
Fiscal Years
1998
2000
Spending on Government Programs Is Less
than Taxes for the First Time Since the 1960's
Revenues Minus Program Spending as a Share of GOP
Percent
1.9%
" " " " Ii
o I ,.......... ,
1.00/0
0.60/0
,... .... , -0. 1%
-2.2%
-5
-10 '
-4.4%
-4.9%
-9.0%
,
1962-65 1966-69 1970-73 1974-77 1978-81 1982-85 1986-89 1990-93 1994-95*
Fiscal Years
Tax Cut Targeted
to Middle-Income Families
Family Income
Over $100,000
Family Income
Under $20,000
1%
Family Income
$20,000-$100,000
DEPARTMENT
OF
THE
TREASURY
NEWS
~8~9. . . . . . . . . . . . . ..
................
OmCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220 • (202) 622-2960
For Release Upon Delivery
Expected at 9:00 a.m.
February 7, 1995
ORAL TESTIMONY OF ROBERT E. RUBIN
SECRETARY OF THE TREASURY
BEFORE THE
SENATE BUDGET COMMITTEE
Chairman Domenici, Senator Exon, members of the committee. I'm pleased to
appear before you to present the President's budget in fiscal year 1996. I've been in
office less than a month, but I am doing something not many Treasury Secretaries get to
do: presenting a budget that cuts the deficit cuts taxes, and c~ntinues positioning us for
the long term.
I am also doing something that you'd have to go back 16 Treasury Secretaries to
sometime in the Truman Administration to find: announcing that for three years in a row
-- 1993 through 1995 -- our budget deficit will decline.
O:MB Director Rivlin will testify tomorrow and provide details on the program
side. 1'd like to summarize the longer statement I've submitted for the record.
Every Administration's economic agenda is contained in its proposed budgets.
President Clinton, from the very beginning of this Administration, has had a broad-based
economic strategy to stimulate and then protect the recovery. to position the country for
the long-term, and to increase the incomes of working Americans.
Prior to joining Treasury, I assisted the President in setting our overall policies. I
know how deeply he feels about continuing to move forward on his full economic
strategy: which includes fiscal discipline, boosting both private and public invest:::nent to
increase long-run productivity, opening markets, reforming government and regulation,
and achieving health care and welfare reform.
Our first move was to bring the deficit under control after a long period of large
1
RR-62
and increasing deficits and projections for large and increasing deficits going forward.
Working with Congress, we enacted a powerful deficit reduction program. The result is
that the deficit has come down from $290 billion in 1992 to what we now project as $193
billion this year, and a projected $194 billion for 1998 versus the roughly $400 billion
projected for 1998 on the basis of the last budget numbers released by the prior
Administration. The deficit as a percentage of GDP went from 4.9 percent in 1992 to a
projected 2.7 percent for this year, and a projected 2.1 percent of GDP in 2,000 -- the
last year of the budget period for this budget. Fiscal discipline has been reestablished
after a long period of ballooning deficits, and the deficit has been reduced by more than
one-half (Chart 1), both in absolute terms and as a percentage of GDP.
I worked in financial markets for 26 years, and I have no doubt that our
aggressive deficit reduction program was, in large measure, responsible for the decline in
interest rates in 1993, which in tum was key to jump-starting the economy in 1993.
Deficit reduction also reduced uncertainty about our fiscal future and created confidence
conducive to investment.
We now have a strong investment-led recovery that's creating jobs. Business
investment in equipment has increased dramatically (Chart 2), and as a percent of GDP,
is at an all-time high.
As we've cut the deficit and reduced federal employment, (Chart 3) the economy
has created 5.7 million jobs, 5.3 million in the private sector. At the same time, the
unemployment rate has declined from 7.1 percent to 5.7 percent.
All this investment and employment growth has occurred in an environment of
low inflation -- an absolutely critical objective of this Administration. Even with the
strength of the current recovery, inflation has remained under control. The increase in
the consumer price index has come in under 3.0 percent for each of the last three years.
In the long term, however, the success of our strategy will depend on raising
productivity growth. Productivity growth has been extremely slow for a generation, and
this has contributed to slow growth in workers' incomes.
To make matters worse, slow growth in average wages has been accompanied by
an unequal distribution of income gains (Chart 4). In the past fifteen years, those with
incomes in the lowest fifth of American households have seen their real incomes fall;
those in the top fifth have seen their incomes rise; and the middle has stood still.
The unequal distribution of income gains over the past fifteen years has put very
real pressures on middle-class families. Their standards of living have failed to match
their legitimate expectations. Dealing with this problem is at the heart of the President's
budget and his Middle-Oass Bill of Rights.
2
This budget emphasizes a three part strategy to promote growth and improve
middle-cl~s incomes: 1) maintaining long-term fiscal discipline, 2) providing tax relief
for the Illiddle class, and 3) increasing investment in workers through education and
training.
Maintaining Fiscal Discipline
First, maintaining fiscal discipline. As I've already said, on a ten year basis, we
project that this budget will reduce the budget deficit to 1.6 percent of GDP.
We accomplish these deficit reduction efforts while lowering taxes at the same
time by making substantial cuts in spending.
Our budget cuts come from three areas. Restructuring government saves $26
billion, savings that come largely from five agencies -- in the Departments of
Transportation, Energy, and Housing and Urban Development; the General Services
Administration; and the Office of Personnel Management.
We save another $80 billion by further lowering the discretionary spending caps in
1996 through 1998 and extending them for two years beyond their scheduled expiration
in 1998. The specifics behind these savings are presented in the budget itself.
Thirty-two billion dollars in additional savings come primarily from the mandatory
side of the budget through continuing some existing health care savings, imposing user
fees for the lucrative electro-magnetic spectrum, accelerating student loan savings, and
reducing certain agricultural programs.
Finally, a remaining $5 billion of deficit reduction comes primarily from lower
debt service, as a result of our success in lowering the deficit.
Together our program cuts, projected debt service reductions and other changes
save $144 billion between 1996 and 2000. The President has proposed using $63 billion
of these savings to provide tax relief to middle-income families as part of his MiddleClass Bill of Rights.
While the deficit outlook for the next ten years is projected to be good, eventually
the deficit will tum up. The problems are an increasingly aging population and rapidly
rising health care costs. If we want to maintain fiscal discipline over the long run, we
must reform health care as soon as possible.
Before I leave our deficit discussion, let me make two additional points.
Under President Clinton (Chart 5) -- for the first time since the 1960s -expenditures on government programs are less than the taxes paid by the American
3
people. In other words, our deficit results from t1;te burden of paying interest on the .
debt accumulated primarily by the deficits of the 1980s -- not because we're overspending
today.
The second general point I'd like to make is that I believe the way to achieve
deficit reduction is through deliberate and thoughtful policy choices, not through a
balanced budget amendment that greatly increases macroeconomic risk in our economy
and involves spending cuts that have not been specified at the time the decision on a
balanced budget amendment is made.
