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Treas.
HJ
10
.A13
P4
v.366
Department of the Treasury
PRESS RELEASES
The following numbers were not used:
1753, 1785, and 1786
PUBLIC DEBT NEWS
Department of the Treasury· Bureau of the Public Debt· Washington, DC 20239
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
Contact: Peter Hollenbach
(202) 219-3302
FOR IMMEDIATE RELEASE
May 1, 1997
BUREAU OF THE PUBLIC DEBT ANNOUNCES SERIES EE SAVINGS BOND RATE
FOR MAY THROUGH OCTOBER 1997
The Bureau of the Public Debt announced today the rate for Series EE savings bonds issued on or after May 1, 1997.
NEW SERIES EE SAVINGS BOND RATE -5.68%
The 5.68 percent Series EE savings bond rate is in effect for bonds issued on or after May 1, 1997, that enter
semiannual earnings periods from May through October 1997. The rate is 90 percent of the average 5-year Treasury
securities yields for the preceding six months. A new interest rate is announced each May 1 and November 1.
A 3-month interest penalty is applied to these bonds if redeemed before five years. New Series EE bonds increase in
value monthly. The bond's interest rate is compounded semiannually.
SERIES EE BONDS ISSUED BEFORE MAY 1997
The 4.63 percent Short-Term Series EE savings bond rate is in effect for bonds issued from May 1995 through April
1997 for bonds that enter semiannual earnings periods from May through October 1997. See the table on the back of
this release for earnings on Series EE bonds issued from January 1980.
MATURED SERIES E SA VfNGS BONDS AND SAVINGS NOTES
Series E savings bonds and Savings Notes continue to reach final maturity and stop earning interest. Bonds issued
from May 1941 through April 1957, along with those issued from December 1965 through April 1967, have stopped
earning interest. Savings Notes, issued from May 1967 through October 1970, are reaching the end of their 30-year
interest earning life. Bonds and Notes with issues dates shown here will reach final maturity in the next six months.
Bonds !Notes Stop Earning Interest
May 1997 through October 1997
May 1997 through October 1997
Bond!Note Issue Dates
May 1957 through October 1957
May 1967 through October 1967
MORE fNFORMA TION
The latest United States Savings BondslNotes Earnings Report and other useful information about savings bonds is
available at Public Debt's Internet Home Page (HTTP:/www.publicdebureas.gov).DownloadtheSavingsBond
Wizard ™ an easy to use program that lets you keep track of your savings bonds and value your portfolio. The table
on the back of this bulletin shows actual yields for Series EE bonds. The Earnings Report, which contains rate and
yield information for Series E&EE bonds and Savings Notes, is also available by mail from Public Debt. Send a
postcard asking for "Earnings Report" to Bureau of the Public Debt 200 Third Street, Parkersburg, WV 26106-1328.
000
PA-264
RR-1664
$100 SERIES EE BONDS - MAY 1997 THROUGH APRll ~
This table shows semiannual values for $100 Senes EE Bonds·. Values for other denominations are proportional to the values
shown For example. the value of a $50 bond IS one-half the amount shown and the value of a $500 bond IS five times the
amount shown The Current Earnings column shows the annual Yield that the bonds will earn dunng the penod Indicated The
Earnings From Issue IS the bond's Yield from ItS Issue date to the date shown or date adjusted as shown In the footnotes
Series EE Bond
Issue Dates
5/1/97 - 10/1/97
_.~ _E_arni_ng_~eriod
End
Start
Date*'"
Date*'"
1111/97
5/1/97
~--
Series EE Bond
Issue Dates
11/96 - 4/97
5/96 - 10/96
11/95 - 4/96
5/95 - 10/95
11/94 - 4/95
5/94 - 10/94
11/93 - 4/94
5/93 - 10/93
4/93
3/93
11/92
2/93
5/92 - 10/92
11/91 - 4192
5/91 - 10/91
11/90 - 4191
5/90 - 10/90
11/89 - 4190
5/89 - 10/89
11/88 - 4/89
5/88 - 10/88
11/87 - 4188
5/87 - 10/87
11/86 - 4/87
5/86 - 10/86
4186
11/85
5/85 - 10/85
11/84 - 4185
5/84 - 10/84
4184
11/83
5/83 - 10/83
4/83
3/83
11/82
2/83
5/82 - 10/82
4182
11/81
5/81
- 10/81
11/80 - 4181
5/80 - 10/80
1/80 - 4/80
-
-
-
-- -
-
-
-
Earnirlg~ ~o Date ~en held 5 y!ars ...... __
Start
Value
50.00
---~
Start
Date*'"
5/1/97
5/1/97
5/1/97
5/1/97
5/1/97
5/1/97
5/1/97
5/1/97
9/1/97
5/1/97
511/97
5/1/97
5/1/97
5/1/97
511/97
5/1/97
511/97
5/1/97
511/97
5/1/97
511/97
5/1/97
511/97
5/1/97
511/97
5/1/97
511/97
5/1/97
511/97
9/1/97
5/1/97
511/97
5/1/97
511/97
5/1/97
511/97
7/1/97
Earnings
Current
From
Issue
Earninas ....
576%
5.76%
End
Value
5144
Earning
Period
-Start
End
Value
Date*'"
51.16
11/1/97
11/1/97
52.24
11/1/97
53.52
11/1/97
54.92
11/1/97
55.24
11/1/97
56.32
57.44
11/1/97
58.60
11/1/97
3/1/98
59.76
11/1/97
64.56
67.20
1111/97
69.24
1111/97
1111/97
71.32
73.44
1111/97
1111/97
75.64
77.92
1111/97
11/1/97
80.24
11/1/97
82.68
85.16
1111/97
1111/97
87.68
1111/97
90.32
11/1/97
93.04
1111/97
108.68
1111/97
110.84
1111/97
11308
115.32
1111/97
1111/97
117.64
1111/97
122.68
1111/97
128.04
135.04
3/1/98
11/1/97
13628
11/1/97
152.96
1111/97
15756
1111/97
162.28
11/1/97
171.20
11/1/97
185.04
1/1/98
18868
r---~~---
-- --
End
Value
52.36
53.44
54.76
56.20
56.32
57.44
58.60
59.76
64.60
67.20
69.24
71.32
73.44
75.64
77.92
80.24
82.68
85.16
87.68
90.32
93.04
95.84
110.84
11308
115.32
117.64
120.32
126.00
131.48
138.76
140.36
157.56
162.28
167.16
176.36
190.56
194.36
Current
Earninas ....
4.69%
4.59%
4.63%
4.66%
3.91%
3.98%
404%
3.96%
16.20%
8.18%
6.07%
6.01%
5.95%
5.99%
6.03%
5.95%
6.08%
600%
5.92%
6.02%
6.02%
6.02%
3.97%
404%
3.96%
4.02%
4.56%
5.41%
5.37%
5.51%
5.99%
6.01%
5.99%
6.01%
6.03%
5.97%
6.02%
Redemption Value .....
End
Start
Value
Value
5072
5000
Earnings
from
Issue
4.67%
449%
4.60%
4.73%
401%
4.00%
401%
4.00%
5.19%
6.00%
6.01%
6.01%
6.00%
6.00%
6.00%
6.00%
6.01%
601%
6.00%
6.00%
6.00%
6.00%
7.04%
6.92%
6.80%
6.69%
6.61%
6.71%
6.78%
6.92%
7.00%
7.54%
7.50%
7.45%
7.55%
7.79%
7.69%
• Monthly Increases In value for bonds issued May 1997 and after (and some earlier bonds) are not shown in the table.
*'" Each "Start Date" and "End Date" is for the first date of the range In the "Issue Dates" column. Add one month for each later
Issue month. For example. a bond issued In 7/96 would be worth $52 24 on 7/1/97 and $53.44 on 1/1/98 .
.... Yields and savings bond rates may not agree due to rounding and due to the methodology for computing market-based
Yields for bonds Issued pnor to May 1. 1995 .
..... A bond Issued on or after May 1. 1997 is assessed a three-month Interest penalty if redeemed less than five years after Its
issue date. "Redemption Value" shows bond values after penalty "Eamlngs to date when held 5 years" shows the amount upot'
which future earnings will compound.
UBLIC DEBT NEWS
Department of tbe Treasury • Bureau of the Public Debt. Washington, DC 20239
FOR IMMEDIATE RELEASE
May 5, 1997
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $7,041 million of 13-week bills to be issued
May 8~ 1997 and to mature August 7, 1997 were
accepted today (CUSIP: 9127945H3).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Discount
Rate
Low
High
5.13%
5.14%
Average
5.14%
Investment
Rate
5.27%
5.28\'
5.28\'·
Price
98.703
98.701
98.701
Tenders at the high discount rate were allotted 45%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
Receiyed
TOTALS
Accepted
$62,971,552
$7,041,342
$61,176,504
1. 520 c 948
$5,246,294
1,520,948
$62,697,452
$6,767,242
274,100
$62,971,552
274,100
$7,041,342
Type
Competitive
Noncompetitive
Subtotal, Public
Foreign Official
Institutions
TOTALS
In addition, $4,308,OlO thousand was awarded to the
Federal Reserve Banks for theIr own accounts.
RR-1665
VBLle DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Wa.hlngton. DC 20239
CONTACT: Office of Financing
FOR IMMEDIATE RELEASE
May 5, 1997
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $7,107 million of 26-week bills to be issued
May 8, 1997 and to mature November -6, 1997 were
accepted today (CUSIP: 9127945T7).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.3S\'
5.37%
S.37\'
Investment
Rate
S.s8%
5.60'"
5.60%
Pri;fi
97.295
97.285
97.285
Tenders at the high discount rate were allotted 15\'.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
Receiyed
TOTALS
Accepted
$44,176,022
$7,106,962
Competitive
Noncompetitive
Subtotal, Public
S39,490,817
1,285,505
$40,776,322
S2,421,757
1,285,505
$3,707,262
Foreign Official
Institutions
TOTALS
3.399,700
S44,176,022
3,399,700
S7,106,962
Type
In addition, $3,495,000 thousand was awarded to the
Federal Reserve Banks for their own accounts.
5.36 -- 97.290
RR-1666
D EPA R T 1\1 E N T
0 F
THE
T REA SUR Y
NEWS
OFFICE OF PUBliC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
May 5,1997
Contact: Michelle Smith
525-327-7700, Room 3620
Mexico City cellphone: 525-104-0526
PRESS ADVISORY
u.S. Treasury Secretary Robert E. Rubin and Mexican Treasury Secretary Guillermo
Ortiz will tour a youth training and services center at 3 p.m. Tuesday, May 6, at 148 Zoquipa,
Col. EI Parque, Venustiano Carranza in Mexico City.
The event is open to the press and will conclude with a press availability with the two
finance ministers.
The Fundacion Bartolome De Las Casas offers basic education and literacy training,
outreach activities, and health and housing services to youths ages 16-24. The non-profit
organization is funded in part by a grant from the Inter-American Development Bank's
Multilateral Investment Fund, as well as by private donations.
Cameras may set up at 2 p.m. and other press wishing to cover the event should arrive
before 2:30 p.m.
-30RR-1667
Fm- press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
DEPARTlVlENT
OF
THE
TREASURY
NEWS
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C. • 20220 • (202) 622-2960
FOR IMMEDIATE RELEASE
May 5,1997
Contact: Kelly Crawford
(202) 622-2960
RUBIN AND ORTIZ ANNOUNCE MANAGEMENT CHANGES AT NADBANK
Treasury Secretary Robert E. Rubin and Mexican Finance Minister Guillermo Ortiz, on
behalf of the Board of Directors of the North American Development Bank (NADBank), named
Victor Miramontes as the new Managing Director of the Bank. In addition, they selected Raul
Rodriguez to replace Mr. Miramontes as the Deputy Managing Director.
"I have been very pleased with the work of the NADBank management team during the
past two years. The selection of Victor Miramontes and Raul Rodriguez ensures continuity in
the Bank's efforts to improve border environmental conditions," Rubin said. "I would also like
to take this opportunity to express my personal thanks to former Managing Director Alfredo
Phillips for shepherding the Bank through its start-up phase into a Bank that is having a real
impact on the border today."
Mr. Miramontes has been the Bank's Deputy Managing Director and Chief Operating
Officer since December 1994. He is largely responsible for the Bank's policy development and
its relations with the U.S. Congress, U.S. agencies, and border state governments. Prior to
working for the Bank, he was Vice President and Regional Manager of Wells Fargo Bank of San
Antonio, Texas, with considerable experience in financing infrastructure projects in the border
regIOn.
Mr. Rodriguez was appointed Director of Project Development and Finance at the
NADBank in early 1995. He has played the central role in developing the Bank's first projects
and establishing its institutional development program. Prior to joining the Bank, he has served
as Executive Director of the Mexican Foreign Trade Bank, Mexico's Trade Commissioner in
Canada, and Secretary of Economic Development for the border State of Tamaulipas.
The NADBank, which is capitalized and governed by the U.S. and Mexican governments,
is designed to finance environmental infrastructure projects along the U.S.lMexico border,
particularly in the areas of water, wastewater treatment, and municipal solid waste. The Bank
has already approved financing packages for four border projects, two in the United States and
two in Mexico ..
-30RR-1668
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR RELEASE AT 3 :00 PM
May 6, 1997
Contact: Peter Hollenbach
(202) 219-3302
PUBLIC DEBT ANNOUNCES ACTIVITY FOR
SECURITIES IN THE STRIPS PROGRAM FOR APRIL 1997
Treasury's Bureau of the Public Debt announced activity figures for the month of April 1997, of
securities within the Separate Trading of Registered Interest and Principal of Securities program
(STRIPS).
Dollar Amounts in Thousands
Principal Outstanding
(Eligible Securities)
$967,571,462
Held in Unstripped Form
$738,395,526
Held in Stripped Form
$229,175,936
Reconstituted in April
$10,907,454
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 Monthly Statement of the Public Debt, entitled "Holdings of Treasury Securities in
Stripped Form."
The STRIPS data along with the newMonthly Statement of the Public Debt, is available on Public
Debt's Internet homepage at: www.publicdebt.treas.gov.Awide range of information about the
public debt and U.S. Treasury securities is also available on the homepage.
000
PA-265
RR-1669
Corpus
STRIP
CUSIP
Loan DesCIlptJOn
Treasury Notes
CUSIP
Senes
912827 UWO
A
VE9
B
VN9
C
A
WI9
WE8
WN8
WN8
XE7
XN7
X'Nl
YE6
YN6
YW6
ZES
ZNS
ZX3
A8S
B92
D2S
F49
GSS
J78
L63
N81
P69
088
R67
S86
T8S
U83
V82
WBl
X80
YS5
Z62
2JO
Treasury Bonds:
CUSIP
912810 DM7
D08
DR6
DU9
DNS
DPO
DS4
DT2
DV7
DW5
DX3
DYl
OZ8
EA2
EBO
EC8
ED6
EE4
EFl
EG9
EH7
EJ3
EKO
EL8
EM6
EN4
EP9
E07
ES3
Ei1
B
C
D
A
B
C
D
A
B
C
D
A
B
C
D
A
B
A
B
A
B
C
0
A
B
C
D
A
B
C
D
B
Interest Rate
8-1/2
8-5/8
8-7/8
8-1/8
9
S-1I4
8-7/8
8-7/8
S-1/8
8
7-7/8
8-112
8-7/8
8-3/4
8-1/2
7-3/4
8
7-7/6
7-1/2
7-112
6-3/8
6-1/4
5-3/4
5-7/8
7-1/4
7-114
7-7/8
7-112
6-1/2
6-112
5-7/8
5-S/8
6-7/8
7
6-112
6-1/4
912820 AJ6
AK3
AL 1
AM9
AN7
AP2
AOO
AR8
AS6
AT4
AUl
AV9
A'Nl
AXS
AY3
AZO
BA4
BB2
BCO
BD8
BE6
BF3
BGl
BH9
BJ5
BK2
BLO
BM8
BN6
BPl
B09
BR7
BS5
BT3
BUO
BW6
Maturrty Date
I
I
05/15/97
08115/97
11115/97
02115/98
OS/1S/98
08/1S/98
11/1S/98
02115/99
05/15/99
08/15/99
11115/99
02115/00
05115/00
08/1S/00
11/1S/00
02l1S/Ol
OS/15/01
08115/01
11115/01
OS/15/02
08/15/02
02115/03
08/15/03
02115/04
05115/04
08/15/04
11115/04
02115/05
05/1S/OS
06/15/05
11/1S/OS
02115/06
05/15/06
07115/06
10/15/06
02115/07
Pnnclpal Amount Outstanding In Thousands
Pan Ion Held In
Unstnpped Form
Total
Outstanding
9.921.237
9.362.836
9.808.329
9.159.068
9.16S.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,S19.682
11,312,602
12,396,063
12,339,165
24,226,102
11,714,397
23,659,015
23,562,691
26,011,026
12.955,077
14,440,372
13,346,467
14,373,760
13.834,754
14,739,504
15.002,580
15,209,920
15,513,587
16,015,475
22,740,446
22,459,675
13,103,678
7.148.037
6.225.236
5.598.729
6.411.868
6.431.187
8.0S0.646
6.293.275
7.903.623
6.792,703
7.119,369
7.146,760
8.149,033
5.S98,630
7.432,166
7,372,082
7,946,402
8,792,006
6,470,365
20,951,062
9,644,397
22,527,615
23,166,339
27,610,228
12,651,077
14,433,972
13,296,867
14,373,760
13,834,754
14,739,504
lS.002,580
15,209,920
15,509,427
16,015,475
22,740,446
22,459,675
13,103,678
Reconstituted
ThiS Month
pon,on Held In
Stnpped Form
2.773.200
3.137.600
4.209600
2.747.200
2.734.200
3.292.000
3.609600
1.816.000
3,254.400
3.044,275
3,627,200
2,524,000
4,897,600
3.648,480
4,147,600
3.366.400
3,606,07S
3,666,600
3,275,040
1,670,000
1,331,200
376,352
400,600
104,000
6,400
49,600
57.200
80.000
12.800
58.240
lS.800
16.000
0
59.200
75.200
122,600
0
57,200
86,400
347,360
50,000
9.600
131,700
63,200
141,640
75,760
260,800
67,104
6S.600
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
4,160
0
0
0
0
Interest Rate:
11-5/8
12
10-3/4
S-3/8
11-3/4
11-1/4
10-5/8
S-7/8
S-1/4
7-1/4
7-112
8-3/4
8-7/8
S-1/8
9
8-7/6
8-1/6
6-112
6-3/4
6-3/4
7-7/8
8-1/8
8-1/8
8
7-1/4
7-S/8
7-1/8
6-1/4
7-1/2
7-S/6
EV6
6-7/8
EW4
6
EX2
6-3/4
EYO
6-1/2
El7
6-S/8
Treasury Innat,on-Indexed Notes
CUSIP
Senes Interest Rate
9128272M3
A
3-3/8
Total
912803 AB9
AD5
AG8
AJ2
912800 AA7
912803 AAl
AC7
AE3
AFO
AH6
AK9
AL7
AM5
AN3
AP8
A06
AR4
AS2
ATO
AU7
AV5
AW3
AXl
AY9
11/15/04
05/15/05
08115/05
02115/06
11/15/14
02115/15
08115/15
11/15/15
02115/16
05115/16
11/15/16
05115/17
08115/17
05/15/18
11/15/18
02115/19
08115/19
02115120
05/15/20
08/15/20
02115/21
05115/21
08115/21
11/15/21
AZ6
BAO
BB8
BC6
B04
08115/22
BE2
BF9
BG7
BHS
BJl
BK8
02115/25
912620 BV8
11115/22
02l1S/23
08/15/23
11115/24
06/1S/25
02l1S/26
08/15/26
11/15/26
02115/27
01/1S/07
8,301,606
4,260,756
9.269,713
4,755,916
6,005,584
12.667,799
7,149.916
6.899,859
7.266,854
18.823,551
18.864,448
18,194,169
14.016,858
8,708,639
9.032,870
19.250,798
20,213,832
10,228.868
10,158,863
21,418,606
11,113,373
11,958,888
12,163.482
32,798,394
10.352,790
10,699,626
18,374,361
3.687,406
1,684,658
7,148,113
4,740,364
1,888,784
9.658,039
5.467,676
4,925,459
6,747,654
18,453,951
22.909.044
11.469,662
11,72S,170
12.602,007
12.904.916
10.693.818
11.493,177
10456,071
IS.872.059
967.571,462
Note On tne 4:n wOl"kcay 01 eaC!"l montn Taole VI wtll oe avallaOle atter 3 00 p m eastem time on tne Commerce
Publ,C Debt s webSite at !"'.:W i~ Oublicoeo: treas go ... For more In/ormation about EBB call (202) 4B2.1C1.1::.e
;;7UQ
18.061,728
9,892,089
8,074,458
3,665,439
3,043,470
5,127,598
18,428,672
5.911,668
3.769,603
4,414,400
2,376,100
2,121,600
15,552
4,116,800
3,009,760
1.682,240
1,974,400
519,200
369,600
802,720
8,302,080
5,942,400
5,043,200
5,989,400
5.984,526
9,978,973
14,123,200
1,764,960
4,317,200
6,389,280
15,434,080
1,134,400
5.374,568
4,966,682
6,133,844
6,584,320
7,196,800
26,664,550
8,312,790
3.133.226
14,169,561
2,040,000
7,566,400
4,204,800
20.188,852
2,720,192
3,398.142
5,867,570
8,071,520
5,857,600
12.272,407
12,775,516
10.681,018
329,600
129,400
212,800
13,600
11,479.577
10,456,071
15872.059
738.395.S26
171,200
381,000
420,800
0
136,800
509,760
288,320
139,200
81,600
246,400
100,000
248,000
892,800
140,600
282,200
246,400
224,000
110,000
384,640
476,600
329,600
287,040
246.400
709,850
20,000
384,000
254,400
336,000
146,800
585.600
207,040
6,400
0
0
0
0
0
229.175.936
0
10.907454
De artment"s Economic Bulletln 0
8 an:! (EBB) and on tne Bureau of the
The balances In t"115 table are subject to audit and subsequent adjustments
o
EPA R T 1\1 E N T
0 F
THE
T REA SUR Y
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIAAv;ENUE, N.W. - WASIDNGTON. D.C. - 20220 - (202) 622.2960
EMBAR.GO~ UNTIL 2: 30 P. M.