Providing Tax Relief for Middle-Income Americans
Let me now turn to the centerpiece of the President's budget. On December 15,
1994 President Clinton announced his "Middle-Class Bill of Rights."
A middle-class tax cut has always been a goal of this President. Many working
American families have lagged behind--even in the last two years, when growth in the
economy has been brisk. Not only do these tax cuts provide immediate relief to
financially strapped middle income families but they also serve an important economic
purpose by helping these families save and invest so that they will become more
productive and enjoy higher future standards of living.
We've targeted this squarely at middle-income families (Chart 6). A ful.l86
percent of the benefits of this tax cut will go to families with incomes between $20,000
and $100,000. The tax cuts involve three proposals:
First, the $500 child credit for children under 13 -- this credit is designed to help
younger families, where economic pressure often tends to be greatest, to better provide
child care, after-school activity, and the other requisites for good child rearing. That is
an investment in children -- the future of our country. This credit, which is nonrefundable, would reduce the federal income tax burden of a typical two-child family
with an income of $50,000 by almost 21 percent, once the credit is fully phased in.
Second, a $10,000 deduction for post-secondary education and training expenses.
This deduction can be used by all members of the family, including spouses and children,
and should better enable middle-income families to obtain the education and skills that
will equip them to function effectively in a modem economy.
Third, expansion of individual retirement accounts. This program will .
substantially increase the availability of individual retirement accounts by raising the
income ceiling to $100,000 for joint filers and to $70,000 for individuals. Moreover, the
flexibility of the individual retirement account has been greatly enhanced: an individual
can either deduct the amount deposited up front, or forego this deduction in favor of taxfree withdrawal of all accumulated earnings after five years. Also an individual may
4
claim penalty-free withdrawals immediately for specified purposes such as education, a
first home, or certain medical expenses.
Also, on the subject of taxes, one of the Administration's priorities is to fully
implement the Internal Revenue Service's Tax Systems Modernization (TSM) plan to
reduce the administrative burden on businesses and individuals and to raise compliance.
Investing for the Future
In addition to the tax incentives in the Middle Class Bill of Rights, the President's
public investment program, critical to future productivity, will focus on what he calls the
"OJ. Bill for America's Workers," a proposal to consolidate and streamline a patchwork
of some 70 job training programs to provide skill grants to lower-income and displaced
workers.
To conclude, this budget is the next step in the logical sequence of policies
designed to raise the living standard for all Americans. It reinforces fiscal restraint.
And it provides tax relief to millions of Americans who have seen their incomes stagnate
over the past 15 years.
Much has been accomplished in the past two years, but much remains to be done.
I welcome the opportunity to work with you on a bi-partisan basis to continue moving
forward.
5
The Deficit Has Been Cut in Half
as a Share of GDP
Percent-------------------------------.
6
5
4
Projected baseline before
1993 deficit reduction package
---------------------------------------
3
,
2
1
---'--'--',------ -------------.
Administration's Budget Proposal
1992
1994
1996
Fiscal Years
1998
2000
Business Investment Has Surged
Percent----------------,
Real Business Investment in Equipment
as a Percent of GDP
10
9
8
7
0
-
61980 1982 1984 1986 1988 1990 1992 1994
93 Percent of the 5.7 Million New Jobs
Have Been in the Private Sector
Job Growth Since January 1993
Millions - - - - - - - - - - - - - - - - - - - ,
6r
5.3 Million
5
4
3
2
0.5 Million
1
0
-0.1 Million
-1
-2
Private Sector
State & Local
Government
Federal Government
Middle Class Incomes Were Stagnant, 1980-93
Change in Average Real Household Income
Percent
20.8%
20
15
10
5
0.6%
o
-5
-2.1 %
-1.0%
-10,L------------------------------------~
Lowest fifth
Second
Third
Fourth
Highest fifth
Spending on Government Programs Is Less
than Taxes for the First Time Since the 1960's
Revenues Minus Program Spending as a Share of GOP
Percent
1.9%
"
"
"
"
II
o I'···· .. ····,
1. 0 %
0.6%
,......... , -0.1 %
-2.2%
-5
-1 0 I
-4.4%
-4.9%
-9. 0%
I
1962-65 1966-69 1970-73 1974-77 1978-81 1982-85 1986-89 1990-93 1994-95*
Fiscal Years
*Fiscal year 1994 and projection for fiscal year 1995.
Tax Cut Targeted
to Middle-Income Families
Family Income
Over $100,000
Family Income
Under $20,000
10/0
Family Income
$20,000-$1 00,000
NEWS
omCE OFPUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622.2960
For Release Upon Delivery
Expected at 10:30 a.m.
February 7. 1995
ORAL TESTIMONY OF ROBERT E. RlJBIN
SECRETARY OF TIIE TREASURY
BEFORE TIlE
COMMITTEE ON WAYS AND :MEANS
UNITED STATES HOUSE OF REPRESEl'4'TATIVES
Chairman Archer, Representative Gibbons, members of the committee, I'm
pleased to appear before you to present the PresIdent's budget in fiscal year 1996. I've
been in office less than a month, but I am doing something not many Treasury
Secrc:aries get to do: presenting a budget that cuts the deficit cuts taxes, and continues
positioning us for the long term.
I am also doing something that you'd have to go back 16 Treasury Secretaries to
sometime in the Truman Administration to find: announcing that for three years in a row
-- 1993 through 19Q5 -- our budget deficit will decline.
O.MB Director Rivlin will testify Thursday and provide details on the program
side. I'd like to summarize the longer statement I've submitted for the record.
Every Ad:ninistration's economic agenda is contained in its proposed budgets.
President Clinton, from the very beginning of this Administration, has had a broad-based
economic strategy to stimulate and then protect the recovery, to position the country for
tile long-term, and to increase the inc(lmes of working Americans.
Prior to joining Treasury, I assisted the President in setting our overall policies. I
know how deeply he feels about continuing to move forward on his full economic
stralegy: which includes fiscal discipline, boosting both pnvate and public investment to
increase long-run productivity, opemng markets, reforming government and regulation.,
and achieving health care and welfare reform .
RF..-63
......
Our first move was to bring the deficit under control after a long period of large
and increasing deficits and projections for large and increasing deficits going forward.
Working with Congress, we enacted a powerful deficit reduction program. The result is
that the deficit has come down from $290 billion in 1992 to what we now project as $193
billion this year, and a projected $194 billion for 1998 versus the roughly $400 billion
projected for 1998 on the basis of the last budget numbers released by the prior
Administration. The deficit as a percentage of GDP went from 4.9 percent in 1992 to a
projected 2.7 percent for this year, and a projected 2.1 percent of GDP in 2,000 -- the
last year of the budget period for this budget. Fiscal discipline has been reestablished
after a long period of ballooning deficits, and the deficit has been reduced by more than
one-half (Chart 1), both in absolute terms and as a percentage of GDP.
I worked in financial markets for 26 years, and I have no doubt that our
aggressive deficit reduction program was, in large measure, responsible for the decline in
interest rates in 1993, which in turn was key to jump-starting the economy in 1993.
Deficit reduction also reduced uncertainty about our fiscal future and created confidence
conducive to investment.
We now have a strong investment-led recovery that's creating jobs. Business
investment in equipment has increased dramatically (Chart 2), and as a percent of GDP,
is at an all-time high.
As we've cut the deficit and reduced federal employment, (Chart 3) the economy
has created 5.7 million jobs, 5.3 million in the private sector. At the same time, the
unemployment rate has declined from 7.1 percent to 5.7 percent.
All this investment and employment growth has occurred in an environment of
low inflation -- an absolutely critical objective of this Administration. Even with the
strength of the current recovery, inflation has remained under control. The increase in
the consumer price index has come in under 3.0 percent for each of the last three years.
In the long term, however, the success of our strategy will depend on raising
productivity growth. Productivity growth has been extremely slow for a generation, and
this has contributed to slow growth in workers' incomes.
To make matters worse, slow growth in average wages has been accompanied by
an unequal distribution of income gains (Chart 4). In the past fifteen years, those with
incomes in the lowest fifth of American households have seen their real incomes fall;
those in the top fifth have seen their incomes rise; and the middle has stood still.
The unequal distribution of income gains over the past fifteen years has put very
real pressures on middle-class families. Their standards of living have failed to match
their legitimate expectations. Dealing with this problem is at the heart of the President'S
budget and his Middle-Oass Bill of Rights.
2
This budget emphasizes a three part strategy to promote growth and improve
middle-class incomes: 1) maintaining long-term fiscal discipline, 2) providing tax relief
for the middle class, and 3) increasing investment in workers through education and
training.
Maintaining Fiscal Discipline
First, maintaining fiscal discipline. As I've already said, on a ten year basis, we
project that this budget will reduce the budget deficit to 1.6 percent of GDP.
We accomplish these deficit reduction efforts while lowering taxes at the same
time by making substantial cuts in spending.
Our budget cuts come from three areas. Restructuring government saves $26
billion, savings that come largely from five agencies -- in the Departments of
Transportation, Energy, and Housing and Urban Development; the General Services
Administration; and the Office of Personnel Management.
We save another $80 billion by further lowering the discretionary spending caps in
1996 through 1998 and extending them for two years beyond their scheduled expiration
in 1998. The specifics behind these savings are presented in the budget itself.
Thirty-two billion dollars in additional savings come primarily from the mandatory
side of the budget through continuing some existing health care savings, imposing user
fees for the lucrative electro-magnetic spectrum, accelerating student loan savings, and
reducing certain agricultural programs.
Finally, a remaining $5 billion of deficit reduction comes primarily from lower
debt service, as a result of our success in lowering the deficit.
Together our program cuts, projected debt service reductions and other changes
save $144 billion between 1996 and 2000. The President has proposed using $63 billion
of these savings to provide tax relief to middle-income families as part of his MiddleClass Bill of Rights.
While the deficit outlook for the next ten years is projected to be good, eventually
the deficit will turn up. The problems are an increasingly aging population and rapidly
rising health care costs. If we want to maintain fiscal discipline over the long run, we
must reform health care as soon as possible.
Before I leave our deficit discussion, let me make two additional points.
Under President Clinton (Chart 5) -- for the first time since the 1960s -expenditures on government programs are less than the taxes paid by the American
3
people. In other words, our deficit results from the burden of paying interest on the .
debt accumulated primarily by the deficits of the 1980s -- not because we're overspending
today.
The second general point I'd like to make is that I believe the way to achieve
deficit reduction is through deliberate and thoughtful policy choices, not through a
balanced budget amendment that greatly increases macroeconomic risk in our economy
and involves spending cuts that have not been specified at the time the decision on a
balanced budget amendment is made.
Providing Tax Relief for Middle-Income Americans
Let me now turn to the centerpiece of the President's budget. On December 15,
1994 President Clinton announced his "Middle-Class Bill of Rights."
A middle-class tax cut has always been a goal of this President. Many working
American families have lagged behind--even in the last two years, when growth in the
economy has been brisk. Not only do these tax cuts provide immediate relief to
financially strapped middle income families but they also serve an important economic
purpose by helping these families save and invest so that they will become more
productive and enjoy higher future standards of living.
We've targeted this squarely at middle-income families (Chart 6). A full 86
percent of the benefits of this tax cut will go to families with incomes between $20,000
and $100,000. The tax cuts involve three proposals:
First, the $500 child credit for children under 13 -- this credit is designed to help
younger families, where economic pressure often tends to be greatest, to better provide
child care, after-school activity, and the other requisites for good child rearing. That is
an investment in children -- the future of our country. This credit, which is nonrefundable, would reduce the federal income tax burden of a typical two-child family
with an income of $50,000 by almost 21 percent, once the credit is fully phased in.
Second, a $10,000 deduction for post-secondary education and training expenses.
This deduction can be used by all members of the family, including spouses and children,
and should better enable middle-income families to obtain the education and skills that
will equip them to function effectively in a modem economy.
Third, expansion of individual retirement accounts. This program will
substantially increase the availability of individual retirement accounts by raising the
income ceiling to $100,000 for joint filers and to $70,000 for individuals. Moreover, the
flexibility of the individual retirement account has been greatly enhanced: an individual
can either deduct the amount deposited up front, or forego this deduction in favor of taxfree withdrawal of all accumulated earnings after five years. Also an individual may
4
claim penalty-free withdrawals immediately for specified purposes such as education, a
first home, or certain medical expenses.
Also, on the subject of taxes, one of the Administration's priorities is to fully
implement the Internal Revenue Service's Tax Systems Modernization (TSM) plan to
reduce the administrative burden on businesses and individuals and to raise compliance.
Investing for the Future
In addition to the tax incentives in the Middle Class Bill of Rights, the President's
public investment program, critical to future productivity, will focus on what he calls the
"G.I. Bill for America's Workers," a proposal to consolidate and streamline a patchwork
of some 70 job training programs to provide skill grants to lower-income and displaced
workers.
To conclude, this budget is the next step in the logical sequence of policies
designed to raise the living standard for all Americans. It reinforces fiscal restraint.
And it provides tax relief to millions of Americans who have seen their incomes stagnate
over the past 15 years.
Much has been accomplished in the past two years, but much remains to be done.
I welcome the opportunity to work with you on a bi-partisan basis to continue moving
forward.
5
The Deficit Has Been Cut in Half
as a Share of GOP
Percent----------------,
Projected baseline before
1993 deficit reduction package
6 .-5
4 .-
--------------
3 .-,
2
1
-----
----~~
~~ ~~
~~~
~~ ~,
"
,
~~
~~
~~
~~
-,---------.