CONTACT:
May 6, 1;997
Office of Financing
202/219-3350
TRlASURY'S KEBKLY BILL OFFBRING
The Trea8ury will auction two aeries of Treasury bille
totaling approximately $15,000 million, to be issued May 15, 1997.
This oft.ring will result in a paydown for the Treasury of about
$5,075 million, as the maturing publicly-held weekly bills are
outstanding in the amount of $20,065 million.
In addition to the public holdings, Federal Reserve BanKs for
their own accounts hold $7,145 million of the maturing bills,
which may be refunded at the weighted average discount rate of
accepted competitive tenders. Amounts issued to these accounts
will be lin Idditiop .to the offerina amount.
Federal Reserve Banks hold $3,327 million IS 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 Pederal
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, as amended) for the sale and
issue by the Treasury to the public of marketable Treasury bills,
notea, and bonds.
Datail. about each of the new securities are given in the
attached offering highlights.
000
Attachment
RR-1670
JaGIILJ:GDft8 O. IftmU1JIlY OI7BllDIGa OP . . . . .Y B:ILLS
1ft) . .
J:88UBD
_'I'
15. 1997
May 6, 1997
Off'l'iDg "'UDt . . . . . .
De,cl'ipticm of Off.riDqI
Term and type of security . . • .
. . •
CUSIP number
Auction date . . •
•••.•
Issue date . • . .
.••• •
Maturity date . . . . • . • . . .
Original issue date .
. •
CUrrently outstanding . . • . • .
Minimum bid amount . . . • . •
Mul tiples . • . . . . . . • . • .
•
•
•
•
•
.
•
$7,500 million
$7,500 million
91-day bill
912794 5J 9
May 12, 1997
May 1S, 1991
August 14, 1997
February 13, 1997
182-day bill
912794 2W 3
May 12, 1997
May 15, 1997
$13,227 million
November 13, 1997
November 14, 1996
$20,142 million
$10,000
$ 1,000
$10,000
$ 1,000
The followipq rule. apply to all .eapritie. meatioa.d aboye.
Submission of Bids:
Noncompetitive bids
Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids
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
recei~t 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
Prior to 12:00 noon Bastern Daylight Saving time
on auction day
Competitive tenders .
Prior to 1:00 p.m. Bastern Daylight Saving time
on auction day
Payment Terms .
Full payment with tender or by charge to a funds
account at a Federal Reserve Bank on issue date
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
May 6, 1997
RESULTS OF TREASURY'S AUCTION OF 3-YEAR NOTES
Tenders for $17,001 million of 3-year notes, Series V-2000,
to be issued May 15, 1997 and t~ mature May 15, 2000
were accepted today (CUSIP: 9128272T8).
The interest rate on the notes will be 6 3/8%". The range
of accepted bids and corresponding prices are as follows:
Low
High
Average
Yield
6.430%'
6.449%'
6.438%"
Price
99.852
99.801
99.831
Tenders at the high yield were allotted 13%'.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$35,363,531
Accepted
$17,000,851
The $17,001 million of accepted tenders includes $967
million of noncompetitive tenders and $16,034 million of
competitive tenders from the public.
In addition, $1,246 million of tenders was awarded at the
average price to Federal Reserve Banks as agents for foreign and
international monetary authorities. An additional $2,479 million
of tenders was also accepted at the average price from Federal
Reserve Banks for their own account in exchange for maturing
securities.
RR-l67l
DEPARTI\IENT
lREASURY
OF
THE
TREASURY
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622·2960
EMBARGOED UNTIL 8:30 A.M. EDT
Text as Prepared for Delivery
May 7, 1997
HONG KONG'S PIVOTAL ROLE IN SHAPING CHINA'S FUTURE
Deputy Treasury Secretary Lawrence H. Summers
Hong Kong Trade Development Council
New York City
INTRODUCTION
Hong Kong never ceases to amaze me. My recent visit to Hong Kong was no exception.
I was impressed not only by the city's spectacular architecture, but for what those buildings
house -- one of world's most active currency markets, Asia's second largest stock market, key
operations of 85 of the world's top 100 banks, and some of the world's shrewdest financial
professionals in both the public and private sectors.
As recently pointed out by my colleague and friend, Andrew Sheng, the Deputy Chief
Executive of the Hong Kong Monetary Authority, Hong Kong is perhaps the world's leading
example of the economy of the future -- a virtual economy -- where services account for about
82% of GDP, as compared to 76% here and 62% in Japan, and the bulk of the manufacturing
activity of its firms is done outside its territorial boundaries. It is thus by its very nature, perhaps
more so than any other economy in the world, highly dependent on the free flow of information
(over 700 newspapers and periodicals are based there), the rule of law and the transparency of
the regulatory environment
The importance of the future of Hong Kong to the United States is measured not just by
the huge value of trade between our two econom ies, the scale of our investment there, or by the
volume of financial flows, but also by number of our citizens whose livelihoods depend on Hong
Kong's prosperity.
o
Some 36,000 American citizens live in Hong Kong. The 1100 US firms that have
invested $14 billion in Hong Kong employ some 250,000 people, nearly 10% of
the work force.
RR-1672
For press releases, speeches, public schedules and. official biographies, call our 24-hour fax line at (202) 622-2040
The reversion process has focused a great deal of attention on Hong Kong, and rightly so,
given its importance to the global economy.
But it occurs to me, as I look forward, that many people are missing a very important
facet of Hong Kong reversion. The majority appear to view transition as something that China is
"doing to" Hong Kong.
•
But the reversion process is hardly a one-way street. The transition will potentially have
just as big an impact on China.
Today, I'd like to say a few words about what the interplay between the two great
economies within the "one country two systems" framework means for Hong Kong, for China
and for the world. And what we are doing to cement the commitment to two systems.
FRAMEWORK FOR TRANSITION
Hong Kong's reversion to China is in many ways a political event unparalleled in history.
It marks the takeover of a capitalist, democratic society -- perhaps, the purest example of an
open market economy -- by a society in the midst of transition from a socialist, command
economy. What's even more striking, the new sovereign power has made strong commitments
that guarantee the continued existence of the system and life-style of the former.
A great deal of attention has been paid to the process surrounding this shift. On the
economic and fmancial aspects, of which I feel more competent to speak, the authorities
involved have taken many of the steps necessary for a smooth transition.
•
•
In terms of a legal framework, the Joint Declaration and Basic Law lay the basis for a
transition that can preserve what has made Hong Kong so special and so successful as an
economy.
c
Hong Kong is to retain its autonomy in economic affairs, including its
independent fiscal and monetary policy under the guidance of its extremely
competent civil service.
c
Hong Kong is also to retain its status as an international financial center, and its
own currency -- separate from the yuan.
Hong Kong's financial and economic civil servants are recognized as world class by their
global counterparts. Secretary Rubin and I frequently meet with our Hong Kong
counterparts. In my most recent trip to Asia, I met with my Hong Kong counterpart at
the Six Markets gathering of finance and monetary officials in Tokyo.
c
Thus, the February decision by Hong Kong's Chief-Executive designate, C.H.
2
Tung, to leave current cabinet members in their posts -- including Hong Kong's
extremely competent economic team -- is very welcome. It adds weight to the
reassurances that have been given at the highest political levels that Hong Kong's
sound fmancial and economic system will remain intact.
•
Hong Kong has also taken measures to ensure that it has the resources to preserve
economic and monetary stability should market confidence be rocked by some
unanticipated development.
D
D
Hong Kong's foreign exchange reserves are now about $64 billion -- a sizeable
cushion against exchange rate instability or shock to the balance of payments.
The Hong Kong dollar is further backed up by China's pledge to protect it with its
own massive reserves of over $100 billion should it come to that.
At least so far, the markets have evaluated these aspects of the transition favorably.
•
The Hang Seng Index peaked in January at its highest levels since 1994, before following
the U.S. market down and then back up again.
•
It is also noteworthy that Hong Kong's government borrows in Hong Kong dollars at
rates nearly equal to those of the United State government for periods of up to two and a
half years.
But as one central banker's favorite cliches has it: Credibility is not owned; it is rented.
D
After the all the excitement, when legalities of reversion are concluded and after
Hong Kong hosts this year's annual meetings of the IMF and World Bank in the
Autumn, it will be essential for all political authorities to continue to behave in a
way conducive to the maintenance of market confidence.
It is crucial that this transition go well, not just for Hong Kong but for China as well.
Apart from questions of international politics and prestige, the transition is a matter of
economics for both.
BENEFITS FOR CHINA
China is -- and has been for the past 19 years - in the midst of an economic
transformation of immense proportions. This transformation has progressed from
experimentation with market pricing of goods to the development of highly active capital
markets in Shanghai and Shenzhen.
3
Each phase of China's reform process has introduced a greater reliance on market forces.
Most recently, China's has managed its first soft macroeconomic landing, and is now turning in
earnest to the structural deficiencies -- such as the state enterprise system and the financial sector
-- that badly need reform.
At this juncture in China's transformation, more than ever, Hong Kong has a great deal to
offer China.
•
Perhaps Hong Kong's greatest potential value to China is as a source of good ideas,
technical expertise, and as an exemplar or model for the kind of system that can bring
China the most economic success.
c
First, Hong Kong has a very impressive record on macroeconomic management:
High economic growth, prudent fiscal management and government surpluses,
and experience in dealing with capital flows and an open foreign exchange
system. Hong Kong has the people to convey this kind of knowledge.
c
Second, Hong Kong's regulators have invaluable experience in financial systems
and regulation. The bumps that have occurred on this road, and the improved
market oversight and regulation that have emerged as a result, have only
increased Hong Kong's credentials as a source of wisdom for China.
c
Third, China could draw on Hong Kong's example of clearly delineating the role
of government in the economy.
c
Fourth, Hong Kong is a sterling example of the benefits of integration with the
world economy. Hong Kong's economic success has depended on its ability to
take advantage of the opportunities in global markets -- making it a trade leader
in Asia and a living example of the benefits of open markets.
-+
c
This is especially true for financial services, where Hong Kong has
generally maintained a high standard for market access. Hong Kong's
example of the value of financial liberalization, accompanied by strong
prudential supervision, should be studied by other emerging Asian
economies as they consider their offers in the current round of financial
services negotiation.
Finally, Hong Kong, and the Hong Kong people, have a deep understanding of
how markets are supposed to work. This is exactly the kind of knowledge that
China will have to draw on again and again if it wants to build the kind of
economy that will work in the 21st century.
4
FREEDOM AND ECONOMIC PROSPERITY
Any accurate economic history of the latter part of the 20th century will have to give due
attention to two striking developments: the transformation of industrial economies into
information-intensive economies based on services (Sheng's virtual economies); and the
inclusion of millions of Asians in an unparalleled rise in global prosperity. Hong Kong, with its
world-class fmancial sector, has been at the vanguard of both of these developments. In the 21 st
century, China, with its vast resources and Hong Kong as an exemplar, has the potential to
follow suit.
I noted earlier that authorities on both sides have made good preparations to permit a
smooth economic transition. I pointed out for example that Hong Kong borrows at a lower cost
that U.S. Treasuries. But if you look further out on the yield curve the markets are saying
something less reassuring.
Markets have evaluated the transition developments and preparations favorably and do
not expect negative developments in the near terms. But the yield curve starts to rise
significantly after two and half years, and by 10 years out the spread over U.S. Treasuries is
nearly 80 basis points. This is the market's way of speaking to Beijing. Few predict problems
in the short term, but there is wariness about the longer term.
Such wariness is understandable from my visit. I sensed that some believe that politics
and economics are somehow mutually exclusive. My impression has been reinforced by a recent
decision of the National People's Congress to repeal certain amendments to some Hong Kong
laws, including to the Bill of Rights Ordinance and the societies and public order ordinances.
This decision has fueled widespread concern in Hong Kong and abroad that Hong Kong's civil
liberties and individual freedoms will be restricted after reversion.
On this my message is simple: There is no firewall between economic freedom and
freedom in its many other dimensions. The free flow of information is essential to free society,
to free markets, and to a strong financial system. It is essential to Hong Kong's prosperity -- and
to China's -- that information flow freely.
Integrity also is central to both economics and politics. Hong Kong's success as a
financial center has been based to no small extent on its civil service's professionalism and
honest administration, and on the transparency of its regulation. If prosperity is to be
maintained, these too must be maintained.
It is important to recognize that economics, and particularly finance, is driven by
expectations and perceptions. Even a perceived risk that China is seeking to undermine Hong
Kong's autonomy or tamper with the formulas that have made it so successful could severely
damage Hong Kong's standing in international financial circles and, by association, its economic
prospects.
5
I stress these points because I am convinced that in the global economy of the 21 st
century, even more than in the economy of the 20th century, the quality of governance will be a
key determinant of prosperity. Capital, skilled manpower and other factors of production are
ever more mobile and responsive to changes in the quality of the business environment. And as
we move from an industrial to an information era, the degree of freedom becomes an ever more
important prerequisite for economic success.
These points bear emphasis. China's actions regarding the Legislative Council and
efforts to repeal or amend several key provisions of Hong Kong's civil liberties laws raise some
concerns about its appreciation for the fundamental importance of freely flowing information,
and for the integrity and autonomy of Hong Kong's economic system.
D
The danger is that, if China handles the transition poorly, if it encroaches or is perceived
to encroach upon Hong Kong's autonomy, Hong Kongers have the ability to make such
actions extremely costly -- either by leaving Hong Kong (their skills are very welcome
elsewhere) or by transferring their funds out of the territory.
A poor handling of the transition would not only be disastrous for the Hong Kong
economy, the loss to China would also be immense: not just in nominal terms, the lost capital
and economic strength of Hong Kong, but in terms of potential benefits. For as I've stressed in
my remarks, there is much that China can glean from Hong Kong that would aid in its own
development.
In short, the transition is as much for China to make as it is for Hong Kong. And it is
essential that China allow Hong Kong to be Hong Kong. And if there is to be some convergence
of systems over time, it would be beneficial for all involved for China's system to become more
like Hong Kong's than the other way around.
HONG KONG RETAINS SEPARATE STATUS IN U.S. POLICY
Suffice it to say that the U.S. Administration will be watching closely how events unfold
in Hong Kong, including with regard to how these events affect U.S. interests and our stake in
both Hong Kong and China's success
It is reassuring to us that when Vice Premier Qian was in Washington last week he
reaffirmed China's commitment to two systems We are going to take him literally and continue
to treat Hong Kong as autonomous economic entity. We will continue to promote a framework
of bilateral and multilateral agreements that support Hong Kong's autonomy from China, an
objective made clear in the U.S.lHong Kong Policy Act.
The U.S.lHong Kong Policy Act establishes domestic legal authority to continue to treat
Hong Kong as an entity distinct from the PRC for certain purposes.
•
Hong Kong will continue to be treated as a separate partner in trade by the United States.
This means that Hong Kong will be retain its separate textile quota; we will maintain
6
separate statistics on our bilateral trade with Hong Kong; and we will negotiate trade
agreements with Hong Kong. We have, in fact, just recently signed an air services
agreement with Hong Kong.
•
Hong Kong will also be treated as a distinct entity for the purposes of U.S. taxation.