-,- -----------------Administration's Budget Proposal
1992
1994
1996
Fiscal Years
1998
2000
Business Investment Has Surged
Percent - - - - - - - - - - - - - - - . ,
Real Business Investment in Equipment
as a Percent of GOP
10
0
---
9
8
0-
0-
7
61980 1982 1984 1986 1988 1990 1992 1994
93 Percent of the 5.7 Million New Jobs
Have Been in the Private Sector
Job Growth Since January 1993
Millions - - - - - - - - - - - - - - - - - - - ,
6
5
5.3 Million
~-
4
3
2
1
0.5 Million
0-
0
-0.1 Million
-1
-2
Private Sector
State & Local
Government
Federal Government
Middle Class Incomes Were Stagnant, 1980-93
Change in Average Real Household Income
Percent
20.8%
20
15 ,10
5
0--
0-
0.6%
o
-5
-10
-2.1 %
-1 .0%
L .- - - - - - - - - - - - - - - - - - - - - '
Lowest fifth
Second
Third
Fourth
Highest fifth
Spending on Government Programs Is Less
than Taxes for the First Time Since the 1960's
Revenues Minus Program Spending as a Share of GOP
Percent
1.9%
'.'.""".'1
1.0%
0.6%
o I , .........., ,.......... , -0. 1%
-2.2%
-5
-10
-4.9%
I
-9.0%
1962-65 1966-69 1970-73 1974-77 1978-81 1982-85 1986-89 1990-931994-95*
Fiscal Years
Tax Cut Targeted
to Middle-Income Families
Family Income
Over $100,000
13%
Family Income
LJnder $20,000
1%
Family Income
$20,000-$100,000
'IREASURY
"
.~
.
omCE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR RELEASE AT 2:30 P.M.
February 7, 1995
CONTACT:
Office of Financing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $27,600 million, to be issued February 16,
1995.
This offering will provide about $475 million of new cash
for the Treasury, as the maturing bills are outstanding in the
amount of $27,137 million.
Federal Reserve Banks hold $6/729 million of the maturing
bills for their own accounts, which may be re:unded within the
offering amount at the weighted average discount rate of accepted
compe~itlve tenders.
Federal Reserve Banks hold $1,794 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, noces, and
bonds.
Details about each of the new securities are glVen ln the
attached offering highlights.
000
Attachment
RR-64
HIGHLIGHTS OF TREASURY OFFERINGS OF WEEKLY BILLS
TO BE ISSUED FEBRUARY 16, 1995
February 7, 1995
Offering Amount .
$13,800 million
$13,800 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 S2 1
February 13, 1995
February 16, 1995
May 18, 1995
November 17, 1994
$13,888 million
$10,000
$ 1,000
182-day bill
912794 U5 1
February 13, 1995
February 16, 1995
August 17, 1995
February 16, 1995
$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 Standard time
on auction day
Prior to 1:00 p.m. Eastern Standard 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
_fI_R_I_~A_SUR
___Y_~IIIIIII..::z"c....-·~.J_N_....
E_W
___S__
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR RELEASE AT 10:00 A.M.
February 7, 1995
CONTACT:
Office of Financing
202/219-3350
TREASURY TO AUCTION CASH MANAGEMENT BILL
The Treasury will auction approximately $9,000
million of 64-day Treasury cash management bills to be
issued February 15, 1995.
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 interna~ional 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
RR-65
HIGHLIGHTS OF TREASURY OFFERING
OF 64-DAY CASH MANAGEMENT BILL
February 7, 1995
. $9,000 million
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 .
Minimum to hold amount
Multiples to hold
Submission of Bids:
Noncompetitive bids
Competitive bids
(1 )
(2 )
(3 )
64-day Cash Management Bill
912794 R6 3
February 9, 1995
February 15, 1995
April 20, 1995
October 20, 1994
$13,128 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
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 is $2 billion or
greater.
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 11:00 a.m. Eastern Standard
time on auction day
Prior to 11:30 a.m. Eastern Standard
time on auction day
Full payment with tender or by charge
to a funds account at a Federal
Reserve Bank on issue date
February 7, 1995
FOR IMMEDIATE RELEASE
Law Enforcement Training
Awards Ceremony Held in Georgia
The Federal Law Enforcement Training Center (FLETC), a
bureau of the Treasury Department, presented the fourth annual
Awards of Excellence in Law Enforcement Training today.
The
ceremony was held in the FLETC's Glynco, Georgia, Auditorium.
Presenting the awards was Under Secretary of the Treasury Ronald
K. Noble.
The FLETC has established these national awards to recognize
individuals and organizations who have made significant
contributions in the profession of law enforcement training, to
underscore the critical role law enforcement training plays in
our national efforts to protect citizens from violent crimes, to
combat the spread of drugs, and to apprehend criminals.
- more For further information,
contact Peggy D. Dixon
(912) 230-2447
2
The recipient of the Individual Achievement Award was James
M. Kuboviak, county Attorney for Brazos County, Texas.
He was
instrumental in the development of procedures and training which
resulted in the successful use of mobile video cameras in police
vehicles to prosecute criminal cases.
The Lifetime Achievement Award was presented to Noreen M.
Grella, Senior social Services Supervisor for Orange County,
California.
She was honored for pioneering the use of children's
drawings as a reliable investigative technique and for a
sustained 20-year teaching career in the areas of Psycho-dynamics
of Child Abuse and Child Abuse Investigation Techniques.
The FLETC is an interagency training center serving 70
Federal law enforcement organizations.
The FLETC provides basic
and advanced training programs to police and investigative
personnel, and assists its participating organizations in
conducting agency specific training programs.
Last year, more
than 21,000 students were trained at the FLETC, either at its
headquarters at Glynco, Georgia, or at one of its satellite
training centers in Arizona or New Mexico.
(Bioqraphy sheets for the two award recipients are attached)
-fletc-
Noreen M. Grella
Senior Social Services Supervisor
Orange County, California
and
Lecturer
Delinquency Control Institute
University of Southern California
In 1983, Ms. Grella designed, implemented, and continues to
manage a child abuse treatment program that focuses on the
parallel treatment of all persons in the social group close to
the victim. As a lecturer at USC for more than 20 years, she has
taught over 200 course presentations on "Psycho-dynamics of Child
Abuse" and "Child Abuse Investigation Techniques". Besides her
teaching assignment at USC, she also holds a part time faculty
position at the California state University in Fullerton where
she teaches "Juvenile Justice Administration". She also
maintains a private practice as a licensed clinical social worker
providing treatment for victims of sexual and child abuse.
Ms. Grella holds a Master of Social Work degree from the
University of Pennsylvania. Her achievements during more than 20
years as an expert in the area of child abuse investigation and
prevention has earned her many awards from regional and national
associations, such as the County of Riverside and the County of
Orange Child Abuse Councils; the California Sexual Assault Crimes
Investigators Association; the National Association of County
Governments; and the National Exchange Club. She lectures for
State and local police academies in more than 20 states and the
F.B.I. National Academy and to police officers from more than 50
countries.
Ms. Grella pioneered the use of children's drawings as a
reliable investigative technique for law enforcement. Her
innovative approach provides a comfortable means of communicating
with the victimized child and the law enforcement investigator
and are used in her classes to recognize and interpret
investigative clues and case evidence.
Ms. Grella has an outstanding reputation among her students,
peer faculty and program administration, as well as law
enforcement 'as an elite lecturer and infinite source of advice
and information in the field of child abuse. She is well
perceived as an impartial court witness with unparalleled
expertise in the field of child abuse.
Ms. Grella is the recipient of the Individual Achievement Lifetime Award.
James M. Kuboviak
County Attorney
Brazos County, Texas
~s t~e County ~ttorney
Kubov~ak ~s respons~ble for
for Brazos County, Texas, Mr.
investigating offenses against the
laws of the state of Texas. In the course of his career he has
been a police officer in both Texas and Mississippi.