•
We will continue to work directly with Hong Kong officials on law enforcement issues -where success depends on [1] the structure provided by bilateral agreements, [2] a
significant law enforcement presence, and [3] close collaboration with our counterparts.
C
c
C
•
Last month, we signed a prisoner transfer agreement and a mutual legal assistance
agreement with Hong Kong. A U.S.lHong Kong extradition agreement which
was signed earlier is now before the Senate for its advice and consent to
ratification.
Our enforcement presence has been expanded in recent years with additional FBI
and INS officers stationed in Hong Kong and the opening of an office of the
Secret Service in Hong Kong last year. There are no plans to reduce this
presence.
Finally, in the realm of enforcement, we at Treasury look forward to continuing
and intensifying our close collaboration with Hong Kong authorities on a wide
array of efforts to fight organized crime -- narcotics trafficking, money
laundering and smuggling.
As I noted earlier, our people and our enterprises have strong ties with Hong Kong.
Reflecting the breath and depth of our relationship with Hong Kong, our Consulate in
Hong Kong is one of our largest in Asia, with over 140 direct-hire U.S. officials and a
dozen separate USG agencies.
c
Negotiations with the government of China to maintain our Consulate General in
Hong Kong, after July 1, have been concluded. We have successfully reached an
agreement with no limitations on size of our Consulate or existing operations.
c
We are, in fact, discussing within our government the possibility of stationing a
Treasury official in Hong Kong to more closely manage our growing financial
relationship with Hong Kong and the region. This would be our only presence in
Asia outside of Tokyo.
Reinforcing its role as a separate player in the financial arena, we will continue to
support and encourage Hong Kong's participation in the multilateral financial institutions and
organizations. Hong Kong has ensconced itself well in the international financial system. These
are moves that China has supported.
•
Hong Kong is a participant in the New Arrangements to Borrow established by the
7
international fmancial community last year. It was among the select few recently invited to join
the Bank for International Settlements. Hong Kong will continue to be a key member of APEC,
and will retain its separate membership in the major international fmancial institutions.
CONCLUSION
We at the U.S. Treasury will continue to work with our colleagues in Hong Kong
as they maintain their separate economic system. We will continue to meet regularly with our
fmancial counterparts in the context of gatherings of the IMF, APEC, BIS, and as partners in the
NAB. And we will continue to deliver our message that there is no fire wall between economic
and other freedoms.
-30-
8
D EPA R T 1\1 E N T
0 F
THE
T REA SUR Y
NEWS
omCE OF PUBliC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
May 7,1997
Monthly Release Qf U.S. Reserve Assets
The Treasury Department today released U.S. reserve assets data for the month of April
1997.
As indicated in this table, U.S. reserve assets amounted to $65,872 million at the end
of Apri11997, down from $67,222 million in March 1997.
End
of
Month
Total
Reserve
Assets
Gold
Stock II
Special
Drawing
Rights
2/3.1
Foreign
Currencies M
ESF
System
Reserve
Position
in IMF 21
March
67,222r
11,050r
9,879
14,573
17,874
13,846
April
65,872p
1l,05Op
9,726
14,139
17,297
13,660
11 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.
J/ Includes allocations of SDRs by the IMF plus transactions in SDRs.
~I
Includes holdings of Treasury and Federal Reserve System; beginning November 1978,
these are valued at current market exchange rates or, where appropriate, at such other
rates as may be agreed upon by the parties to the transactions.
p Preliminary
r Revised
RR-1673
D EPA R T 1\1 E NT' 0 F
THE
IREASURY
T REA SUR Y
NEWS
ornCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIllNGTON, D.C. - 20220 - (202) 622-2960
FOR Th1MEDIATE RELEASE
May 7,1997
Contact: Kelly Crawford
202-622-2 960
G-IO Working Party Releases Study on Key E-Money Issues
The Treasury Department announced today the release of a report by a working party
of the Deputies of the G-IO finance ministers and central bank governors on Electronic
Money. The report outlines a set of key considerations that should help guide national
approaches to emerging electronic money technologies.
The Working Party on Electronic Money was formed after the G-7 Heads of State and
Government, at the 1996 summit meeting in Lyon, called for a cooperative study of the
implications of recent technological advances in retail electronic payments. In particular, they
sought ways to ensure that the benefits of electronic money are fully realized. The report also
includes a survey of the approaches to electronic money issues in each of the G-IO countries.
"The report provides a valuable assessment of the benefits and risks of the new forms of
electronic payments and the policy issues we confront in this area," said Lawrence Summers,
Deputy Secretary of the Treasury. REPRESENTATIVES of the G-I0 countries have
endorsed a common set of considerations for new consumer electronic money products."
The four key considerations they identified address national and cross-border challenges
in the implementation and use of electronic money by consumers and providers and for
governments in the development of national policies:
o
o
o
o
Transparency
Financial integrity
Technical security
Vulnerability to criminal activity
The Working Party, headed by Timothy Geithner of the U. S. Treasury, brought
together representatives from finance ministries, central banks, and law enforcement
authorities. They also benefitted from consultations with private sector representatives
from most of the countries participating in the Working Party.
RR-1674
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
The Working Party addressed three broad policy areas: consumer protection,
law enforcement, and supervision. The report found that most countries are reviewing
the application of existing law to new electronic money issues in all three areas, given
the early stage of development of these new products. Many governments are weighing
the degree to which market incentives can be used to achieve public policy objectives.
"Authorities in many countries view the application of new regulations as
premature, choosing instead to assess the impact of market discipline on the ways in which
providers manage their financial and operational risks," Summers said. The report also
noted that countries may need to consider how best to design national policies to minimize
impediments to the cross border use of electronic money products.
The report concluded that the Working Party provided a useful forum in bringing
together the perspectives of diverse authorities within the G-IO countries, and that a similar
effort might be useful in the future if circumstances warrant. However, it is not necessary
at this time to establish new formal international structures to coordinate a policy response
to electronic money.
The U. S. delegation to the G-IO Working Party was led by officials from the
Federal Reserve Board and from the Office of the Comptroller of the Currency.
-30-
Note: Copies of the G-lO Working Party report on Electronic Money are available at
the courier window of the u.S. Treasury Department.
-2-
Key Considerations
Transparency. Potential users can best make informed choices about the relative merits
of electronic money products if their features, costs, and risks are sufficiently transparent.
Useful disclosures for consumers could include information about significant user rights,
relevant information on the issuer and its obligations towards consumers, applicability of any
deposit insurance or other guarantees, and intentions regarding any use of personal data.
Financial Integrity. The financial integrity of any electronic money issuer rests importantly
on adequate liquidity, capital, and internal controls. Liquidity should be adequate to ensure
that issuers can meet demands for funds; investment policies should be appropriate to ensure
the solvency of the electronic money scheme; management should establish risk
management policies and procedures and internal controls consistent with protecting the
financial integrity of the scheme.
Technical security. Technical security measures have important implications for the
financial and operational reliability of an electronic money scheme. These measures should
be assessed comprehensively with the aim of protecting against fraud or counterfeiting
attacks that could threaten the overall integrity of the electronic money scheme.
Vulnerability to criminal activity. The design of electronic money schemes can affect
importantly the risks of criminal usage of and attacks on electronic money. As a result,
realistic evaluation should be conducted of the vulnerabilities of particular products to these
risks.
UBLIe DEBT NEWS
Department of the Treasury • Bureau of the
P~bli~' D~bl • W;s:;hiugton. DC 20239
r'Of<. IIVlMEDIATE RElIEASE
May 7, 1997
CONTACT: Office of
Fin~ncing
202-219-33S0
RESULTS OF TREASURY'S AUCTION OF lO·YEAR NOT~8
Tenders for $12,001 million nf 10-year notes, Series C-2007,
to be issued May lS, .L997 and co matu.t:~ Md.Y 15, 2007
W~L~ accepted today (CUSIP; ,128272U5).
The interest rate on the
note~
will be 6
S/8~.
The range
of accepted bids and corresponding prices are as follows:
Y1eld_
PL·l<.;~
Low
C.716\
High
Avera.ge
6.759!k
99.315
99.037
99.173
6.740~
Tenders at the high yi9ld
w~r.~ ~I
lntted 50%.
TENDERS RECEIVED AND ACCEPTED (in thousands>
Receive<.l
TOTALS
$22,309,199
Accepted
$12/000/60~
~he $.L2,OOl m1llion of ~~~~yL~d tenders includes ~383
million of noncompetitive tcndcrc and $11,b18 million of
competitive t9nders from ~h~ pUblic.
In addition, $200 million of tenders was awarded Cit t.hp.
average price to F~deral R~R~rve Banks as agen~s tor foreiqn ~llJ
international monetary au~horlLl~b. Al1 additional $1,750 million
of tenders was also accepted ot the average price from FR~~r~l
Reserve Bank5 for thl?i r nwn ~ccount in exchange for mac.u:dll::l
securities.
The minimum par ~mnllnt required for STRIPS is $l,600,OOO.
Larger amounts mus~ be lu Illultiples of that amount.
RR-1675
D EPA R T \\1 E N T
0 F
THE
T REA SUR Y
NEWS
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIDNGTON, D.C. - 20220 - (202) 622-2960
EMBARGOED UNTIL 10 A.M. EDT
Text as Prepared for Delivery
May 8,1997
TREASURY DEPUTY ASSISTANT SECRETARY
FOR TAX ANALYSIS JOHN KARL SCHOLZ
HOUSE COMMITTEE ON WAYS AND MEANS
I am pleased to have the opportunity to discuss the Administration's proposals to improve
the earned income tax credit (EITC) and look forward to working with the Committee on this
Issue.
The Administration is strongly committed to the goals of the EITC and will oppose any
proposals which reduce the EITC and raise taxes on millions of working families who play by
the rules. The goals of the EITC are to make work pay and to lift workers out of poverty in the
most efficient and administrable manner possible. With its message of "work pays," the EITC
helps reduce dependency on welfare and increase reliance on jobs.
Economic Conditions Among Low-Wage Workers
To understand the role of the EITC, a couple of facts about the labor market for lowskilled workers in the United States are useful.
There has been a striking drop in real wages for unskilled workers, beginning in the
1970s and accelerating over the 1980s. Between 1979 and 1992, the earnings of full-time male
workers who had not graduated from high school declined by more than 23 percent in real terms.
Among full-time male workers with a high school diploma, real earnings fell by 17 percent over
the same period.
This decline in the real wage for many unskilled workers has serious implications. In the
United States, it is still possible for a family, containing a worker, to live in poverty. According
to the Census Department, there were 2.4 million persons, over the age of 16, who lived in
poverty and had worked year-round at full-time jobs in 1995.
RR-1676
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
Effectiyeness of EITC in \1aking Work Pay and Reducing Poverty
The ETC makes work pay in two ways. Unlike many assistance progr~s for lo:v~ .
income families, the EITC is limited to working families. Moreover, the credIt amount Iflltlally
increases -- rather than decreases -- for each additional dollar of earnings. As a consequence, the
EITC is different from many low-income assistance programs that are characterized by a
reduction in benefits for each additional dollar of earnings. In my work prior to coming to
Treasury, I -- together with Stacy Dickert-Conlin and Scott Houser -- examined the net impact of
the OBRA 1993 expansion of the EITC on labor supply. We found that the EITC has a modest,
positive effect on labor supply by encouraging individuals to enter the workforce. The EITC also
directly increases the disposable income of working families. According to the most recent
Census data, the EITC lifted 3.7 million persons out of poverty during 1995.
By making work pay, the EITC increases the probability that some parents may enter the
workforce and perhaps leave the welfare rolls. The EITC, then, plays a key role in our efforts to
reform welfare.
Administering the EITC through the Tax System
The EITC achieves the goals of making work pay and relieving poverty by reducing the
tax liabilities of low and moderate-income families. Thus, it is improper to characterize the
EITC, as some have done recently, as a "non-tax function" of the IRS. The EITC was created
and expanded to offset the overall tax burden of low and moderate-income families and should
not simply be measured as an offset to income and SECA taxes. About 85 percent of EITC costs
will offset the combined Federal tax burden of families receiving the credit in 1998.
As these numbers suggest, EITC claimants are taxpayers. If the EITC did not exist,
almost all EITC filers would still file an individual income tax return (in addition to paying
payroll and excise taxes), and the IRS would still have to process their returns and verify much of
the same information regarding their filing status, number of children, and income. In 1998,
about 69 percent of EITC claimants will be required to file a tax return because they have an
individual income tax liability (before the EITC), owe special taxes, have self-employment
income in excess of $400, or their gross income will exceed the filing threshold. In addition,
over 25 percent of EITC claimants will file a tax return in order to obtain a refund for
overwithheld taxes paid throughout the year.
Because most EITC claimants would be filing a tax return even if the credit did not exist,
the direct budgetary costs of administering the EITC are significantly lower than if the credit
were provided through another means. The IRS cannot easily disentangle the costs of
administering one line on the Form 1040 from other lines on the tax return, and we thus do not
have estimates of the costs of administering this particular tax provision through the tax system.
We can safely say, however, that the costs are lower than those associated with certain
government expenditure programs. For example, in FY 1995, the food stamp program cost $3.7
billion to administer, while AFDC administrative costs were an additional $3.5 billion -- nearly
14 percent of the combined costs of these two programs. For these administrative costs, the
2
AFDC program served, on average, about 4.9 million families in a given month, while over 10
million households received food stamps. By way of comparison, the entire IRS budget in FY
1995 was $7.6 billion, and the IRS served over 116 million individual taxpayers and 15 million
corporations.
Taxpayers also benefit from obtaining the EITC through the tax system. Many lowincome workers learn about the EITC when they file a tax return to obtain a refund. By claiming
the credit on tax returns, EITC claimants do not have to take time off from work to apply for the
credit at a government office.
Not surprisingly, then, participation in the EITC tends to be higher than many other
assistance programs targeted to low-income families. In my research prior to joining Treasury, I
found that 80 to 86 percent of those eligible received the credit in 1990. This high participation
rate is striking when compared to the AFDC participation rate of 62 to 72 percent and the food
stamp participation rate of 54 to 66 percent. International comparisons also confirm this finding.
The United Kingdom has an EITC-like program called the Family Credit. It is administered
through the transfer system and directed toward families with children. Official estimates place
the participation rate of the Family Credit at around 50 percent. Thus, both compared to cash
and in-kind transfers in the United States and comparable work-related benefits in the United
Kingdom, the EITC is much better at reaching those who are eligible for the credit.
Notwithstanding these benefits, there are costs associated with operating the EITC, as
with other tax provisions, through the tax system. A system based largely on self-assessment
will have lower administrative costs than a more bureaucratic approach, but it will also lead to
higher noncompliance. Many of us were very concerned when EITC compliance data, from the
1980's, first became available. The Taxpayer Compliance Measurement Program (TCMP), last
conducted in 1988; showed that 35.4 percent of the EITC claimed ($2 billion) exceeded the
amounts to which taxpayers were eligible.
But the same TeMP also places the problems of the EITC in perspective. Last April, the
IRS released a study, based on the 1988 TCMP, showing that the gross individual income tax
gap in 1992 was between $93.2 and $95.2 billion. The IRS estimated that the total "true"
individual income tax liability was between $550.2 and $552.3 billion for tax year 1992. Over 40
percent ($39.1 to $39.9 billion) of the gross tax gap for 1992 was attributable to the
underreporting of business income (including self-employment income, partnership income and
rents and royalties). About 20 percent ($18.1 to $18.7 billion) ofthe gross tax gap was due to the
underreporting of non-business income. Over 14 percent ($13.5 to $13.8 billion) of the gross tax
gap was due to persons who failed to file tax returns. These problems exceed any noncompliance
problems associated with the EITC.
Nonetheless, the Administration and Congress have recognized that the EITC can best
meets its goals -- of making work pay and lifting families out of poverty -- by ensuring that only
those who are eligible and deserving receive the credit. Congress took a first step in this
direction during the consideration of OBRA 1990, when data from the 1985 TCMP became
available. The TCMP data suggested that EITC errors were linked to complicated and
3
unyerifiab1e support and household maintenance tests. OBRA 1990 replaced the support and
household maintenance rules for EITC eligibility with simpler age, residency, and relationship
tests. lowered the age requirement for reporting a taxpayer identification number for EITe
qualifying children. and created a separate schedule to claim the EITe.
This Administration. with the support of Congress, has taken 17 additional legislative and
administrative actions to further improve the targeting and operations of the credit. First,
Congress has enacted stricter reporting requirements proposed by the Clinton Administration,
and the IRS has tightened enforcement of these requirements. Since 1995, the IRS has
transcribed the social security numbers of all EITC qualifying children and most dependents, and
it has intensified its examination of returns with missing social security numbers. The Personal
Responsibility and Work Opportunity Reconciliation Act of 1996 (the welfare reform act)
contains a Clinton Administration proposal which will enable the IRS to use the simpler and
more cost-efficient mathematical error procedures to deny both the EITC and dependent
exemptions to taxpayers who fail to provide valid social security numbers. As a consequence of
the Uruguay Round Agreement Act of 1994, taxpayers will also be required to provide social
security numbers for all dependents and EITC qualifying children without regard to their age on
their 1997 tax returns.
Other reporting requirements have also been strengthened. The Uruguay Round
Agreement requires the Department of Defense to report to both the IRS and military personnel
nontaxable earned income used in the computation of the EITe. The 1996 welfare reform act
also authorizes the IRS to treat the omission of self-employment taxes as a mathematical error, if
the taxpayer claims eligibility for the EITC on the basis of self-employment income.
The IRS, with the support of Congress, has also intensified scrutiny of "questionable"
EITC claims and preparers. For the last several years, the IRS has conducted studies of EITC
compliance and has used this information to better identify questionable returns. In addition, the
IRS increased scrutiny of electronic return originators (EROs), instituted fingerprint and credit
checks on certain new ERO applicants, and eliminated the direct deposit indicator.
Finally, the Administration has consistently supported provisions that would simplify the
EITC, opposed provisions that would add significant complexity to the EITe, and has striven to
ensure that EITC reforms can be administered. In 1993, the Administration proposed the repeal
of two supplemental credits (for children under the age of one and for the purchase of health
insurance for qualifying children), arguing that the IRS could not enforce the eligibility criteria
for them, and these supplemental credits were subsequently repealed. In 1995, the
Administration opposed, on administrative grounds, proposals to base EITe eligibility on child
support payments and hours of work. The Administration's proposal to deny the EITe to
undocumented workers, included in the welfare reform act, was also designed in a manner which
could be administered by the IRS.
4
Analysis ofEITC Compliance Study for Tax Year 1994
The combined effects of these efforts cannot be fully measured at this time, since several
key steps did not take effect until the 1997 filing season and another step -- the requirement that
all children, regardless of their age, have a social security number -- will not be fully
implemented until the 1998 filing season. Today's hearing, nonetheless, has been called in
response to the recent release of new IRS data on EITC noncompliance for tax year 1994.
The Criminal Investigation (CI) Division of the IRS conducted this study of compliance
among 2,046 taxpayers who claimed the EITC on tax returns filed and accepted by the IRS
between January 15 and April 21, 1995. CI Special Agents visited a random sample ofEITC
claimants, shortly after they filed their paper or electronic tax returns. Taxpayers (and often their
employers, tax return preparers, family members, and neighbors) were interviewed at length and
asked to produce verification that they met the EITC eligibility criteria. While the Special
Agents made initial judgements about the legitimacy of the EITC claim, these judgements were
reviewed -- and sometimes changed -- in subsequent review by Examination staff who had
access to other sources of independent information (such as the Forms W-2 and 1099 sent by
employers and other payers).
The study found that of the $17.2 billion claimed in EITC between January and April
1995, $4.4 billion, or 25.8 percent oftotal EITC claimed, exceeded the amount to which
taxpayers were eligible. The overclaim rate among EITC claimants was slightly higher among
paper filers (26.1 percent) than for electronic returns accepted by the IRS (25.3 percent).
Noncompliance was found to be much higher among filers who claim EITC qualifying children
than for those EITC claimants without qualifying children. Among those who claimed EITC
qualifying children, the overclaim rate was 26.1 percent, while the overclaim rate was 15.7
percent for those who did not reside with a qualifying child. IRS enforcement practices, in place
during the 1995 filing season, reduced the estimated net overclaim rate from 25.8 percent to 23.5
percent. If the IRS had been able to treat a taxpayer's failure to provide valid social security
numbers for EITC qualifying children over the age of one as a mathematical error on 1994 tax
returns, the net overclaim rate would have been reduced further, to an estimated 20.7 percent.
While EITC noncompliance remains at unacceptably high levels, the study's results do
show significant improvement since the late 1980s, the last time that the IRS examined a
comparable group of taxpayers as part of the TCMP. The improvement in EITC compliance
since 1988 reflects the implementation of many, but not all, of the steps described earlier.
To better understand the remaining sources of noncompliance, we have conducted an
analysis of the data. We have found that the most common EITC error is caused by taxpayers
claiming qualifying children who do not reside with them for over half the year. Among
taxpayers with children, such errors account for about 39 percent of overclaimed EITC amounts.
Under current law, taxpayers are required to reside with their qualifying children for at least six
months or a full year, depending on the relationship of the child. Taxpayers fail the residency
test for many different types of reasons. For example, divorced parents who share the custody of
their children might both claim the EITC because they both feel the child lived with them for
5
over half the year. At the other extreme, a taxpayer may claim a child with whom he or she has
never resided.
A second common error is due to misreporting of filing status among married taxpayers.
Filing status errors account for about 31 percent of overclaimed EIIC amounts among taxpayers
wi th children. I Sometimes, separated couples do not understand that they must still file as
married persons if they have not yet obtained a legal separation. In other cases, married couples,
who are still living together, do not file either a joint return or a "married filing separate" return.
The third most common error results from complicated living arrangements. In such
situations, a child lives with more than one adult who appears qualified to claim him or her for
EITC purposes. However, about 18 percent of overclaimed EITC amounts result when, in such
households, the caregiver with the lower AGI claims the child. In some cases (although it is
difficult to quantify), the other caregiver was, in fact, qualified to claim the EITC but did not.
The study does not account for the offsetting errors which occur because the taxpayer's relative,
with the higher AGI, did not claim the EITC when he or she was eligible.
Even among EITC claimants without qualifying children, many errors are caused by the
misreporting of family structure. Among these taxpayers, about 40 percent of overclaims are
attributable to the misreporting of filing status among married taxpayers. However, most errors
among EITC claimants without qualifying children are due to the misreporting of income.
While we can identify the sources ofEITC errors in this study, we do not know from the
study the extent to which the EITC, itself, is the root cause of the noncompliance on the part of
the taxpayers. By misreporting filing status, child dependents, and income, taxpayers may be
able to reduce their tax liability through other provisions in addition t6 the EITe. Because this
study focused only on EITC claimants, it does not isolate the effect of the EITC on
noncompliance, or the extent to which higher income taxpayers are benefiting from misreporting
their income or family circumstances.
The study does provide evidence that the refundable nature of the credit does not induce
ineligible individuals to enter the tax system simply to claim the credit. As I have discussed, 95
percent of EITC claimants have a reason other than the EITC to file a return. The overclaim rate
among those with a positive pre-EITC tax liability is nearly three times larger than the rate
among those who did not have a tax liability. The data thus suggest that noncompliant EITC
claimants do not enter the tax system merely to claim the credit.
While the results of this study are not fully applicable to the current EITC, the study does
point to the need for new approaches. Many types of EITC errors are difficult to detect with the
current IRS enforcement tools, such as matching of information reports and Social Security
Administration records to tax returns. Our proposals are designed to provide the IRS with new
Some taxpayers misreport their filing status and also claim children who did not
reside with them. They are included in both error categories.
6
tools to identify erroneous EITC claims while minimizing additional administrative costs to the
Federal government.
Legislative and Administrative Proposals
The Treasury Department's eight-point plan contains six legislative proposals and two
administrative actions. These proposals will help reduce EITC errors by increasing IRS's ability
to detect errors before EITC refunds are paid out, by imposing new, more effective penalties on
EITC claimants, and by reducing the risk of unintentional errors by law-abiding taxpayers.
Proposals to Improve the Flow of Information Prior to Release of EITC Claims
Due diligence requirements for preparers -- About half of earned income tax credit
(EITC) claimants use a paid preparer to complete their income tax returns. As a consequence,
tax preparers can playa key role in helping working families file accurate tax returns. While
there is little significant difference among returns prepared by the taxpayer and those prepared by
a paid preparer, the error rate does differ depending on the type of preparer consulted by the
taxpayer. Noncompliance was much lower among taxpayers who went to a preparer who was
either a certified public accountant, lawyer, enrolled agent, or a representative of one of the large
nationally-recognized organizations. It was higher among those who sought other types of
preparers.
Under our proposal, the responsibilities of paid preparers, with respect to potential EITC
claimants, would be clarified. Preparers who do not fulfill certain due diligence requirements
would be subject to cash penalties ranging from $50 to the full amount of an EITC overclaim.
The proposed penalties would be in addition to the penalties imposed on preparers and taxpayers
under current law. The proposal would be effective for taxable years beginning after December
31, 1997.
Recertification -- When questions arise about EITC claims, the IRS generally must follow
deficiency procedures to determine the accuracy of the taxpayer's return. While deficiency
procedures protect taxpayers' rights, they can be time-consuming and relatively expensive when
compared to the amount of tax at issue.
Under the proposal, a taxpayer who has been denied the EITC as a result of deficiency
procedures would be ineligible to claim the credit in subsequent years unless he or she provides
evidence of his or her eligibility for the credit. To demonstrate current eligibility, the taxpayer
would be required to meet evidentiary requirements established by the Secretary ofthe Treasury.
Failure to provide this information when claiming the EITC would be treated as a mathematical
or clerical error. If a taxpayer is recertified as eligible for the credit, he or she would not be
required to provide this information in the future unless the IRS again denies the EITC as a result
of a deficiency procedure. Ineligibility for the EITC under the proposal would be subject to
review by the courts. The proposal would be effective for taxable years beginning after
December 31, 1997.
7
Demonstration Projects -- The Treasury Department is seeking legislation permitting it
to select four states to experiment with alternative ways of providing the EITC throughout the
year. Under the proposal. the four states could provide advance payments of the EITC to wage
earners through state agencies rather than employers for a three year period. States would be
required to verify eligibility for the EITC before paying out the credit. Effects on advance
payment participation and compliance would be studied by Treasury. Applications would be
submitted by the states to the Treasury Department during 1998 for demonstration proj ects to
begin in January, 1999.
Earmarking ofIRS Resources -- Using information from the EITC compliance studies
and other ongoing pilot projects, the IRS will continue to develop and use profiles of potentially
erroneous EITC claimants. These profiles will be used to identify questionable EITC claims
during the 1998 filing season. The IRS will expand the number of questionable EITC claims that
it investigates during the 1998 filing season. Refunds associated with these claims will be
delayed until the investigation is complete. Out of its current appropriations request, the IRS is
earmarking 550 full time equivalent staff persons for this intensified effort during the 1998 filing
season.
Increasing the Penalties for Intentional Noncompliance
New Penalties for Intentional and Fraudulent Errors -- Existing civil penalties have a
limited deterrence effect against ineligible taxpayers repeatedly claiming the EITC. Denying
subsequent eligibility to claim the EITC to taxpayers who have recklessly, intentionally, or
fraudulently claimed the EITC in the past should help ensure that only those who are eligible for
the credit receive it.
Under the proposal, any person who fraudulently claims the EITC would be ineligible to
claim the EITC for a subsequent period of ten years. In addition, any person who erroneously
claims the credit and such error is due to the reckless or intentional disregard of rules or
regulations would be denied eligibility for the EITC for two subsequent years. The sanction
under the proposal would be in addition to civil and criminal penalties imposed under current
law. In addition, the sanction would be subject to review by the courts. The proposal would be
effective for taxable years beginning after December 31, 1997.
Continuing Levy -- The IRS does not generally find it cost-effective to recoup
overpayments of the earned income tax credit (EITC) or impose monetary penalties on
noncompliant claimants. To some extent, these efforts are hindered by the exemption from levy
of certain types of income prevalent among EITC claimants. By removing these exemptions,
this proposal would make it more likely that the IRS would recapture overpayments.
In our FY 1998 budget, the Administration proposed that certain exemptions be partially
lifted from the levy. Under the budget proposal, Federal workers' compensation payments,
annuity or pension payments under the Railroad Retirement Act, and benefits under the Railroad
Unemployment Insurance Act would no longer be fully exempted from levy. The proposal
would change the exempt amount of Federal wages, salaries, and other income to a flat 85
8
percent exemption. The proposal would provide for "continuous" levy on non-means tested,
recurring Federal payments.
Under the EITC initiative, unemployment benefits and means-tested public assistance
would no longer be fully exempted from levy for any purpose. Up to 15 percent of these benefits
would be subject to levy. The proposal would also provide for the option of a "continuous" levy
on these payments. Treasury would work with affected Departments and state agencies to design
the mechanisms appropriate for each program. Ifnecessary, conforming changes would be made
to the laws and regulations governing public assistance to ensure that there would not be
offsetting changes in these benefits to compensate for the levy. The proposal would apply to
levies issued after December 31, 1997.
As under current law, taxpayers would be allowed to apply for relief from a levy if they
can demonstrate that they are suffering significant hardship as a consequence.
Reduce Unintentional Errors
Simplification of Foster Child Rule -- Under current law, a taxpayer is eligible to claim
the earned income tax credit (EITe) ifhe or she resides with a son, daughter, or grandchild for
over half the year. EITC qualifying children also include individuals who reside with taxpayers
for a full year and for whom the taxpayers "care for as the taxpayers' own children." All EITC
qualifying children (including foster children) must either be under the age of 19 (24 if a fulltime student) or permanently and totally disabled.
The foster child" rule is confusing to both taxpayers and the IRS. Clarifying the
definition would eliminate unintentional errors by taxpayers and provide better guidance to the
IRS. In addition, the definition of a foster child for EITC purposes would be conformed to the
dependency exemption definition proposed as part of the Administration's simplification
package.
Under the proposal, a foster child would be defined as a child who (i) is under the age of
19 (24 if a full-time student), (ii) is cared for by the taxpayer as ifhe or she were the taxpayer's
own child, and (iii) either is the taxpayer's niece, nephew, or sibling or was placed in the
taxpayer's home by an agency of a state or one of its political subdivisions or a tax-exempt child
placement agency licensed by a state. The proposal would be effective for taxable years
beginning after December 31, 1997.
Improve Access to Taxpayer Assistance -- In 1996, 1.9 million low-income taxpayers
receive assistance preparing their tax returns from over 47,000 volunteers in IRS-sponsored
VITA (Volunteer Income Tax Assistance) facilities. The IRS provides training materials and
tax forms to 8,300 sites. The IRS also provides software for electronic filing and lends computer
hardware to selected sites. These VITA efforts will be continued and strengthened as part of the
Administration's commitment to volunteerism. The Treasury Department is contacting
businesses and tax professional organizations to make sure that they are aware of the need for
VITA volunteers, computers, facility sites, and outreach assistance. By imP,Toving access to free
9
taxpayer assistance and electronic filing, these efforts will help reduce the risk of unintentional
errors.
*****
This concludes my remarks. We look forward to working with you toward the enactment
of these provisions. Thank you once again for providing me with the opportunity to testify. I
would be pleased to answer any question that the Committee may have.
-30-
DEPARTl\1ENT
OF
1789
THE
TREASURY
NEWS
OFFlCE OFPUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
EMBARGOED UNTIL 8:50 A.M. EDT
Text as Prepared for Delivery
May 9, 1997
The Role of the Ex-1m Bank and Treasury in Reducing Barriers to Trade
Lawrence H. Summers
Deputy Secretary of the Treasury
Ex-1m Bank Annual Conference
Washington, DC
Good morning. It is a pleasure to be here at the annual conference of the Ex-1m Bank.
As Secretary Daley indicated, the Ex-1m Bank is a vital part of this nation's trade strategy and is an
important asset to the US economy.
When we think of the remarkable surge in exports we have seen, with exports rising 10% per year
since 1993 so that the United States is again the largest exporter in the world, a large share of the
credit must go to the Ex-1m bank.
In 1996, Ex-1m financed an estimated $14.6 billion in exports, supporting an estimated 200,000 jobs
directly (and indirectly, a million more). Some 80% of these transactions benefited small business.
By leveling the playing field for US exporters, Ex-1m lies at the very core of our export strategy. This
is a fact that the President recognized when he fought successfully for its continued authorization in
the bi-partisan balanced budget agreement announced last week.
When we think of what Ex-1m does, we usually think of trade financing, in all its forms. However,
there is another side to Ex-1m that is much less well understood, but equally important that I want to
talk about today. The U.S. Government uses Ex-1m as its representative within the OECD to reduce
subsidies by other countries of official export financing.
Agreements such as NAFfA and the Uruguay Round helped us reduce barriers in the form of tariffs
and other trade restrictions. But financing subsidies can constitute equally high barriers to US exports.
Reducing them helps US exporters while saving taxpayers money.
RR-1677
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
The Ex-1m Bank is our admission ticket to the OECD's Export Credit Arrangement where international
rules for official export credit agencies are negotiated, monitored and enforced. And, there, Ex-1m
is Treasury's partner in reducing foreign export fInancing subsidies.
This morning, I would like to focus on what we in Treasury have been doing in conjunction with Ex1m to open markets for American fIrms by reducing these harmful subsidies.
Reducing Interest Rate Subsidies
Traditionally, foreign export credit agencies subsidized exporters by offering below market interest
rates. The use of this tool by foreign governments put US exporters at a major disadvantage since we
offered no such program. But matching the subsidies would have been expensive for the US Treasury
and might wen have bid up subsidies further.
As a result, the US took the matter to the OECD where we negotiated the elimination of interest rate
subsidies. The agreement we won requires that export credit agencies uniformly charge a 100 basis
point spread over government cost of funds (for a given loan duration). This reform has doubled the
amount of US exports Ex-1m can support at any given level of appropriations compared to 10 years
ago. The last installment of this phased agreement went into effect in 1996 and has saved Ex-1m about
$200 million annually in required appropriations.
Reducing Tied Aid
In response to our action on this score, however, many countries began to increase their use of tied
aid subsidies. As opposed to interest rate subsidies which apply across the board, tied aid consists of
the use of grants or subsidized fInancing to sweeten specifIc export financing deals.
In most cases, the subsidies take the guise of aid money. And, in general, the battleground for this
form of subsidy has been in the fastest growing Asian markets such as China, Indonesia, India,
Thailand, the Philippines--markets where as you well know, the US cannot afford to lose.
Assessing the problem, the US government determined that it did not make sense to up the tied aid
ante by creating our own subsidy program or to start an export subsidy race.
Instead, we pressed for OEeD negotiations to set international rules.
In 1992, the US got new rules that barred OECD countries from giving tied aid to the richer
developing counties such as Mexico, Korea, Malaysia and Argentina. And they prohibited tied aid
for projects with sufficient cash flows to service commercial term debt -- i.e. projects that were
commercially viable.
These rules which this Administration has implemented have a triggered a sea change in procurement
policies. Over the last fIve years, the Treasury Department has led the OECD in reviewing over 100
projects. In about sixty cases, we determined that the projects were not eligible for tied aid because
they were commercially viable. This created a sufficient body of case law to permit the issuance of
OECD Guidelines that now clarify which projects are eligible for tied aid and which are not.
2
The result of this agreement is that foreign tied aid offers for major capital goods projects dropped
from about $8 billion per year prior to the agreement to $2 billion afterwards.
The immediate U.S. share of this newly open capital goods market is about $1 billion annually. But
with US technology and, in some cases, standards in place, follow-on sales should provide even higher
export gains over time.
While this agreement has largely eliminated unfair tied aid, we have also created the Ex-1m Tied Aid
Capital Projects Fund to match tied aid offers for certain key projects that are not commercially viable.
Limiting tied aid is good for American exporters. It is also good for the global economy. By stopping
aid fInancing from crowding out commercial financing, it helps direct scarce aid resources to the
poorer countries, not the richer countries that can afford commercial financing.
And it has done all that while saving American taxpayers the $300-$500 million
appropriations that matching our competitors' subsidies would have cost..
In
annual
Other Initiatives
Building on these initiatives, we are now in the process of negotiating OECD rules to restrict export
subsidies further by requiring export credit agencies to charge appropriate risk, or exposure, fees. By
agreeing on one international system for setting risk premia, we can further level the playing fIeld for
American exporters. This could save Ex-1m around $50 million annually in required appropriations.
Looking further out on the horizon, we are also exploring ways to maximize the ability of US
exporters to benefIt from untied aid programs. Some countries offer aid without explicit ties. Our
goal is to ensure that these competitions are fair and transparent.
We have already negotiated an agreement within the OECD whereby Japan and Germany now provide
notifIcation of untied aid they are granting for projects in developing countries. This information is
now published regularly on the Department of Commerce's home page on the World Wide Web where
it can be accessed by US fIrms seeking overseas business.
Conclusion
In conclusion, Ex-1m does more than just provide financing to US exporters. Through its seat at the
table at the OECD Export Credit Arrangement. it has enabled the US government to eliminate a
number of unfair export subsidies, reducing barriers to US exports.