'
He received a B.S. in Criminal Justice from Sam Houston
State University in 1968. In 1974 he was awarded a M.S.S. in
Sociology and in 1976 a Master in criminal Justice from the
University of Mississippi. He earned his Law Degree in 1981 from
st. Mary's University and is a Doctorate Candidate at Texas A&M.
He worked as a police legal advisor with the San Antonio
Police Department while completing his law degree and then worked
as an Assistant District Attorney in the Brazos County District
Attorney's Office, leaving as First Assistant. He was then
elected and has served three terms as Brazos County Attorney.
He has written over 20 articles on "Mobile Videotaping" and
conducted training for prosecutors and police in 11 states. He
received the National Commission Against Drunk Drivers Initiative
Award in 1990; the National Highway Traffic Safety
Administration's 1993 Administrator Program of Excellence Award;
and the Texas Department of Public Safety's Directors Award.
Mr. Kuboviak developed a process to use video cameras
installed in police vehicles to gather evidence which is used in
prosecuting criminal cases. Although the program was initially
begun to assist in prosecuting driving while intoxicated cases,
it has expanded into other areas. A video camera installed under
his directions was used to assist in a guilty verdict for the
capital murder of a police officer and a guilty verdict for
aggravated assault on a police officer.
His contributions in this area have significantly reduced
the time spent in court by officers because of this overwhelming
evidence and has greatly enhanced the safety of police officers
by the very presence of this "eye-witness".
Mr. Kuboviak is the recipient of the Individual Achievement
- Special Act Award.
UBLIC DEBT NEWS
Departlllcnt of the Treasury
•
Bureau of the Public Debt • Washington, DC 20239
J,
FOR IMMEDIATE RELEASE
February 7, 1995
!2,:~,
-;:'(
"
~,"
.
r
'", (;
CONTACT: Office of Financing
t j J j
202-219-3350
~I "J U lj
RESULTS OF TREASURY'S AUCTION OF 3-YEAR NOTES
Tenders for $17,123 million of J-year notes, Series W-1998,
to be issued February IS, 1995 and to mature February IS, 1998
were accepted today (CUSIP: 912827S78).
0:
The interest rate on the notes will be 7 1/4%. The range
accepted bids and corresponding prices are as follows:
Low
High
Average
Yield
7.30%
7.34%
7.34%
Price
99.867
99.762
99.762
$10,000 was accepted at lower yields.
at the high yield were allotted 93%.
~enjers
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$46,880,400
Accepted
$17,122,643
The $17,123 million of accepted tenders includes $1,570
million of noncompetitive tenders and $15,553 million of
compet~tive tenders from the public.
In addition, $699 million of tenders was awarded at the
average price to Federal Reserve Banks as agents for foreign and
international monetary authorities.
An additional $3,031 million
of cenders was also accepted at the average price from Federal
Reserve Banks for their own account in exchange for maturing
securities.
RR-67
OFFICE OF PUBUC AFFAIRS. 1500 PENNSYLVANIAAVENUE, N.W .• WASHINGTON, D.C .• 20220. (202) 622-2960
For Release Upon Delivery
Expected at 9:30 a.m.
February 8, 1995
STATEMENT OF ROBERT E. RUBIN
SECRETARY OF THE TREASI)RY
BEFORE THE SENATE FINANCE COMMI'ITEE
Mr. Chairman and Members of the Committee:
I am pleased to appear before you today to present the President's proposed
Budget for the 1996 Fiscal Year. I've been in office less than a month, but I am doing
something not many Treasury Secretaries get to do: presenting a budget that cuts the
deficit and cuts taxes. I am also doing something that you would bave to go back 16
Treasury Secretaries to sometime in the Truman Administration to find: announcing that
our budget deficit will decline for three years in a row.
Every Administration's agenda is contained in its proposed budgets. President
Clinton, from the beginning of this Administration, has bad a broad-based economic
strategy to stimulate and then protect the recovery, to position the country for the longterm, and to increase the incomes of working Americans.
Prior to joining Treasury, I assisted the President in setting our overall policies. I
know how deeply he feels about continuing to move forward on his full economic
strategy, whicb includes fiscal discipline, boosting both private and public investment to
increase long-run productivity, opening markets, reforming government and regulation,
and achieving health care and welfare reform.
This morning, I would like to summarize briefly what we have achieved, where we
are now, and where we are beaded, with special attention to the President's proposed
Middle-Class Bill of Rights.
1
RR -
68
What Have We Achieved to Date?
When the President came into office, the economy may have been in recovery,
but the recovery was weak and uncertain. Employment growth, in particular, had lagged
far behind normal expectations. Large federal budget deficits, which were increasing
rapidly as a percent of GDP even as the economy was recovering, created an unstable
economic environment. Escalating structural deficits were a clear signal that the chances
of an eventual severe financial crisis were on the rise. Prudent business people were
reluctant to hire or to invest in this unstable environment. As a result, Americans were
experiencing a jobless recovery.
Thus, the first necessary economic move was to bring the deficit under control.
Working with Congress, we enacted a powerful deficit reduction program. The $505
billion deficit reduction package was achieved largely through spending cuts of $255
billion over five years, including freezing discretionary spending at 1993 levels, and
raising income tax rates on only the 1.2 percent of Americans with highest incomes.
We also introduced plans to reduce the size of government. The President's
Reinventing Government initiative called for reducing the federal work force by 272,900
over five years, bringing government employment back to levels not seen since John
Kennedy was President.
At the same time that we were cutting spending and government employment, we
were able to reduce taxes for millions of lower- and moderate-income working
individuals and families, and to offer tax relief for small businesses.
The net effect of our plan was to bring the deficit down: from $290 billion in 1992
to what we now project as $193 billion this year, the deficit as a share of GDP went from
4.9 percent in 1992 to a projected 2.7 percent for 1995.
I worked in financial markets for 26 years, and I have no doubt that our
aggressive deficit reduction program was, in large measure, responsible for the decline in
interest rates which in turn was key to jump-starting the economy in 1993. Deficit
reduction also reduced uncertainty about our fiscal future and restored confidence
conducive to investment.
In addition to addressing the deficit problem, we also made sure that American
businesses had access to the credit they needed. When President Clinton took office,
s~all- and medium-sized businesses were facing a "credit crunch." In response, President
Clinton announced a program of regulatory and administrative changes to reduce
impediments and increase the availability of credit.
The combination of these policies, a sound fiscal environment and increased
availability of credit, has paid off. We now have a strong investment-led recovery that is
2
creating jobs. The first chart at the end of this statement shows that business investment
in equipment has increased dramatically under the Clinton Administration. As a percent
of real GDP, business equipment investment is at an all~time high.
Most important, as we have cut the deficit and reduced federal employment, the
econo.m~ has created 5.7 million jobs, putting an end to the jobless recovery. Note that
5.3 million, or 93 percent, of these jobs were created in the private~sector (see attached
chart). At the same time, the unemployment rate has declined from 7.1 percent to 5.7
percent. Some say that all these new jobs are in low~paying industries, but that view is
incorrect. Over the past year, the number of jobs in construction, which pays 30 percent
more than the average wage, has surged by some 325,000. The decline in manufacturing
jobs has turned around: factory employment is up 290,000. The high~paying wholesale
trade and transportation and public utilities industries provided an additional 295,000
jobs.