Eliminating these barriers to trade has received less publicity than NAFTA, the Uruguay Round, the
Financial Framework with Japan and the 200 some other trade agreements this Administration has
negotiated. But they are another vital way that the Ex-1m Bank helps boost exports and creates more
high paying export jobs for the American people.
-30-
3
DEPARTMENT
OF
THE
TREASURY
NEWS
omCE OF PUBliC AFFAIRS .1500 PENNSYLVANIA AVENUE, N.W•• WASIllNGTON, D.C.• 20220 • (202) 622-2960
For Immediate Release
Address by the Honorable David A. Lipton
Assistant Secretary of the Treasury for International Affairs
before the IFe Participants Meeting
May 6,1997
Thank you. I am very pleased to join you here tonight and to extend the tradition of Treasury
Department officials addressing the IFe's participants meeting group.
The agenda for your meetings tomorrow reveals the broad scope of the IFe's activities --from
project financing in Russia to privatization of a major utility in the Philippines to new financial
products for emerging markets. That variety shows that the IFe is responding to our rapidly
changing global economy, and in particular the dramatic evolution in the frontiers of economic
development.
As we near the tum of the century, we see the real prospect of markets taking hold in all comers of
the globe and of a growing web of trade and finance linking our economies together. To ensure that
those remarkable changes lead to growth and prosperity, we must seize the opportunity that history
is giving us. We must encourage transition and developing countries to build the institutions of
modern market economies, to manage their economies sensibly, and to open their economies to
trade in goods and fmancial services. And, we must mobilize the might of our private sectors to
spread the capital, technology and know how that will bring rising living standards and sustain the
politics of reform.
The international financial institutions, especially the IFe, have an important role to play in that
process. Today, the IFe is fmancially strong and has mapped out a sound medium-term business
plan. As the frontiers of the global capital market extend, and the role of the private sector expands,
the IFe must explore those frontiers for opportunities to promote private sector activity. That means
further decreasing its presence in markets and sectors that have earned substantial access to private
capital and devoting increased resources to new markets bringing new value-added both for clients
and co-financiers. At the same time, it means continuing to look for innovative mechanisms to meet
the new demands of a changing environment and client base --such as expanding its work in
guarantees and moving towards a more active and outward-looking field presence.
RR-1678
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
2
Aggressive innovation and creative solutions are needed for the IFe to be a pioneer in promoting
capitalism on into the 21 st century.
ReKional ChallenKes and Priorities
Let me review regional developments that represent the challenges we face
development and that describe the challenging environment facing the IFe.
In
promoting
Latin America, with its impressive economic and political advances in recent years, is pointed down
the road to self-sustaining private sector-driven growth. As a result, private capital has flowed into
the region at a record pace --more than $75 billion last year. Latin America's needs remain great:
to promote savings, to build capital market infrastructure and strong fmancial institutions to channel
savings to good uses, and to construct physical infrastructure estimated at more than $60 billion per
year.
The economies in transition face a complex and varied reform agenda. Poland, the Czech Republic,
and Hungary have transformed their economies through stabilization, liberalization, and
privatization; and they have an impressive track record of growth to show for it. Now they face
structural and sectoral reform challenges --using market-oriented incentives to promote efficiency
and growth throughout the economy.
In contrast, parts of Southeast Europe demonstrate the high cost of delayed or reversed reform.
Fortunately, Bulgaria and Romania are now poised to restart the stabilization phase of reforms while
moving ahead on the structural reforms essential for an early restoration of confidence and growth.
Russia lost time last year, preoccupied with politics and cardiology. But its new economic dream
team has the right agenda and has the resolve. They understand their goal is to improve the
country's investment climate. And they understand that they have a limited window of opportunity
to act and produce results for a public weary of economic hardship.
In the Middle East and North Africa, with its history of state-domination of economic affairs, we
are seeing some countries make or consider fundamental shifts in course. In some countries, we are
already seeing more rapid growth, sustainable macroeconomic balances, capital market
development, and increased private investor interest. The demonstration effect has helped make
reform spread and become self-sustaining. There has been much emphasis placed on the positive
role that progress on the peace process can play in promoting economic progress. I firmly believe
that the causality also works the other way.
Sub-Saharan Africa remains a special challenge and in many respects is the last great development
challenge. Despite the best efforts of the development community, including institutions and many
3
outstanding individuals, much of Sub-Saharan Mrica has not participated very fully in
global trends toward economic integration and thus has not seen its share of growth and
technological advancement over the past several decades.
At the same time, democratization and economic reform are taking hold in a surprising number of
countries. Elections in more than 20 countries show that democracy can take root in Sub-Saharan
Africa. Economic reforms in 15 to 20 countries have led to sustained growth after years of
stagnation or even negative growth. Some countries are experiencing growth rates, at least for now,
that compare favorably with those of fast-growing developing countries in Latin America and
South-East Asia. Senegal, Ghana, and Cote d'Ivoire, for example, are growing in the 5 to 6% range.
Uganda grew by 10 percent in 1995 and Ethiopia by an estimated 12.5% in the last year.
This diverse picture shows that, while Mrica is a challenge for investors and for the IFC, there are
real and growing business opportunities. Similarly for development institutions and donor countries,
there is a rare, perhaps historic opportunity: To respond to positive developments in Mrica with
an extra measure of support for those countries that are doing the most to'help themselves. With
this in mind, the Clinton Administration has recently proposed to Congress a Partnership for
Economic Growth and Opportunity in Mrica. The Partnership includes a number of initiatives to
support countries taking bold steps to open their economies to trade and investment, to improve the
quality of governance, and generally to create an environment that is conducive to rapid, private
sector-led growth. We will be discussing these initiatives with countries participating in the Denver
Summit, where we expect Mrica to be an important item on the agenda. We will continue to work
closely with the World Bank Group, the IMF, the Mrican Development Bank, the private sector,
and of course Mrican governments to do all we can to make this new Partnership a success.
New Instruments for Collaboration with the Private Sector
Whatever the particular region, the bottom line for us is that the World Bank Group needs to make
the fullest possible use of available instruments to deepen its collaboration with the international
private lenders who will drive development in the decade ahead. Partial risk and partial credit
guarantees by the World Bank Group are one such instrument whose potential has not yet been fully
tapped. We are encouraging the IFC to explore how its own activities in this area might be
expanded in cooperation with the rest of the World Bank Group.
In this light, MIGA has been operating very successfully in recent years, and international private
investor demand for MIGA's services is growing rapidly. As we indicated at the recent
Development Committee meeting, the U.S. Treasury recognizes that MIGA will need additions to
its capital base to function effectively in the early years of the next century. In the meantime,
however, MIGA's liquidity and use of its existing capital base could be expanded through a
substantial near-term transfer of net income from the World Bank.
4
Financial Service Nea:otiations
There are other areas where we are working to advance the collaboration of the public and private
sectors in the service of economic development. For example, all of us stand to gain enormously
from a successful conclusion to the WTO negotiations on trade in financial services. Our goal of
a comprehensive Most Favored Nation-based agreement that provides substantially full market
access and national treatment to foreign financial services providers is an ambitious but worthy one.
Foreign firms should be able to establish and operate in the form of their own choosing, including
branches. Full majority ownership is crucial to firms' effective management. It goes without saying
that this will require a higher standard of liberalization than has been offered to date, particularly
by a number of developing nations.
Shared Priorities and Shared Interests
Ladies and Gentlemen, the case for active u.s. engagement in the global financial system and the
global financial institutions we helped create seems to us more compelling than ever. The rewards
of engagement have never been higher, nor the risks of disengagement clearer. In a changed world,
where military and ideological confrontation have given way to economic globalization and
burgeoning trade flows, our prosperity depends more than ever on stable and growing economies
in the developing world. What is more, the end of the Cold War has meant that regional conflicts,
often rooted in poverty and societal collapse, are increasingly the main threats to our security
interests. In both areas, we and our G-7 partners recognize that the international institutions are
critical instruments for promoting our shared interests and values.
Yet as you well know, there are many who do not share this view and the evidence of their
skepticism can easily be seen. Closest to home for this institution has been the enormous difficulty
we have faced in our efforts to secure adequate Congressional support for the multilateral financial
institutions, especially the soft loan windows in the multilateral banks.
The Clinton Administration's view is straightforward. We fully appreciate the importance of sound,
adequately funded international financial institutions for the entire global economy and for our
long-term national interests. We are fully dedicated to obtaining the funding we have requested and
to meeting the commitments we made in good faith. Our shared interests are at stake: yours as the
increasingly central players in the development challenge and ours as the central player in a post
Cold War world striving for shared prosperity, security and human dignity. I'm confident that,
working together, we will succeed.
-30-
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt. Washington, DC 20239
FOR IMM~DIATE RELEASE
May 12, 1997
C01E;'.CT: Office of Financing
202-219-3350
RESULTS OF TREP.SURY I S AUCTION OF 13 -WEEK BILLS
Te~ders
for $7,574 million of 13-week bills to be issued
May 15, 1997 and to mature August 14, 1997 we~e
accepted today (CUSIP: 9127945J9).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
P.verage
Discount
Rate
5.07%
5.08%
5.08%
Investme::t
Rate
5.21%
5.22%
5.22%
Price
98.718
98.716
98.716
Te::ders at the high discount rate ~e~e allotted 30%.
The investme:1t rate is the equivale::t coupon-issue yield.
TENDERS RECEIVED
P~D
ACCEPTED (i:: thousands)
Received
$41,174,890
P.cce~ted
Type
Cor..peti ti Ve
Noncompetitive
Subtotal, Fublic
$39,237,939
1,427,551
$40,665,490
$5,636,792
1,427.551
$7,064,343
Foreign Official
Institutions
TOTALS
509,400
$41,174,890
509.400
$7,573,743
TOTP.LS
$7,573,743
In addition, $3,680,485 thousand ~as awarae~ to the
Fede~al Reserve Banks for their own accc~nts.
RR-1679
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt. Washington, DC 20239
FOR IMMEDIATE RELEASE
May 12, 1997
CON7ACT: Office of Financing
202-219-3350
RESULTS OF TREP.SURY'S AUCTION OF 26-WEEK BILLS
Tenders for $7,595 million of 26-~eek bills to be issued
May 15, 1997 and to mature Novembe~ 13, 1997 were
accepted today (CUSIP: 9127942W3).
OF ACCEPTED
COMPETITIVE BIDS:
~~~GE
Low
High
Average
Discount
Rate
5.28%
5.31%
5.30%
Investme:::~
R-"'~
o.l.._
5.50%
5.53%
5.52%
Price
97.331
97.316
97.321
Tenders at the high discount ra~e we~e allotted 12%.
The investment rate is the equ~vale:::t coupon-issue yield.
TENDERS RECEIVED
P~~D ACCEPT~~
(:~
thousands)
Received
$37,206,7:'2
P_cceoted
$7,594,912
Type
Competitive
Noncompetitive
Subtotal, Public
$33,335,7C:
1.141.0:.2
$34,476,712
$3,723,900
1. 141. 012
$4,864,912
Foreign Official
Institutions
TOTALS
2,730,000
$37,206,7:'2
2,730,000
$7,594,912
TOTALS
In addition, $3,465,000 thousa:::d ~as awarded to the
Federal Reserve Banks for their ow::: accounts.
5.29 -- 97.326
RR-1680
DEPARTMENT
OF
THE
TREASURY
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIllNGTON, D.C. - 20220 - (202) 622-2960
EMBARGOED UNTIL 9:30 A.M. EDT
Text as Prepared for Delivery
May 14, 1997
TREASURY UNDER SECRETARY FOR ENFORCEMENT
RAYMONDW. KELLY
SENATE CAUCUS ON INTERNATIONAL NARCOTICS CONTROL
I appreciate the opportunity to appear before the Caucus to address this important issue.
Public corruption is always a serious matter, especially in law enforcement, where its presence
can undermine the foundation of our society and its institutions, the very concept of the Rule of
Law.
Today, the possibility of corruption in the area of drug law enforcement is substantial.
The enormous sums of money being generated by drug trafficking have added a new dimension
to the threat and the potential for bribery is great. Drug traffickers do not abide by rules and are
willing to try anything that helps them get the drugs across the border, including the offer of
large amounts of money. It is a challenge which the Customs Service, and the other law
enforcement agencies here before you, must overcome at the border on daily basis. Every
vehicle which is stopped, every cargo shipment which is inspected, carries the inherent potential
for corruption, the lure of easy wealth.
At Treasury, we want our law enforcement personnel to adhere to the highest standards
of integrity and professionalism. Given the unique and far-reaching powers which law
enforcement officers possess, this is not only understandable, but essential. These standards are
reflected in our personnel recruitment efforts, which strive to attract the most highly qualified -and motivated -- individuals to be our law enforcement officers. They are also part of the
training regimen which all officers receive, both at the academy and in-service, including an
emphasis on integrity and standards of conduct. And we are always looking for ways to
improve both our recruitment efforts and our training.
Treasury is working with a consultant on a Congressionally mandated review of the
personnel procedures and practices for Criminal Investigators within the Treasury bureaus. This
review covers a wide spectrum of personnel questions, including hiring authorities and the use of
RR-1681
For press releases, speeches, public schedules and. official biographies, call our 24-hour fax line at (202) 622-2040
probationary periods. It is our hope that this exercise will indicate ways in which we can update
and improve our personnel procedures to ensure the highest quality recruitment in the years to
come.
Unfortunately, proactive measures such as these cannot, by themselves, provide certainty
in an imperfect world. Despite the best efforts to create an environment of honesty and
integrity, there is always the possibility that an individual officer may prove to be vulnerable to
the lure of bribery. It is a credit to the men and women of Federal law enforcement agencies
that the instances of corruption which have been identified have been isolated incidents,
involving a small percentage of our personnel. But this does not lessen the danger which they
pose: even one corrupt law enforcement officer poses a threat not only to the general public but
to his or her fellow officers as well. If left unchallenged, corruption can undermine an entire
organization and the morale of its officers. To meet this threat, we must identify and remove
corrupt individuals quickly and effectively.
The Office of Internal Affairs at Customs faces a truly difficult task, and to be effective it
requires the active support of the organization's management, from the top down. They need to
be staffed by the best people, and they must have adequate resources to be effective. In order to
demonstrate management's support, Customs considers service in the Internal Affairs Office as a
factor for promotional opportunities. This is not an automatic rung on the advancement ladder,
but it is a means to attract the best personnel to service in Internal Affairs. It also assures that
the office is staffed by experienced law enforcement officers rather than new recruits and helps
to lessen a common situation in law enforcement organizations: the isolation of its internal
affairs office from the operational elements it monitors.
With respect to Customs in particular, we have recently taken two important steps.
First, we have hired an individual to conduct an objective assessment of the Internal Affairs
Offices of the Treasury Enforcement Bureaus, beginning with the Customs Service. Like most
organizations, this function needs to be reassessed periodically in light of both current
circumstances and projected developments, in order to anticipate changes in the nature of the
threat. Internal Affairs Offices cannot remain stagnant and wait for a scandal to erupt. Times
change, techniques change, the threat changes, and we need to step back periodically and reexamine our integrity systems and programs. We need to plan ahead.
This assessment is being conducted by an individual who previously served as Deputy
Commissioner for Internal Affairs of the New York City Police Department. A former federal
prosecutor, he undertook a far-reaching reorganization of the NVPD Internal Affairs at my
behest when I was Police Commissioner. The assessment is intended to evaluate the scope of
the integrity problem and the issues involved. It will examine whether we have adequate
resources to get the job done, whether it is vehicles, surveillance equipment, or staffing levels. It
will also review internal affairs procedures, such as the system for managing investigative cases.
Although the assessment is not yet complete, I am confident that it will provide us with a
2
road map of where we are and where we need to go from here. In the meantime, Treasury
Enforcement and Customs are working together on a new Anti-Corruption Action Plan. This
joint initiative is intended to improve significantly the Internal Affairs Office's ability to actively
seek out, identify, and prosecute corrupt Customs employees. It will also address actions which
can be taken to prevent corruption from developing in the first place. Weare in the process of
calculating the cost of the plan and identifying sources of funding. We intend to implement this
plan as quickly as possible, and make further modifications as necessary once the assessment is
completed. Commissioner Weise and I have worked in a collaborative manner to develop this
plan and I know he shares my commitment to its success.
The second step we have taken is the establishment of an Office of Professional
Responsibility (OPR) within the Office of Enforcement. As you may know, Treasury's Office
of Enforcement has received funding and support from Congress to increase its staffing. In our
staffmg plan, we have included positions which will provide enhanced oversight in the area of
integrity and internal affairs issues for our enforcement bureaus.
This increase is intended to improve the ability of my office to maintain oversight of Treasury's
enforcement bureaus and offices. Effective oversight is critical to the long-term functioning of
internal policing efforts.
This new office will provide for increased review and oversight of internal affairs and
enforcement operations within the bureaus; oversee and evaluate the management practices of
the bureaus, including recruitment, hiring and promotion; and ensure that necessary institutional
or management changes are made following any review or investigation that it conducts or is
conducted by the Office of the Inspector General.
I would like to emphasize that this office is meant to assist in the oversight and
management of the bureaus and is not intended to replace any other governmental agency or
office whose jurisdiction includes investigations into the actions of the Bureaus, nor will it
infringe upon the responsibilities or duties of Treasury's Office of the Inspector General.
I believe that, taken together, these actions will allow us to attack the threat of corruption .
head on. But it is only a beginning. We know that we will have to maintain a consistently high
level of effort over the long term to be effective. The overwhelming majority of our law
enforcement officers are honest, dedicated officers like Nicolas Lira and Roberto Labrada Jr.,
the two Customs Inspectors who were critically wounded by a smuggler last month at Calexico.
They, as much as anyone in this room, expect us to maintain the highest possible standards of
conduct.
Again, I would like to thank you for the opportunity to discuss this vital issue and I
would be happy to answer any questions you might have.
-30-
l)
E P \ R T 1\1 E
~
'I
() F
'I H E
T I{ F '\ S t: R Y
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE. N.W. - WASHINGTON, D.C. - 20220. (202) 622·2960
CONTACT:' Office of Financing
EMBARGOED UNTIL 2: 3.0 P. M.
May 13, 1997
-
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $15,000 million, to be issued May 22, 1997.
This offering will result in a paydown for the Treasury of about
$5,42S million, as the maturing publicly-held weekly billa are
outstanding in the amount of $20,416 million.
In addition to the public holdings, Federal Reserve Banks for
their own accounts hold $6,944 million of the maturing bills,
which may be refunded at the weighted average discount rate of
accept~d competitive tenders.
Amounts issu.d to these accounts
will be in addition to the offerino amount.