All this investment and employment growth has occurred in an environment of
low inflation~~an absolutely critical objective of this Administration. Even with the
strength of the current recovery, inflation has remained under control. The increase in
the consumer price index has come in under 3.0 percent for each of the last three years.
We see virtually no evidence of cost-push inflation pressure from wages. Growth of the
employment cost index--the most reliable measure of labor costs--was lower in 1994 than
it had been in 1993.
We have also established the basis for growth of future wages and living standards
through oUI trade liberalization policies. We worked hard to enact NAFTA and GAIT
because we believe American workers will benefit. In an increasingly integrated world,
we are going to have to look outward rather than inward if we are going to stay on top.
Moreover, jobs in export industries are more productive than average and pay about 10
to 20 percent more than average. That means shifting the composition of GDP toward
more exports automatically shifts the economy toward better paying jobs.
Where Are We Now?
As successful as economic performance has been in the last two years, getting the
economy moving and creating jobs in the short term was only part of the challenge. In
the longer run, the key test of this Administration will be whether it has succeeded in
raising prodUctivity growth--because that is the only way to create higher wages and
higher standards of living.
I want to emphasize that productivity growth is not an academic abstraction. In
the final analysis, increases in workers' incomes cannot be sustained without increases in
productivity-in the amount produced per hour worked. Productivity growth has been
extremely slow over the past twenty years. And slow productivity growth has meant slow
growth in workers' incomes.
3
This slow growth in average wages has been accompanied by an unequal
distribution of income gains. As you can see from the attached chart, in the past fifteen
years, those with incomes in the lowest fifth of American households have seen their real
incomes fall below the levels attained by their counterparts in 1980; those in the top fifth
have seen their incomes rise by 21 percent; and the middle has stood still.
The unequal distribution of income gains over the past fifteen years has put very
real pressures on middle-class families. Their standards of living have failed to match
their legitimate expectations. Dealing with this problem is at the heart of the President's
budget and his Middle-Class Bill of Rights.
Where Do We Go from Here?
This budget emphasizes a three part strategy to promote growth and improve
middle-class incomes: 1) maintaining long-term fiscal discipline, 2) providing tax relief
for the middle class, and 3) increasing investment in workers through education and
training, as well as in machines and buildings. This is the approach that the President
has outlined in his budget.
Maintaining Fiscal Discipline
This Administration fought hard to break the back of the cycle of ever-increasing
deficits. But it is not enough to reduce the deficit for three years in a row. We are
concerned both about the pattern of projected deficits over the next five years and also
about the pattern after the turn of the century.
For the next five years, this budget maintains the progress on deficit reduction
made in OBRA '93. As I said earlier, our projections show the budget deficit dropping
in 1995 for the third straight year, this time to $193 billion. After 1995, the deficit,
measured in dollar terms, fluctuates in a narrow range before falling back to $194 billion
in 2000.
More important than stabilizing the deficit in dollar terms is reducing the deficit
as a share of GDP. Between 1995 and 2000, the deficit-to-GDP ratio falls from 2.7
percent to 2.1 percent. We haven't seen numbers in that range since 1979.
Further, the attached chart shows that the deficit as a share of GOP has been cut
in hal! from what. was projected before passage of the 1993 deficit reduction package,
fuJfilhng the Presldent's promise.
This year, we continue our deficit reduction efforts and lower taxes by making
substantial cuts in spending. ~u?get cuts come from three areas. Restructuring
government saves about $26 billion. Most of that $26 billion is the result of fundamental
changes in five agencies-the Departments of Transportation (DOT), Energy (DOE), and
4
Housing and Urban Development (HUD), the General Services Administration (GSA),
and the Office of Personnel Management (OPM). Additional efforts are aimed at
terminating certain agencies and programs and restructuring others. In addition, we
propose to tum over to the private sector or to state governments activities that they are
well positioned to carry out themselves.
We have already had real success in this area. The President's reinventing
government initiative has already reduced the federal work force by 102,500 positions.
Currently, the federal work force as a share of total employment is at its lowest point
since the 1930's. In addition, Congress has enacted $63 billion of the $108 billion in
reinventing government savings proposed by the Administration. The goal is to make
government even smaller and to make it work better for all Americans.
In addition, further lowering of discretionary spending caps from 1996 through
1998 and extending them for two years beyond their scheduled expiration in 1998
produces an additional $80 billion in savings. The budget contains specific proposals to
achieve these savings. The net result of extending the caps and making the cuts will be
to keep discretionary spending virtually constant in nominal dollars from 1996 through
2000.
Finally, $32 billion in savings comes primarily from the mandatory side of the
budget through continuing some existing health care savings, imposing user fees for the
lucrative electro-magnetic spectrum, accelerating student loan savings, and reducing
certain agricultural programs. The remaining $5 billion of deficit reduction comes
primarily from lower debt service, as a result of our success in lowering the deficit.
Together, our program cuts and projected debt service reductions save $144
billion between 1996 and 2000. The President has proposed using $63 billion of these
savings to provide tax relief to middle-income families as part of his Middle-Class Bill of
Rights. The remaining $81 billion is for deficit reduction.
If our proposed policies are continued beyond the year 2000, we now project that
the fiscal year 2005 deficit will be only 1.6 percent of GDP. This good news comes from
two developments. First, for the ten-year period from fiscal year 1995 to fiscal year
2005, the President's budget proposals produce substantial deficit reduction. Second, our
new budget baseline projects lower spending for Medicare and Medicaid, based on the
latest growth rate estimates from the actuaries at the Health Care Financing
Administration.
Administration estimates of deficits in the out-years are noticeably lower than
estimates that have been recently produced by the Congressional Budget Office. There
are several reasons for this.
First, CBO's baseline, by convention, does not include any deficit reduction
5
proposals. The President's budget proposes substantial deficit reduction over the next
ten years.
Second, the Administration's baseline estimates include recent revisions to
projected costs of Federal health care programs made by the actuaries at the Health
Care Financing Administration. I do not believe that the latest CBO estimates
incorporate the full revisions from the actuaries.
Third, over the long term, the Administration has a slightly more optimistic rate
of growth for productivity-by one or two tenths of one-percent--than does CBO. By
2005, even very small differences in projected growth rates materially affect deficit
projections.
In other words, there are straightforward explanations of the differences between
our numbers and CBO's, and we are very comfortable with all our projections.
While we are confident that the deficit outlook for the next ten years is good, all
observers agree that the deficit will eventually turn upward. The problems are an
increasingly aging population and rapidly rising health care costs. We cannot do
anything about the projected demographic shifts, but we need to do something about
health care as soon as possible. IT we want to maintain fiscal discipline over the long
run, we must reform health care.
Before we leave our deficit discussion, let me make two additional points. First,
let me refer you to an enlightening chart. This chart shows the difference between
program expenditures and revenues for the Clinton Administration and for each of the
last eight Administrations. Under President Clinton-for the first time since the 19605-expenditures on government programs are less than the taxes paid by the American
people. We have a deficit solely because of the burden of paying interest on the debt
run up largely as a result of the deficits of the 1980s-not because we're overspending
today.
The second general point r d like to make is that I believe the way to achieve
deficit reduction is through deliberate and thoughtful policy choices, not through a
balanced budget amendment that greatly increases macroeconomic risk in our economy
and involves spending cuts that have not been specified at the time the decision on a
balanced budget amendment is made.
6
Providing Tax Relief for Middle-Income Americans
Let. me nov: turn to the centerpiece of the President's budget. On December 15,
1994, PresIdent Clinton announced in an Oval Office address his "Middle-Class Bill of
Rights." A major piece of his initiative is providing tax relief for middle-income families.
A middle-class tax cut has always been a goal of this Admjnistration. In 1993,
however, the Admjnistration faced a deficit crisis larger than had been predicted at the
start of 1992. Bringing the deficit under control, and directing tax relief to lower and
moderate income Americans were our first priorities.
Due to strong, effective leadership and tough choices, the deficit reduction
program has been even more of a success than expected. However, incomes of many
working American families have lagged behind--even in the last two years, when growth
in the economy has been brisk.
The President's tax cuts will not only provide immediate relief to financiallystrapped middle-income families but also will help these families save and invest so that
they will become more productive and enjoy higher future standards of living. Individual
tax relief coupled with savings and investment will boost American productivity,
providing the foundation for sustained increases in real incomes.
The Administration's tax cut is targeted squarely at middle-income families. The
attached chart illustrates that a full 86 percent of the benefits of this tax cut will go to
families with incomes between $20,000 and $100,000.
The tax cuts in the President's Middle-Class Bill of Rights have three elements,
aimed at strengthening families, promoting education, and encouraging savings.
$500 Child Tax Credit: This credit is designed to help younger families, where
economic pressure often tends to be greatest, to better provide child care, after-school
activity, and the other requisites for good child rearing. This is an investment in
children--the future of our country. A $500 (when fully phased in) non-refundable credit
will be allowed for each dependent child under 13. Between 1996 and 1998, the
maximum credit would be $300. This credit would reduce the federal income tax burden
of a typical two-child family with an income of $50,000 by 21 percent. The credit will be
phased out for taxpayers with initial Adjusted Gross Incomes (AGI) between $60,000 and
$75,000. No credit will be available to taxpayers with AGI in excess of $75,000.
Deduction for Post-Secondary Education Expenses: This deduction can be used
for education and training expenses for all members of the family, including spouses and
children, and should better enable middle-income families to obtain the education and
skills that will equip them to function effectively in a modem economy. This deduction
is used in determining a taxpayers AGI (that is, taken above the line) and is, therefore,
7
available to those who do not itemize their deductions as well as to those who do
itemize. The maximum allowable deduction would be phased out ratably for taxpayers
filing a joint filers with AGI (before the deduction) between $100,000 and $120,000
($70,000-$90,000 for individuals). The maximum deduction would be $5,000 in 19961998 and $10,000 thereafter.
lIDs proposed tax deduction of up to $10,000 in tuition and fees can be taken for
study at any college, university, or vocational program eligible for federal assistance.
Expansion of Individual Retirement Accounts: This program will substantially
increase the availability of individual retirement accounts by raising the income ceiling to
$100,000 for joint filers and to $70,000 for individuals. Today, only couples with AGI up
to $40,000 and individuals with AGI up to $25,000 can make fully deductible
contributions. Moreover, the flexibility of the individual retirement account has been
greatly enhanced: an individual can either deduct the amount deposited up front, or
forego this deduction in favor of tax-free withdrawal of all accumulated earnings after
five years. The President'S proposal would allow penalty-free withdrawals immediately
for specified purposes such as education, first homes, long-term unemployment, or
certain medical expenses.
Other Revenue Proposals
In addition to the President's proposed middle-class tax cuts, the budget contains
certain other provisions that affect revenues. An Appendix to my testimony provides
further details. But let me note that we are proposing two additional empowerment
zones, thus enlarging empowerment zone tax incentives; reducing a tax on vaccine
manufacturers; denying the Earned Income Tax Credit (EITC) to undocumented
workers, and to those with significant unearned income; changing the tax treatment of
those who renounce their citizenship or use foreign trusts to shelter income; and
supporting the extension of the taxes that finance the "Superfund" that cleans up
hazardous waste sites.
Also, on the subject of taxes, one of the Administration's priorities is to fully
implement the Internal Revenue Service's Tax Systems Modernization (TSM) plan to
reduce the administrative burden on businesses and individuals and to raise compliance.
Investing for the Future
Fiscal discipline and middle class tax relief are necessary elements of any coherent
economic strategy. Yet, by themselves, they are not enough to ensure higher standards
of living for all Americans.
Additional investment in the skills and capabilities of America's workers and in
physical capital have always been an integral part of the President's agenda. Today's
8
investments will translate into stronger productivity growth and higher living standards
for years to come. Boosting public investment is an important step towards a rising
standard of living for all Americans.
Let me focus on three areas: investment in human capital; investment in science
and technology; and investment in infrastructure.
Human Capital: The President has consistently emphasized the importance of
"lifelong learning" in an economy which favors the highest skilled workers. The budget
proposes $47.3 billion in 1996 for investment in education and training. This represents
a $5.4 billion increase, or 13 percent, over 1993 levels. Working with Congress, the
Admjnistration has already launched legislation from expansion of the Head Start
program to cutting the cost of higher-education loans for students.
This year, the President will focus on better opportunities for adults already in the
work force. The President's proposal--the "G.I. Bill for America's Workers"--will
consolidate and streamline a patchwork of some 70 job training programs. The "G.I.
Bill" will offer dislocated and low-income workers "skill grants" through which they can
make their own choices about the training they need to find new and better jobs.
Two other Presidential initiatives also deserve mention here.
Welfare reform fits into the over-arching strategy of raising economic growth.
The current welfare system costs taxpayers a great deal of money and actually
discourages work by participants. This Administration wants to work with Congress to
make welfare a temporary safety net only, through time limits and through making work
pay. If we succeed, we will both raise the standard of living of participants and lower the
tax burden on average Americans.
Similarly, health care reform is not only essential to maintaining long-term fiscal
stability, but also important for the take-home wages of the average American. IT
employees' health insurance costs keep rising, workers' wages won't. Health care cost
containment will payoff in higher wages as well as in a more stable fiscal environment.
Science and Technology: We know that the rates of return for R&D are high in
the private sector. Industry R&D may have accounted for as much as a quarter of
overall productivity growth in recent decades. Commercial firms cannot reap the entire
rewards of basic research, however, because other firms easily learn and use the
knowledge generated. Despite high rates of re~ the private sector does too little
basic research to meet all of society's needs.
Thus, the federal government plays an important role in promoting and investing
in R&D. Federal spending accounts for nearly 40 percent of the nation's R&D
spending. 1bis budget proposes $69.4 billion in 1996 for research and development--an
9
increase of $3.74 billion in nondefense R&D over 1993.