Federal aeserve Banks hold $3,273 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 tender.. Additional amounts
may be i •• ued ~or such accounts if the aggregate amount of new
bids exceeds the aggreg~te 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, as amended) for the aale 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-1682
BIGBLI:r.iDI'1'S 01' 'lIUlASORY 0J'1'8RllCGS 01' 'MJi:iXLY BILLS
TO BB ISSUBD MAY 22. 1997
May 13, 1997
Offering
Amount .
I
•
•
•
•
p,.g~iption of Qff.ripal .
Term and type of security • •
CUSIP number
. •
Auction date . . • . .
•
Issue date . . . •
•..
Maturity date • . • • • • . .
Original issue date • • • . .
CUrrently outstanding . . . •
Minimum bid amount . . • • •
Multiples . . • • . . . • . .
•
•
.
.
•
.
•
•
•
• •
.
•
•
•
•
•
•
•
•
•
•
.
.
•
$7,500 million
$'7,500 million
91-day bill
912'794 2T 0
May 19, 199'7
May 22, 199'7
August 21, 199'7
August 22, 1996
182-day bill
$33,943 million
$10,000
$ 1,000
912794 SU "
May 19, 1997
May 22, 1997
November 20, 199'7
May 22, 199'7
$10,000
$ 1,000
The following rule. apply to all ,ecvrltiea mentigped aboye.
Submis~ion of Bids:
Noncompetitive bids .
Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids
(1) Must be expressed as a discount rate with
Competitive bids
two decimals, e.g., 7.10t.
(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 ba1f-hour prior to the closing time for
receipt of competitive tenders.
Maximum Recognized Did
35% of public offering
at a Single Yield
• •
Max1-mum Award • • , •
• • • 35% of public offering
Receipt QC Tenders:
'-'Noncompet itive ·.. t·enders" .....; ...-..... o· .......... ", ..... Prior· ··to . ·1·2-'1·00· ·noon ·..Baatern .Daylight .Saving. .t lme ..
on auction day
Competitive tenders. • • • • • • • Prior to 1~00 p.m. Bastern Daylight Saving time
on auction day
Full payment with tender or by charge to a funds
PAyment Terms • •
•
•
account at a Federal Reserve Bank on issue date
..
DEPARTMENT
OF
THE
TREASURY
NEWS
IRFASURY
omCE OFPUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
May 14,1997
Contact: Beth Weaver
(202) 622-2960
TREASURY UNDER SECRETARY KELLY TO HOLD BRIEFING
ON NEW REQUIREMENTS FOR ALIENS PURCHASING FIREARMS
Treasury Under Secretary for Enforcement Raymond W. Kelly will hold a media briefing and
photo opportunity tomorrow, Thursday, May 15 at 10:30 a.m. on the recent changes to the
firearms transaction record (ATF form 4473). The press briefing will take place at the
Department of the Treasury in Room 3311.
The changes reflect President Clinton's directive to Secretary Rubin on March 5, 1997, calling for
a tightening of restrictions for aliens purchasing firearms. The new regulations require a
purchaser to state whether or not he or she is a U.S. citizen, whether he or she has been a resident
of the state for 90 days and to provide additional proof of residency through utility bills or other
documentary evidence. The regulations also require alien purchasers to provide photo
identification for all firearms purchases.
The revised firearms transaction records will be distributed to the more than 112,000 Federal
firearms licensees.
Press without White House, Treasury, State, Defense or Congressional credentials must call the'
Office of Public Affairs at (202) 622-2960 by May 15, 9 am with the following information: full
name, social security number and date of birth.
--30--
RR-1683
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
DEPARTMENT
lREASURY
OF
THE
TREASURY
NEWS
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASIDNGTON, D.C•• 20220. (202) 622-2960
EMBARGOED UNTIL 10 A.M. EDT
Text as Prepared for Delivery
May 15,1997
TREASURY ASSISTANT SECRETARY (ENFORCEMENT)
JAMES E. JOHNSON
HOUSE COMMITTEE ON BANKING AND
FINANCIAL SERVICES
Thank you for providing me with the opportunity to be here to discuss money laundering
on the southwest border. Seated here with me is Stanley Morris, Director of the Treasury
Department's Financial Crimes Enforcement Network or "FinCEN." I also would like to
introduce Edward Federico, Jr., Deputy Assistant Commissioner of the Internal Revenue Service
Criminal Investigation Division. Deputy Assistant Commissioner Federico's testimony has been
submitted for the record. The three of us will be happy to answer any questions you may have at
the conclusion of opening statements.
I would like to begin by touching briefly upon the highlights of the IRS-CI study of the
cash surplus in the San Antonio Federal Reserve district. I will leave it to Director Morris and
Deputy Assistant Commissioner Frederico to discuss the study in more detail. Then I would like
to speak: briefly about the implications of the study for Treasury's anti-money laundering
program. Finally, I would like to address recent developments in Mexican anti-money
laundering capabilities and the effect these developments should have on our joint efforts.
On October 21, 1996, Congressman Gonzalez requested that IRS-CI determine the
sources ofa $2.9 billion bank surplus at the San Antonio Branch of the Federal Reserve Bank for
1995. In response to the Congressman's request, IRS-CI developed an analytical plan which
reflected its institutional expertise. As you know, the special agents of the IRS-CI are highly
skilled in investigating sophisticated crimes such as criminal tax violations and money
laundering. They are not trained as economists or bankers. The analysis of the cash surplus was
performed by IRS special agents employing the mind set and techniques of financial
investigators -- in this case investigators familiar with the San Antonio, Texas, and southwest
border areas.
RR-1684
Fur press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
~ umerous government and business sources were interviewed in furtherance of the
analysis. Information was received from FinCEN, the San Antonio Federal Reserve, the
Co~merce Department. the Office of the Controller of the Currency, the Customs Service, the
FS. Attornev's Office for the Middle District of Texas, the IRS Detroit Data Computing Center,
and the Texa~ Comptroller's Office. Business sources interviewed include south Texas banks
sen·iced by the San Antonio Federal Reserve, the Texas Banker's Association, discussions with
Mexican bankers, and Internet business sources.
The most significant findings of the study were as follows. First, the existence of the
cash surplus, in and of itself, does not indicate drug-related money laundering. The San Antonio
Federal Reserve District has run a surplus every year since at least 1951 -- arguably more than
fifteen years before drug trafficking emerged as the significant economic activity that it is today
in Mexico, and certainly more than thirty years before money laundering was a crime in this or in
any other country in the world.
In 1995,32% of the Federal Reserve Bank regional districts had surpluses and 68% had
deficits. Notably, of the five major designated High Intensity Drug Trafficking Areas, Los
Angeles and Miami had currency surpluses. New York, Chicago and Houston, clearly among
the nation's most significant money laundering centers, have currency deficits.
The second finding of the IRS-CI study is that Mexican banks have increased their
currency shipments to South Texas banks. An analysis of 1995 Bank Secrecy Act data indicates
that banks in the San Antonio Fed district filed Currency Transaction Reports reflecting currency
deposits of approximately $ 8.8 billion. Of that amount, at least $ 2.05 billion -- almost 25
percent -- was received from Mexico. Approximately $ 1.68 billion of that $ 2.05 billion,
moreover, represents transfers of bulk currency from Mexican banks to u.S. banks.
Third, the IRS-CI study determined that one of the most significant impact on the cash
flow in the San Antonio Fed was an affirmative campaign by south Texas banks in 1993 and
1994 to solicit currency shipments from Mexican financial institutions. Prior to 1993, U.S.
currency was sent by Mexican banks to various large money center banks located mainly in the
New York Federal Reserve district and, to a lesser extent, south Florida. The south Texas banks
embarked on this campaign, which incidently received the cooperation of the San Antonio Fed,
to expand business opportunities with Mexican banks.
Fourth, the study also noted that tourism and retail sales can affect the cash levels in the
San Antonio Fed as well. Department of Commerce statistics show tourism in Bexar County,
Texas, where San Antonio is located, was $2.1 billion in 1995. IRS-CI could not establish how
much of these tourist dollars were expended in the San Antonio Federal Reserve area, however.
The study also revealed that expenditures by Mexican shoppers during the months of Mexican
holidays cause minor increases in the cash activity of the border banks. These spending trends
have been decreasing since 1995 due to the opening of U.S. retail businesses in Mexico. The
dollars once spent at these retail establishments in the U.S. are now being spent in the Mexican
branches of U.S. retailers
2
Fifth, the IRS-CI study revealed that the North Atlantic Free Trade Agreement or
''NAFTA'' has had little or no impact on cash activity. This is so because businesses in both
Mexico and the U.S. are using established banking methods, many of which do not involve
actual transfers of currency, to make and receive payments.
Finally, the IRS-CI hypothesized, based on its investigative experience along the south
west border and that of other Treasury bureaus, that some portion of the currency in Mexican
banks that is being repatriated to the San Antonio Federal Reserve district was at one time in the
hands of narcotics traffickers. Unfortunately, no information was available to the U.S. banks or
to law enforcement about source of the funds already placed in Mexican financial institutions to
determine its legality or illegality. Just as in the U.S., the placement of physical currency into the
financial system erodes the direct link to its criminal origins. Again, the mere existence of a
currency surplus does not supply the necessary information.
These were the principal conclusions of the study. At this point, I would like to explore
some of its broader implications. What does it tell us about our own efforts to combat money
laundering? We know that a significant amount of money is being shipped in bulk from
Mexican banks to U.S. banks. And it is only logical to assume that some portion of that money
is drug proceeds smuggled out of the U.S. But what does this say about our efforts to stop drugstained cash at the borders?
Is the Customs Service doing enough to stop the flow smuggled cash out of the country?
The answer is that Customs is doing everything it can given the resource constraints and the
mission priorities which govern its efforts. Customs' number one priority -- without question-is inbound drug interdiction. The bulk of our resources and efforts are directed at stopping the
flow of drugs into this country. And the results have been impressive. Last year, narcotics
seizures at the southwest border increased 29 percent by total number of incidents, and 24
percent by total weight, as compared to 1995 totals. This translates into 6,956 seizures, and
545,922 pounds of marijuana, 33,308 pounds of cocaine, and 459 pounds of heroin. The total
weight of narcotics seized in commercial cargo on the U.S.-Mexican border increased 153
percent over 1995 totals.
That is not to say that outbound cash smuggling is not a priority. To the contrary,
Customs employs a variety of techniques to identify and inspect vehicles for cash smuggling,
employing both intelligence and profiling, and random inspection. If there is any reason to
believe that a carrier is smuggling cash, that carrier will be inspected. In addition, a certain
percentage of trucks that are not suspect are examined anyway on a random basis, just as a
precaution. Last year, Customs seized $ 3 million in outbound cash being smuggled to Mexico
through southwest border ports of entry.
Still, the sheer volume of currency flowing between the U.S. and Mexico demands that
we do more with what we have to address the problem of outbound smuggling. We must use our
resources more creatively, employing greater use of intelligence to effectively target suspect
vehicles and shipments. The results which can be achieved by intelligence-driven interdiction
are demonstrated by the recent seizure of$ 5.6 million at the Nogales port of entry.
3
\Ve also must explore inno\'ati\'e uses of our regulatory authority to heighten the prospect
of seizing cash at the border. The recently employed Geographic Targeting Order or "GTO" -which established special Bank Secrecy Act reporting requirements for certain money remitter
businesses sending cash to Colombia -- is an excellent example of this kind of approach. The
GTO's heightened reporting requirements forced drug traffickers to resort to currency smuggling
to mo\'e their funds. This in turn stimulated a marked increase in interdiction and seizure activity
at the borders -- over $50 million since the GTO went into effect. This figure is approximately
four times higher than it has been in prior years. Armed with the experience and insight the GTO
has brought us, we will continue to look for approaches to marshal existing resources to enhance
outbound interdiction.
A second question that the IRS-CI study raises is whether the reporting and record
keeping requirements of the Bank Secrecy Act are working to keep criminal proceeds out of U.S.
financial institutions. The answer, without question, is yes. Twenty years ago, drug dealers or
their associates could simply walk into any bank in this country and deposit satchels of cash,
with little fear of detection. Today, through aggressive enforcement of the Bank Secrecy Act
regulations, America's banks have virtually been closed as avenues for the wholesale placement
of criminal proceeds. Indeed, much of the credit for tightening the BSA enforcement regime
should be handed to this Committee, which has been responsible for pushing through a number
of important amendments to close loopholes and to expand the scope of the regulations. Today,
the U.S. system of anti-money laundering regulation is among the most stringent and effective in
the world.
Unfortunately, we are in sense victims of our own success. As free access to U.S. banks
for initial cash placement has been denied, the criminals have been forced to seek other paths to
launder their funds. Thus, banks in other countries, where controls are less stringent or nonexistent, have become prominent destinations for initial cash placement. Mexico is among these
countries. The absence of BSA-like customer identification, currency transaction reporting and
suspicious transaction reporting requirements had made Mexican financial institutions a target
for exploitation by money launderers.
The relationship between Mexican banks and their U.S. counterparts highlights the
limitations of the U.S. regulatory efforts to prevent and detect money laundering. While the
BSA may be extremely effective at preventing and detecting initial cash placement, and even
subsequent layering transactions, it can do little to prevent the introduction of funds from other
nations which have the appearance of legitimacy. Once illicit proceeds have been placed with a
financial institution in a foreign country, and its criminal origins obscured through intervening
transactions or commingling, U.S. financial institutions and law enforcement authorities are hard
pressed to identify the funds as suspect when they arrive in the U.S.
To effectively counter the problem, we must rely to a certain extent on the existence of
effective controls in the country of origin to prevent and detect the placement of criminal
proceeds. Without these controls, we encounter the same kind difficulties identifying the source
of funds which, as the IRS-CI study demonstrated, prevails in the case of bank to bank transfers
4
from Mexico. More generally, without effective cooperation from law enforcement authorities
and financial institutions in the countries of origin, our ability to address foreign-born money
laundering is hampered significantly.
Recognizing that effective money laundering controls in the U.S. is but one part of the
equation, the Treasury Department, along with the Departments of Justice, State and the Office
of National Drug Control Policy, have been working with the Government of Mexico to enhance
its own capacity to combat the problem. This work has produced some significant results which,
over time, should provide additional answers to the questions that the IRS-CI study raise. I
would like to take a few moments to review some of these results.
On April 29, 1996, the Mexican legislature added Article 400 Bis to the Criminal Code,
establishing for the first time a criminal offense for money laundering. The new law replaces an
earlier Fiscal Code offense, providing a wide range of predicates and enhanced penalties. It also
applies equally to employees and officers of financial institutions that wilfully assist or cooperate
with a third party in furtherance of a money laundering scheme. We regard this latter provision
as an important "stick" to compel integrity among financial institution employees. Further,
discussions with prosecutors from the Mexican Attorney General's Office suggest that the
applicable scienter requirement under the new law embraces "willful blindness." U.S.
experience has demonstrated that this standard is an important tool to compel vigilance among
financial professionals and others who act as facilitators in the laundering process but who lack a
direct nexus to the underlying criminal activity.
In addition to its new money laundering law, on Monday, March 10, 1997, the Mexican
Treasury, or "Hacienda," issued new regulations designed to insulate financial institutions from
money laundering. Hacienda undertook to adopt regulations of this sort in May 1996, after
much encouragement by the Treasury Department. This marked a significant departure from
earlier positions the Government of Mexico had taken on the subject.
Treasury, Justice and State have been working closely with Hacienda to develop the new
rules. In June and July 1996, respectively, Treasury led interagency missions to Mexico City
for the purpose of assessing the Government of Mexico's existing anti-money laundering
capabilities, and suggesting improvements to be built into the new rules. Among other things,
the missions resulted in the design by FinCEN of a fmancial intelligence unit to house and
analyze the information generated by Hacienda's reporting regulations. The State Department
has purchased the necessary hardware and software for Hacienda. Two weeks ago, I attended the
inauguration of the new unit while in Mexico City on other business. Save for some minor
adjustments, the equipment has been installed and is ready for deployment. As Director Morris
will tell you, FinCEN recently dispatched a computer expert to perform initial training to
Hacienda analysts in the operation of the unit.
The Departments of Treasury and Justice have been engaged in an analysis ofthe new
regulations. The rules include a number of features which US experts regard as essential to the
establishment of effective anti-money laundering controls. These include: requirements to
obtain, and to retain for a period of five years, identifying information on customers establishing
5
account relationships or engaging in other financial transactions; mandatory reporting of
currency transactions in excess of S 10,000; and mandatory reporting of suspicious transactions.
The rul~s also include: a safe harbor from liability for financial institution employees who file
suspicious transaction reports; a no "tip off' provision, prohibiting disclosure by financial
institutions and their employees of the fact that a suspicious transaction report has been filed; a
requirement for anti-money laundering training programs to be developed and implemented by
covered financial institutions; and civil penalties for "any violation, partial or untimely
compliance" with customer identification provisions" or for any violation or partial or timely
compliance, or omission to file a report."
While more certainly can be done, we regard the adoption of these regulations as a
salutary development. This is particularly so given that, one year ago, Mexico had no rules
governing the placement of criminal proceeds with financial institutions. In addition, the scope
of the rules is quite broad, providing coverage of a range of non-bank financial institutions
including registered casas de cambio. Further, a number of the features which have been
included in the Mexican regulations took the U.S. many years to adopt.
If effectively implemented, these rules will help erect the kind of barriers that will
prevent the placement of drug profits and other criminally derived funds with Mexican financial
institutions. In addition, the rules should provide Mexican law enforcement authorities with a
paper trail on the source of funds deposited in Mexican financial institutions that heretofore was
difficult or impossible to obtain. U.S. authorities should have access to this information pursuant
to the Financial Information Exchange Agreement in place between Treasury and Hacienda.
To assist the Government of Mexico in implementing its new money laundering law and
regulations, Treasury, with the support of the State Department, has been sponsoring
investigative and analytical training. In the fall of 1996, the IRS-CI and FinCEN conducted
seminars for Hacienda analysts and investigators in suspicious activity report processing and
analysis. Also in the Fall oflast year, IRS-CI conducted training for investigators from Hacienda
and the Mexican Attorney General's office in money laundering investigative techniques.
FinCEN, IRS-CI and Customs will be providing more training in the coming year. In addition,
the Department of Justice will be providing training in the prosecution of money laundering
cases for Mexican prosecutors and judges.
Of course, the adoption of new legislation and regulations is but an initial step. Only
through the effective enforcement of such rules, will we have an impact on the money laundering
problem. In this respect, the Government of Mexico has posted a number of significant
accomplishments recently. These include: the conviction of 13 defendants for money laundering
from 1995 through 1996; the referral by the Mexican Treasury of 16 money laundering cases,
involving approximately 96 defendants, to Mexican Attorney General's office for prosecution
last year; the testimony by a Mexican Treasury official in two major narcotics trafficking/money
laundering trials in the U.S.; and a cooperative investigation which resulted in the seizure by
Mexican authorities of approximately $ 16 million in bank accounts associated with a Mexican
drug trafficker. This seizure represents one of the largest ever by U.S. and Mexican authorities.