Through the President's National Science and Technology Council, the
Administration seeks to support the best possible science on a tight budget. The science
and technology program pursues advances in health, business, the environment,
information technology, national security, and basic science itself.
In addition, because of the importance of R&E to the nation's economy, we
support the extension of the R&E tax credit on a revenue neutral basis, and we will work
with Congress to pay for it.
Infrastructure: Infrastructure is one area where the government must play an
important role-the private sector could not profitably run many of our nation's roads
and bridges or the treatment plants needed to provide clean water. The budget proposes
$58.8 billion for 1996 for infrastructure investment--up $8.6 billion from 1993.
While infrastructure spending can be among the most effective ways to boost
productivity, projects must be chosen carefully. The Administration proposes to
restructure the Transportation Department, consolidating its infrastructure activities into
a single transportation block grant. Local governments will have more flexibility to
direct resources to areas which best address community needs. Our goal is more and
better infrastructure, at less cost and with less red tape.
Comments on Contract With America
You asked me to comment on the Contract with America, so let me do that now.
One of our primary concerns with the tax cuts in the Contract is their potential effect on
the deficit.
We have prepared preliminary revenue estimates of the tax provisions in the
Contract based on the bills introduced on January 4, 1995. These preliminary revenue
estimates show that the tax cuts proposed in the Contract would lose $205.4 billion over
the period FY1995 - FY2000. The revenue cost grows rapidly after FY2000, to nearly
$120 billion per year in FY2005, raising the FY1995 - FY2005 revenue cost to $725.5
billion. Joint Tax Committee estimates published on Monday are similar to ours.
Although the Contract proposes a balanced budget amendment, it does not
contain specific proposals for expenditure reductions or tax changes necessary to achieve
that balance. Nor does it offset the proposed tax cuts or pay for other provisions, such
as increased defense expenditures, that would further increase the deficit. Thus, the tax
provisions in the Contract would increase the deficit unless they are fully and
permanently offset by specific financing proposals.
Moreover, several of the proposals of the Contract, particularly the indexing of
10
de~reciation deductions and the capital gains indexing proposals, could create very
senous problems. We predict that if these provisions are enacted, our nation will
experience the equivalent of the tax shelter days of the 1980s. Most of the obvious
opportunities in the Contract arise from the fact that assets would be indexed while debt
would not. Put simply, artificial tax deductions will be created with little or n~ out-ofpocket cost. We expect that these abuses will be widely marketed and could
substantially reduce any tax on capital gains. Also, these indexing proposals will create
significant complexity for taxpayers and the Government.
Conclusion
In conclusion, let me make three points:
First, you can read the priorities of this Administration in its budget. 1bis
President is committed to raising standards of living for all Americans, and the policy
objectives pursued through the budget--deficit reduction; the middle-class tax cuts; public
investments in workers, in knowledge, and in infrastructure; Reinventing Government-are all aimed at attaining that goal.
Second, this budget maintains the ground won in the struggle to reduce the deficit
in 1993. We project that, with the deficit-reduction policies in the budget, the federal
deficit will remain below $200 billion in nine of the next ten years, and will shrink to 1.6
percent of GDP in fiscal 2005. We as a country simply cannot afford to return to the
days of rising, uncontrolled deficits of the 1980s or early 1990s. This budget will keep us
on a sound trajectory that reduces the deficit.
We do this by taking step-by-step reductions in spending programs and in cutting
the size of government itself. Reinventing government not only saves money, but also
makes government efficient. As a result of the Administration's actions to date, we are
reducing the deficit and do not need a balanced budget amendment to enforce fiscal
discipline. This is the right way to cut the deficit.
Third, we take a crucial step toward addressing the economic concerns of working
families by cutting their taxes. Our proposals are targeted to the people who need them
the most when they need them the most. These cuts will help families with young
children, people who are paying for education, and those who want to save for the
future.
This budget builds upon what has been achieved. It is the next. step in the. logical
sequence of policies designed to raise the living standard for all Amencans. It re.inforces
fiscal restraint. It provides tax relief to millions of Americans who have seen therr
incomes stagnate for a generation. And it invests in education, infrastructure, and
technology.
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Much has been accomplished in the past two years, but much remains to be done.
I look forward to working with you on a bi-partisan basis to continue moving forward.
12
APPENDIX: OTHER REVENUE PROVISIONS
Additional Empowerment Zones. The Secretary of Housing and Urban Development
would be authorized to designate two urban empowerment zones in addition to the six
urban and three rural zones designated on December 21, 1994. This would have the
effect of extending the empowerment zone tax incentives to these additional areas.
Other current-law limitations, such as those regarding population, size, poverty, and
application requirements, would be applicable to these areas.
Reduce Vaccine Excise Tax. Under current law, a manufacturer's tax is levied on
vaccines used to prevent diphtheria, pertussis, tetanus, measles, mumps, rubella or polio.
These taxes are deposited in the Vaccine Injury Compensation Trust Fund and provide a
source of revenue to compensate individuals who sustain certain injuries or to families of
individuals who die following administration of these vaccines. Because of large balances
in the trust fund, the Administration proposes a reduction in revenues from these taxes.
The decrease will allow continued program compensation while lowering the costs of
vaccines to both public and private purchasers.
Earned Income Tax Credit
EITC denied to undocumented workers. Under this compliance proposal, only
individuals who are authorized to work in the United States would be eligible for the
earned income tax credit (EITC). When claiming the EITC, taxpayers would be
required to provide a valid social security number for themselves, their spouses, and their
qualifying children. Only social security numbers that are valid for employment purposes
in the U.S. would enable the individual to claim the EITe. In addition, the proposal
would modify the IRS procedure for processing returns with erroneous or missing
taxpayer identification numbers so as to reduce improperly claimed credits. These
proposals would be effective in 1996.
EITC denied if interest and dividends exceed $2.500. Under current law, an individual
must have earned income in order to be eligible for the EITe. Because the EITC is
designed to benefit low-income workers, the amount of the credit should decrease as the
taxpayer's income increases. A taxpayer with relatively lo~ ~arned ~come, howe~e.r,
may be eligible for the EITC even though he or she has SIgnificant mterest and diVIdend
income from investment assets. Under this propos~ taxpayers would not be eligible to
receive the EITC if their combined interest and dividend income for the year exceeds
$2,500. This proposal would be effective in 1996.
13
Tax responsibilities of Americans who renounce citizenship. The proposal would tax the
untaxed gains of U.S. taxpayers who renounce citizenship. The tax would also apply to
aliens who have been lawful permanent residents for at least ten years and then cease to
be subject to U.S. tax. This tax is intended to apply only where very substantial gains are
involved and, thus, an exemption is provided for up to $600,000 of gain. U.S. real estate
and pension assets would also be exempt.
Foreiaw Trusts. The foreign trust proposal is designed to increase compliance for taxing
two categories of people. First, U.S. persons sometimes transfer their assets to foreign
trusts and rarely pay tax on the trust income. The proposal would impose enhanced
information reporting requirements (with penalties for failure to comply) on U.S. persons
who transfer assets to foreign trusts. The second category of taxpayers are U.S. persons
who are members of wealthy foreign families. Foreign fami
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