6
I recognize, of course, that there are shortcomings along with these successes. I share the
concern that this Committee undoubtedly harbors that corruption continues to threaten the
integrity of Mexican anti-narcotics efforts. Still, our intolerance for setbacks should not obstruct
out view of tangible progress Mexico has made on this important issue.
In the last year, the Government of Mexico has acquired important new tools to combat
money laundering, and has begun to utilize them. We are heartened by these developments. At
the same time, we will continue to work diligently to ensure that Mexico capitalizes on the
momentum generated by recent advances, using the new weapons at its disposal to bring swift
and certain prosecutions against money launderers and to seize their ill-gotten gains.
This concludes my opening remarks. I will be happy to answer any questions you may
have at this time.
-30-
DEPARTMENT
OF
THE
TREASURY
NEWS
omCE OF PUBliC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
E:rvfBARGOED UNTIL 10:30 AM EDT
Text as Prepared for Delivery
May 15, 1997
TREASURY OFFICE OF FOREIGN ASSETS CONTROL
DIRECTOR R. RICHARD NEWCOMB
SENATE FOREIGN RELATIONS
SUBCOMMITTEE ON AFRICAN AFFAIRS
The Office of Foreign Assets Control (OFAC) administers economic sanctions and
embargo programs against specific foreign countries or groups to further U.S. foreign policy and
national security objectives. In administering these programs, OFAC generally relies upon
Presidential authority contained in the Trading With the Enemy Act (TWEA) or the International
Emergency Economic Powers Act (IEEPA), or upon specific legislation, to prohibit or regulate
commercial or financial transactions with specific foreign countries or groups.
Examples of current TWEA programs include comprehensive asset freezes and trade
embargoes against North Korea and Cuba. Examples of current IEEPA programs include
similarly broad sanctions against Libya, Iraq, the Cali Cartel, and certain terrorist groups, as well
as comprehensive trade sanctions against Iran.
Alternatively, sanctions may be imposed by Congress directly through legislation.
Administration of sanctions within the Executive branch in these cases is usually delegated to the
relevant enforcement agency, depending on the nature of the restrictions. Between 1986 and
1991, for example, OFAC administered the trade and investment prohibitions against South
Africa mandated by the Comprehensive Anti-Apartheid Act. Similarly, OFAC has been
delegated administration of Section 321 of the Antiterrorism and Effective Death Penalty Act of
1996 (the Act), which was signed into law by the President on April 24, 1996.
Section 321 of the Act prohibits all financial transactions by United States persons with
the governments of terrorism-supporting nations designated under section 60) ofthe Export
Administration Act. Effective August 22, 1996, except as provided in regulations issued by the
RR-1685
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
Secretary of Treasury. in consultation \\'ith the Secretary of State, the Act prohibited all financial
transacti"ons by U.S, "persons with: North Korea, Cuba, Iran, Libya, Iraq, Syria, and Sudan.
All but Syria and Sudan were the subject of existing comprehensive financial and trade
embargoes at the time of enactment. In accordance with foreign policy guidance provided to
Treasury by State, existing sanctions programs against North Korea, Cuba, Iran, Libya, and Iraq
were continued without change. This permitted the specific policies developed over time with
respect to each of these countries to remain in effect, including the exceptions to each embargo
dictated by unique humanitarian. diplomatic, news gathering, intellectual property, and other
concerns.
New regulations, known as the Terrorism List Governments Sanctions Regulations, were
issued to impose the prohibitions on financial transactions with respect to Syria and Sudan. The
new regulations, also drafted in accordance with foreign policy guidance provided by State,
authorize financial transactions with the Governments of Syria and Sudan except for (1) transfers
from those governments in the form of donations and (2) transfers with respect to which the U.S.
person knows or has reasonable cause to believe that the financial transaction poses a risk of
furthering terrorist acts in the United States. The regulations are consistent with the legislative
history of Section 321 of the Act.
From a sanctions enforcement perspective, we believe the Act and implementing
regulations are important because they provide OF AC with comprehensive jurisdiction over all
financial transactions between U.S. persons and the Governments of Syria and Sudan. We now
have authority for the first time to act to stop or impede any particular suspicious transfer to or
from these governments by informing U.S. persons handling the transfer that a reasonable cause
exists to believe that the transaction may pose a risk of furthering terrorist activity in the United
States, or any other questionable activity inconsistent with the Act's antiterrorist purposes. We
believe the Act's authority provides a significant new tool in the war against terrorist funding.
Thank you. I would be pleased to take any questions.
-30-
PUBLIC DEBT NEWS
Department of the Treasury· Bureau of the Public Debt· Washington, DC 20239
FOR IMMEDIATE RELEASE
May,ls, 1997
Contact: Office of Financing
(202) 219-3350
TREASURY'S INFLATION-INDEXED NOTES
JUNE REFERENCE CPI NUMBERS AND DAILY INDEX RATIOS
Public Debt announced today the reference Consumer Price Index (CPI) numbers and the
daily index Jatios for the month of June for the 10-Year Treasury inflation-indexed notes of
Series A·2007. This information is based on the non-seasonally adjusted U.S, City Average All
Items Consumer Price Index for All Urban Consumers (CPI-U) published by the Bureau of Labor
Statistics of the U.S. Department of Labor.
In addition to the pUblication of the reference CPIs (Ref CPI) and inde.'IC ratios, this release provides
the non-seasonally adjusted CPI-U for the prior three-month period. Public Debt intends to
announce the reference CPI numbers and the related index ratio monthly for at least one year.
This information is available through the Treasury's Office of Public Affairs automated fa", system'
by calling 202-622-2040 and requesting document number 1686. The information is'also available
on the Internet at Public Debt's home page: (http://www.publicdebt.treas.gov).
The information for July is expected to be released on June 17, 1997.
000
PA-266
RR-1686
TREASURY 10-YEAR INFLATlON-INDEXED NOTES
SERIES:
A-2007
CUSIP:
9128272M3
DATED DATE:
January 15,1997
ORIGINAL ISSUE DATE:
February 6,1997
ADDITIONAL ISSUE DATE:
April 15, 1997
MATURITY DATE:
January 15. 2097
Ref CPt on DATED DATE:
158.43548
TABLE FOR MONTH OF:
June 1997
NUMBER OF DAYS IN MONTH:
30
159.6
160.0
160.2
CPI-U (NSA) Feb. '97
CPI-U (NSA) Mar. '97
CPI-U (NSA) Apr. '97
Ref CPI and Index Ratios for June 1997:
Calendar day
June
June
June
June
June
June
June
June
June
June
June
June
June
June
5
6
7
8
9
10
11
12
13
14
1997
1997
1997
1997
1997
1997
1997
1997
1997
1997
1997
1997
1997
1997
June
15
1997 160.09333
1.01046
16
17
18
1997
1997
1997
1997
1.01051
1.01055
1.01059
1.01063
1.01067
1.01072
1.01076
1.01080
1.01084
1.01088
1.01093
1.01097
1.01101
1.01105
1.01110
June
June
June
June
June
June
June
June
June
June
June
June
June
June.
June
RefCPI
1
2
3
4
·19
20
21
22
_.
23
24
25
26
27
28
29
30
1997
1997
1997
1997
1997
1997
1997
1997
1997
1997
1997
160.00000
160.00667
160.01333
160.02000
160.02667
160.03333
160.04000
160.04667
160.05333
160.06000
160.06667
160.07333
160.08000
160.08667
160.10000
160.10667
160.11333
160.12000
160.12667
160.13333
160.14000
160.14667
160.15333
160.16000
160.16667
160.17333
160.18000
160.18667
160.19333
Index Ratio I
1.00987
1.00992
1.00996
1.01000
1.01004
1.01009
1.01013
1.01017
1.01021
1.01025
1.01030
1.01034
1.01038
1.01042
DEPARTlVlENT
OF
THE
TREASURY
NEWS
OFFICE OF PUBliC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASmNGTON, D.C. - 20220 - (202) 622.2960
EMBARGOED UNTIL 2:30 P.M.
May 16, 1997
CONTACT:
Office of Financing
202/219-3350
TREASURY'S 52-WEEK BILL OFFERING
The Treasury will auction approximately $13,750 million
of 52-week Treasury bills to refund $13,487 million of publiclyheld 52-week bills maturing May 29, 1997, and to raise about
$275 million of new cash. In addition to the maturing 52-week
bills, there are $20,502 million of maturing publicly-held 13week and 26-week bills.
In addition to the public holdings, Federal Reserve Banks
for their own accounts hold $12,696 million of the three maturing
bills. These accounts are considered to hold $5,840 million of
the maturing 52-week issue t which may be refunded at the weighted
average discount rate of accepted competitive tenders. Amounts
issued to these accounts will be in addition to the offering
amount.
Federal Reserve Banks hold $7,144 million of the 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 $280 million of the maturing 52-week issue.
Tenders for the bills will be received at Federal
Banks and Branches and at the Bureau of the Public
Debt, Washingtcn, D.C. This offering of Treasury securities
is governed by the terms and conditions set forth in the Uniform
Offering Circular (3l CFR Part 356, as amended) for the sale and
issue by the Treasury to the public of marketable Treasury bills,
notes, and bonds.
Reser~e
Details about the new security are given in the attached
offering highlights.
000
Attachment
RR - 1687
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-204-0
HIGHLIGh~S
OF TREASURY OFFERING OF 52-WEEK BILLS
TO BE ISSUED MAY 29, 1997
May 16, 1997
Offering Amount .
$13,750 million
Description of Offering:
Term and type of security
364-day bill
912794 4V 3
22, 1997
29, 1997
28, 1998
29, 1997
$19,327 million
$10,000
$1,000
CUSI? nUITlbe:t"
May
May
May
May
Auction date
Issue date
Matu!."i~y dat.e
Original issue date
Matu~ing amount.
Minimum bid amount
Multiples .
Submission of Bids:
Noncompetit.ive bids
Competitive bids
(1)
(2 )
(3 )
Maximum Recognized Bid
at a Single Yield
Maximum Award .
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 fo~ 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 0:
competitive tenders.
of public offering
35% of public offering
Receipt of Tenders:
Noncompetitive tenders
Competitive
ter.de~s
PaYment Terms .
..
?rior to 12:00 noon ~aste~~ Daylight
Saving time on auction day
Prior to 1:00 p.m. Eastern Daylight
Saving time on auction day
Full payment with tender cr by charge
to a funds account at a ?ederal
Reserve bank on issue date
'IRFASURY
ornCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W•• WASIDNGTON, D.C•• 20220. (202) 622·2960
-,--------------------------------~--------~-----------------FOR IMMEDIATE RELEASE
May 19,1997
CONTACT:
Beth Weaver (202) 622-2960
MEDIA ADVISORY
TREASURY ANNOUNCES NEW REGULATIONS TO
CRACK DOWN ON MONEY LAUNDERING
Treasury Secretary Robert E. Rubin and Under Secretary for Enforcement Raymond W.
Kelly will make an announcement ~ at 2:00 p.m. on three Notices of Proposed Rulemaking
designed to prevent and detect money laundering. The press conference win take place in the
large conference room of the Treasury building, 1500 Pennsylvania Avenue, N.W. Cameras may
set up at 1:00 pm.
Media without Treasury, White House, State, Defense or Congressional credentials
planning 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.
RR-1688
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l)
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omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N .W•• WASIUNGTON, D.C •• 20220 • (202) 622-2960
FOR IM:M.EDIATE RELEASE
May 19, 1997
CONTACT:
Beth Weaver (202) 622-2960
REMARKS OF SECRETARY RUBIN
ANNOUNCEMENT OF NEW REGULATIONS
TO CRACK DOWN ON MONEY LAUNDERING
Good afternoon. Thank you for being here today for this important announcement.
With me are Ray Kelly, Under Secretary for Enforcement, Sam Banks, Deputy Commissioner of
the Customs Service, Stan Morris, Director of the Financial Crimes Enforcement Network, and
Ed Federico, Deputy Assistant Commissioner of the Internal Revenue Service-Criminal
Investigation Division.
As most of you know, one of the core elements of the Treasury Department's law enforcement
mission is the prevention and detection of money laundering.
Money laundering is the process that enables drug and gun traffickers and terrorist groups to
convert illegal and unusable proceeds into usable funds. It is "life blood of organized crime.
H
But is also the" Achilles heel," as it gives us a way to attack the leaders of criminal organizations.
While the drug kingpins and other bosses of organized crime may be able to separate themselves
from street-level criminal activity, they cannot separate themselves from the profits of that
activity.
Treasury is continuously working to develop new and innovative techniques to close off the
channels the launderers use to move their funds into the economy, to put the launderers
themselves behind bars, and to seize their assets.
One of the most effective techniques that we have employed recently has been a Geographic
Targeting Order, or "GTO," which required certain businesses that wire money to report all wire
transfers to Colombia in excess of$ 750. The evidence showed that these businesses were being
used to wire as much as $ 800 million in drug prof::.; to Colombia.
I will let Ray Kelly give you the details of this enormously successful initiative. I'll only point out
that since it was put in effect, the flow of drug money through these businesses to Colombia has
virtually dried up. Some operations have been shut down. Arrests have been made. And millions
in drug profits have been seized.
RR-1689
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2
Some months ago, I visited the headquarters of Treasury's Operation El Dorado in New York,
which is spearheading the GTO initiative. In discussions with the leaders of this operation, I was
extremely impressed both with the strategy, and the level of cooperation among the Customs
Service, FinCEN, the IRS, the NYPD, the U.S. Attorney's Office and the other authorities
involved.
Today, at the urging of President Clinton, we will take steps to make the New York GTO apply
nationwide. And we will be extending the reach of our anti-money laundering efforts to other
businesses that could be at risk.
Let me stress that the overwhelming majority of these businesses are engaged in legitimate, and
valuable, commercial activity. Indeed, the industry has been extremely supportive of our work.
The new rules are only intended to make life difficult for the money launderers and their
accomplices.
Now, I will give the floor to Ray Kelly, who will discuss these new measures and respond to your
questions.
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omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE. N.W•• WASIUNGTON, D.C.• 20220 • (202) 622-2960
Treasury Anti-Money Laundering Regulations
On Wednesday, May 21, 1997, the Department of the Treasury will publish three Notices of
Proposed Rulemaking in the Federal Register designed to prevent and detect money laundering in
the money services businesses -- money transmitters, issuers, redeemers and sellers of money
orders and traveler's checks, check cashers, and currency retail exchangers. While these
regulations are the result of the lessons learned from the New York Geographic Targeting Order
("GTO"), the regulations themselves are much broader than that order.
The GTO
Beginning on August 7, 1996, certain licensed money transmitters in the New York metropolitan
area and their agents have been subject to an order requiring them to report information about the
senders and recipients of all cash-purchased transmissions to Colombia of $750 or more. Under
Secretary of the Treasury for Enforcement Raymond W. Kelly issued the "GTO" pursuant to a
provision of the Bank Secrecy Act (BSA). GTOs are intended to be temporary measures, and can
be authorized for no more than 60 days at a time,
The El Dorado Task Force
The GTO's origins lie in the investigative efforts of the Treasury-led El Dorado Task Force, a
joint federal, state and local effort that includes some 140 agents, police officers and support
personnel from 13 agencies, including Customs, the IRS Criminal and Examination divisions, the
Secret Service, the NYPD and New York State Banking Department.
El Dorado developed evidence that certain New York area money remitters and their agents were
engaged in a scheme to move drug money to Colombia by breaking up large cash transactions to
avoid the reporting and record keeping requirements of the BSA. Armed with this information,
the U.S. Attorneys from the Southern District of New York, the Eastern District of New York,
and the District of New Jersey, along with senior officials from Customs and IRS, presented
Treasury's Financial Crimes Enforcement Network (FinCEN) with a compelling case that a GTO
would be an appropriate step to take against these transmitters. FinCEN staff then worked
closely with the primary Assistant U.S. Attorney and others from Customs, IRS and the
Department of Justice to review the application and craft an appropriately tailored order,
originally involving 12 licensed money transmitters and 1,600 agents.
The GTO was extended and expanded in October 1996 to include a total of 22 licensed
transmitters and approximately 3,500 agents. The order was extended again in December and
February, and extended again and expanded to include one more licensed money transmitter the
first week of April, 1997.
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
2
Effects of the GTO
The GTO caused an immediate and dramatic reduction in the flow of narcotics proceeds to
Colombia through New York City money transmitters. Treasury's analysis of data generated by
the GTO is ongoing, but the targeted money transmitters' business volume to Colombia appears
to have dropped approximately 30%. Business to Colombia dropped off even at the money
remitters not subject to the GTO, suggesting that much of the money remitted to Colombia was
controlled centrally by high-level cartel money brokers.
In the aftermath of the GTO, Customs has observed a marked increase in interdiction and seizure
activity at the borders -- over $50 million in the first 6 months since the GTO went into effect,
approximately four times more than in prior years.
The GTO also has had a significant impact on money laundering activity among the targeted
transmitters. Several stopped sending funds to Colombia. One went out of business altogether.
One money transmitter agent has pled guilty to structuring transactions to avoid the reporting
requirements, and the EI Dorado Task Force has made numerous additional arrests. EI Dorado is
continuing to pursue investigations of this type, and FinCEN will consider imposing civil penalties
against violators who are not pursued criminally.
In addition to the Proposed Rules, Treasury is considering whether, and under what
circumstances, to issue additional GTOs. In late May, Treasury and the Department of Justice
will be convening a meeting of US Attorneys and Special Agents from high-risk money laundering
areas to introduce the GTO and other tools which Treasury has at its disposal.
Proposed Rules
In response to the results achieved through the GTO, President Clinton asked Treasury to look
for ways to translate into a permanent solution the benefits realized through this interim measure.
The rules announced today seek to achieve this goal.
Registration of Money Services Businesses (MSBs)
The most fundamental of these proposals is to implement the Congressional mandate to register
"money transmitting businesses"generally, which includes money transmitters or remitters, money
order issuers and sellers, travelers check issuers and sellers, retail currency exchangers, and check
cashers. Treasury has redefined this class of businesses as money services businesses ("MSBs")
to avoid confusion between the terms money transmitting business and money transmitter, and has
drafted the registration proposal in a way that strikes an appropriate balance between law
enforcement's need for accurate information about the owners and locations ofMSBs against the
concern that small businesses be spared of unnecessary and intrusive regulation.
Suspicious Transaction Reporting by MSBs
The second proposed regulation would extend the suspicious activity reporting requirements -already in place with respect to banks -- to money transmitters and issuers, sellers and redeemers
of traveler's checks or money orders. Because customers of these institutions do not maintain
3
account relationships, it is more difficult for these entities to know their customers well enough to
spot suspicious transactions. To address this potential problem, the proposed rule provides
guidance by listing specific indicia of suspicious transactions gleaned from money laundering
investigations.
Lowered Threshold for Currency Transaction Reporting By Money Transmitters
The final proposed regulation essentially makes the New York GTO apply nation-wide and on a
permanent basis. Under the proposed rule, money transmitters would be required to report
currency transactions of$750 or more that involve the transmission of funds to any person
outside the United States. The rule also requires the remitters to verify the identity of the person
sending the funds. Treasury does not believe that this rule will unduly burden legitimate business;
the vast majority oflegitimate remittances are between $200 and $500.
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NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANlAAVENtJE. N.W. - WASHINGTON, D.C. - 20220· (202) 622·2960
ErvfBARGOED UNTIL 2:30 P.M. EDT
Text as Prepared for Delivery
May 20,1997
TREASURY SECRETARY ROBERT E. RUBIN
SENATE APPROPRIATIONS SUBCOMMITTEE ON FOREIGN OPERATIONS
Mr. Chairman, it is a pleasure to testify today on the President's FY 1998 budget request
for foreign operations. Over the last few weeks, we have seen how much we can accomplish
when we act together in a bipartisan manner: Congress passed the Chemical Weapons
Convention and, of course, we've reached an agreement on a plan to balance the budget. We
should now carry that spirit of bipartisanship to other key priorities that are facing the nation and
we will be working on issues such as fast track authority and most favored nation status for
China in the near future. Today, I would like to discuss one of our most important priorities: the
imperative of maintaining U. S. leadership in the global economy by fully funding our share in
the international fmancial institutions.
As President Clinton has said, the United States is the only country that can provide
effective leadership in today's world -- and it is more important than ever for our own wellbeing that we do so. However, for us to function as the world's indispensable nation, we must
patticipate fully in the international institutions and the global economy. We must fully commit
to our foreign affairs budget, which pays for the United Nations, bilateral assistance programs
and the international financial institutions (IFls) -. the World Bank, the International Monetary
Fund and the regional development banks. Accounting for less than one percent of the federal
budget. these programs provide an enormous return for American taxpayers. Abroad, they help
bring peace and stability, foster democracy, build free markets and free trade, and promote
sustainable development. At home, that leads to increased exports, high quality American jobs
and greater economic and national security.
The Clinton Administration has worked hard with Congress to maintain support for the
multilateral development banks (MDBs), We have achieved increases in social sector lending by
the l'vIDBs and worked forcefully for continued reforms, even as we have negotiated major
reductions of our budgetary commitments. We have, in fact, made significant progress on all
fronts. Account by account, we have negotiated, on average, a 40 percent reduction in future
U. S. obligations to the !vIDBs, which. after we pay OUf arrears, will lower our total annual
commitment to $1.2 billion. On the basis of this annual U.S. investment, we are able to
RR-1690
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strongly influence the $46 billion that the MDBs lend.
The Administration, working with Congress, has taken the lead in securing needed
administrative reform in the IFIs. The MDBs and the IMF are reducing overhead, becoming
more open, doing more to prevent corruption and promote the private sector, and becoming
more sensitive to environmental concerns. They are, in fact, providing us with better value for
the money than at any time in their history. To cite a few examples:
•
The World Bank, long a target of criticism, has become more open, and has cut its
administrative budget 10% in real terms over the last two years. The Bank has now
embarked on a new reform program, the Strategic Compact, which is very responsive to
U.S. reform priorities. We support President Wolfensohn's efforts to reform and we are
working closely with him to minimize the costs associated with this program.
•
The IMF has also controlled its administrative budget, cutting it by one percent in real
terms over the last three fiscal years. It has made substantial advances in transparency
and strengthened its capacity to detect fmancial crises.
•
The Inter-American Development Bank has cut its budget by 5 percent in real terms
since 1995 and staffing is down 12 percent from its peak in 1988. Yet loans managed by
the bank have increased 48 percent since 1991.
•
The African Development Bank has instituted a sweeping reorganization including term
limits and replacing 70 percent of its managers.
Despite this progress, we are now behind in our payments to the lMDBs by $862 million.
We are the world's largest and richest economy yet we are the largest debtor to the United
Nations, and account for the lion's share of arrears to the MDBs and the Global Environment
Fund. Nations around the globe, who look to us for leadership, are seriously questioning our
willingness to lead. Our budget request of $1.6 billion for the MDBs includes over $300 million
to partially pay down those arrears, the first payment on a proposed three year plan, with the
remainder going to meet our annual commitments.
This year is critical. If we do not meet our commitments, we will put at risk our
leadership in these institutions and thereby our ability to shape policy with respect to developing
countries. This risks affecting foreign policy priorities in places from Bosnia to the former
Soviet Union to Africa. Failure to meet our commitments would also undercut our ability to
direct ongoing reforms. We cannot lead with other people's money.
We make this budget request purely and simply because it is in our economic and
national security interest. The IFIs are important to our interests for two basic reasons. First,
they help foster growth in the developing world. That, in turn, promotes global prosperity and
stability, which creates new markets for U.S. goods.
2
The IFIs have been instrumental in the economic renewal of Asia, Latin America, and
central and eastern Europe, helping foster economic reform and democracy which has turned
these regions into dynamic emerging markets. The :MOBs are also building the essential
foundations for growth in the poorest countries by funding child survival, and improvements in
health, education and basic infrastructure. The IMF's Enhanced Structural Adjustment Facility
(ESAF) lays the groundwork for the banks' efforts through the macroeconomic and structural
conditions attached to ESAF loans.
Last month, I traveled to Vietnam, a very poor country in the midst of transformation
from a state run economy to a market economy, struggling to build the infrastructure of a
modern economy. I met with the general secretary of the Communist Party, the prime minister
and the finance minister. These officials -- the leaders in what is still a communist country, a
country that fought a war with the United States only 25 years ago -- were keenly focused on
what constitutes a market economy, how you get there, and how to attract more foreign
investment. It is precisely this kind of help in developing a modem market-based economy that
the IFIs can provide.
While in Vietnam, I visited a school outside Ho Chi Minh City. I saw how World Bank
funds provided for a new school building and textbooks for children. I only wish that every
member of Congress could see what our money buys.
The ESAF, IDA, debt reduction and African Development Fund requests are integral to
the Administration's effort to foster growth in Africa, an area vastly behind in development. A
growing and dynamic Africa -. an Africa committed to democracy, economic reform, and
sustainable development -- will provide higher standards of living for its people and be more
stable politically and socially. That, in tum, will present new markets for American businesses,
create jobs and increase standards of living in this country. It will also strengthen our national
security as stability in any part of the globe contributes to our national security. Hopefully, it
will save us the very high costs of responding to crises in Africa. We have proposed a bold
initiative to foster solid macroeconomic conditions, open trade and other economic reforms to
attract private sector capital and promote groMh -- and we are working with Congress on a
bipartisan basis to enact it. We will need the help of the IFls to move forward with our initiative.
The IFIs' work in promoting growth in developing nations has clearly benefited U.S.
businesses and workers. U.S. firms exported more than $25 billion worth of goods and services
to the 79 very poor countries eligible for IDA funds in 1995 and roughly $60 billion worth to
IDA graduates. Of course, the :MOBs also benefit American businesses and workers directly
through the projects they finance. In the past year alone, U.S. firms received over $3.2 billion in
direct business from the MOBs.
The I.l\{f is critical to fostering a stable, well-functioning global financial system that
facilitates the trade and investment flows necessary to the groMh and opening of markets around
the world. The IMP serves us very well as the guardian and guarantor of that system, helping to
3
integrate its newest participants and preventing and containing severe flnancial shocks.
Before I close, let me mention one flnal issue. Our FY 1998 budget includes a request for
$3.5 billion for U.S. participation in the rMF's New Arrangements to Borrow. This new line of
credit would build on the General Arrangements to Borrow and provide a larger reserve tank for
the IMF to respond to financial shocks that create systemic risk, and do so in a manner that
reduces our share of the burden. We are also reviewing the adequacy of the IMF's normal
quota resources. If that review shows that a quota increase is necessary for the IMF to do its job
over the medium term - and if we are able to negotiate a satisfactory agreement within the Il\1F
- then we will request an increase in the U.S. quota. We will continue to consult closely with
Congress as this process develops. Like funds for the NAB, use of these funds would not be
scored as outlays, as they are offset by the creation of a counterpart claim on the IMF that is
liquid and interest bearing.
Mr. Chairman. there has been a tremendous movement over the past decade toward a
global economy. Countless U.S. workers and businesses depend on trade -- and a thriving global
economy - for their livelihoods. The World Bank, the regional development banks, the JMF,
the United Nations and bilateral assistance programs, play vital roles in the global economy by
promoting economic growth, democracy, free markets, the rule of law, a stable international
monetary system and sustainable development. They advance the interests of the American
people.
But our ability to advance those interests will be gravely jeopardized if we do not begin
this year to pay what we owe and to fully fund our current commitments. The Administration
stands ready to work with you to maintain the bipartisan commitment to these institutions that
has existed for fIfty years and which gives us the power to guide global economic growth and
reform. Thank you very much.
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4
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington. DC 20239
CONTACT: Office of Financing
FOR IMMEDIATE RELEASE
202-219-3350
May 19, 1997
RESULTS OF TREASURY·S AUCTION OF 13-WEEK BILLS
Tenders for $7,519 million of 13-week bills to be issued
May 22, 1997 and to mature August 21, 1997 were
accepted' today (COSIP: 9127942TO).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Oiscount
Rate
Low
High
Average
Investment
Rate
5.14%
5.17%
5.17%
5.28%
S.31t
5.3l%
Price
98.701
98.693
98.693
Tenders at the high discount rate were allotted 81%.
T~e
invesement rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$32,507,830
Accepted
$30,893,742
1,354,488
$32 / 248,230
$5 1 905,295
1, 354,488
$7,259,783
259,600
S32,507,830
S7.519,383
$7,519,383
Type
Competitive
Noncompetitive
Subtotal, Public
Foreign Official
Institutions
TOTALS
259,600
In addition, $3,968,664 thousand was awarded to the
Federal Reserve Banks for their own accounts.
5.15 -- 98.698
RR-1691
5.16 -- 98.696
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
May ~9, 1997
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $7,510 million of 26-week bills to be issued
~997 and to mature November 20, ~997 were
accepted today (CUSIP: 9127945U4).
May 22,
RANGE OF ACCEPTED
COM~ETITIVE
BrDS:
Discount
Rate
Low
High
Average
5.34%
5.36%
5.35%
Investment
Rate
5.57%'
5.59%
5.58%
Price
97.300
97.290
97.295
Tenders at the high discount rate were allotted 10%.
The investment rate is the equivalent coupon-issue yield.
TENDERS
RECEIVED AND ACCEPTED (in thousa.nds)
Received
TOTALS
Acc$Pted
$3~,634,886
$7,509,676
$28,094,035
1r146,~51
$3,968,825
1,146,151
~29,240,186
$5/~~4,976
Type
Competitive
Noncompetitive
Subtotal, Public
Official
Institutions
Fo~eign
TOTALS
2,394,700
2,394.700
$31.,634,996
$7/509,676
In addition, $2,975,000 thousand was awarded to the
Federal Reserve Banks for their own accounts.
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D EPA R T 1\1 E N T
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omCE OF PUBLIC AFFAIRS .1500 PENNSYLVANIA AVENUE, N.W.• WASIDNGTON, D.C. • 20220 • (202) 622-2960
Embargoed for 7 p.m. EDT
Remarks Prepared for Delivery
Secretary Robert Rubin
Remarks to the Japan Society
May 19, 1997
It is a pleasure to speak to all of you today. Let me thank the Japan Society for inviting
me and for hosting this event. Let me start by saying a few words about the importance and
difficulty of building support for a strategy of American engagement in the international
economy and then I will turn to the U.S.-Japan relationship, and the challenges we both face in
fostering growth.
Since taking office, President Clinton has pursued an economic strategy based on the
firmly held belief that our economy is an integral part of the global economy, and, thus, our
economic well-being is profoundly affected by what happens abroad. In order to have the
requisite public support for policies that reflect that view, such as continuing to work to liberalize
world trade, renewing most-favored nation status for China, and maintaining support for the
United Nations, World Bank, and other international institutions, it is critical that there be a
shared understanding among the American people of the importance of our engagement and
leadership abroad.
I have a deeply troubled feeling, as I speak to different groups and spend time on the Hill,
that we are losing that understanding, that there is a retreat from support for policies that promote
U.S. international engagement. I believe that it is absolutely vital to our national interest to
reverse that retreat. As an organization dedicated to building stronger ties between the United
States and Japan, your organization has the position, as we in government do as well, to promote
that shared understanding, and I think it is critical that you do so.
Last month, I took a trip to Asia that underscored for me the importance of our leadership
and engagement abroad, and for building a better understanding of that importance. I traveled
first to Tokyo, where I met with Prime Minister Hashimoto, who I had first met -- and argued, in
a friendly spirit -- when he was Trade Minister. I then visited the Phillippines, where I met with
RR-1693
1
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the APEC finance ministers, and Vietnam, where I witnessed the early stages of what could be a
remarkable transformation.
My trip reinforced for me three views with respect to today's global economy that are
critically important for the United States -- and Japan.
First, there is an emerging consensus around the globe on how best to achieve economic
growth: market based incentives, effective capital markets, sound fiscal policies, education, a
reliable legal framework, and with hesitation on the part of some, open markets. I have heard
this in Latin America, Asia, and Eastern Europe. When I was in Vietnam, I visited Hanoi and Ho
Chi Minh City and met with the general secretary of the Communist Party, the prime minister
and the finance minister. What struck me was that these officials -- the leaders in what is still a
communist country, a country that fought a war with the United States only 25 years ago -- were
keenly focused on what constitutes a market economy, how you move to a market economy and
how to attract more foreign investment. Developing nations around the globe like Vietnam look
to the United States -- and to Japan -- for guidance in addressing these challenges.
Second, global economic integration is becoming a fact of life. Our economic success is
increasingly linked to the health of the global economy and the nations around the globe are
increasingly creating regional alliances, sectoral agreements -- and trade agreements of all kinds.
The only question is whether we will be part of them, or on the outside looking in -- much to our
detriment.
Finally, we -- and Japan -- can playa crucial role in helping developing nations build well
functioning market economies and modem capital markets, or, as is the case in Vietnam, make
the transition from state dominated, centrally planned economies to open, free market economies.
By fostering growth in the developing countries, we create bigger markets for our goods and
services and so promote growth in the United States and Japan.
All of this underscores the importance of stronger ties between the United States and
Asia, the most dynamic economic region on earth. We now export more to Asia than to Europe.
Developing countries alone in Asia now represent 24 percent of world GDP and their share of
world trade rose from 9.6 percent in 1981 to 16.1 percent in 1994. It is enormously in our
economic and national security interest to promote political stability, economic growth, and
peace in the region, and to be an integral part of the Pacific region's trade and other structures.
From the very beginning of the Administration, the President has emphasized the importance of
integrating ourselves with other regions in the world.
Central to our Pacific strategy are strong economic, political and national security ties
between Japan and the United States. With our countries being the two largest economies in the
world and together representing one third of world GDP, an effective working relationship
between our two countries key to the stability and prosperity of not only Japan and the United
States, but the entire region and the global economy.
2
When President Clinton came into office, he was determined to address the problems in
our economic relationship with Japan forthrightly, rather than papering over differences, as had
sometimes been the practice. In four years we have made real progress. For its part, Japan has
acted to reduce its global trade and current account surpluses and they have come down roughly
50 percent, reflecting, in part, policies by the government to promote structural changes and to
promote domestic demand.
Our two nations have negotiated 24 trade agreements during this period, and these
agreements have contributed to the 44 percent growth of U.S. exports to Japan over the last four
years. Japan's imports have risen from 7 percent ofGDP in 1993 to 9.4 percent last year.
We have learned that disagreements in some areas need not prevent strategic and
economic cooperation on a wide range of important issues. We have a very strong relationship
between Treasury and the Japanese Finance Ministry and cooperate closely on financial market
issues and on issues in the G-7, the World Bank, the Asian Development Bank, and the IMF.
Having said this, let me now turn to growth, because as I have said, growth in our two
countries is critical not only to our countries, but, because of the size of our economies, to the
health of the entire global economy.
Let me start with the United States. We have enjoyed five years of very favorable
economic conditions, but we must not let that mask the economic challenges that we face, if we
are to succeed in the global economy in the years and decades ahead, especially fiscal
responsibility, successfully addressing education, the inner cities and other areas crucial to future
productivity, and providing leadership in the international economy.
Japan, in contrast, has experienced a five year period of poor economic performance,
which has exposed a number of challenging economic problems that were to some extent masked
by the remarkable growth of the post-war period.
Excessive government regulation, restrictive informal business practices, and markets
that are relatively closed to foreign competition reduce competitiveness, investment and growth.
The financial system, ironically, may have suffered from too little effective regulation, and an
unwillingness to face problems, and so is still in the early stages of adjusting to a very large
non-performing loan problem that has reduced its ability to finance investment that is important
to growth. And, looking forward, Japan faces a daunting demographic problem, much worse
than that faced by the United States and the other major industrial countries, which will require
strong growth to generate the resources necessary to deal with an aging population.
Japan faces these challenges with many of the sources of strength that were so important
to the decades of rapid growth following the end of the war: a highly disciplined society, a high
savings rate, a strong commitment to education, and impressive efficiency in manufacturing. But
as a mature industrial economy, with a labor force growing only slowly, and no longer
3
inexpensive relative to the West, and having already caught up to and in certain cases surpassed
the technological best practices of the West, many of the sources of strong growth in the postwar period are no longer available.
I always feel very hesitant about commenting on other countries' economies, but because
of it's size and importance in the international economy and financial system, Japan's success in
dealing with these challenges is important to not only to Japan, but to workers, businesses, and
governments around the world. And so, in the strong economic partnership between our two
countries, I would like to highlight a few of the areas which we believe are important to the
future growth of the Japanese economy.
First, is the challenge of achieving strong economic growth driven by domestic
consumption, and avoiding a significant increase in Japan's external surplus. After our meeting
in Tokyo, Prime Minister Hashimoto released a statement reiterating these objectives. His
strategy is a restrictive fiscal policy and deregulation. If that doesn't work, then Japan will face
the challenge of how else to meet the objective. Current account balances will naturally rise and
fall, but it is critical that Japan's current account surplus not rise again to a level that harms global
growth, that causes trade frictions with Japan's trading partners, and that could fuel protectionist
sentiments in other parts of the world.
Second is the challenge of continuing to open Japan's markets. Large parts of the
economy are still subject to formal or informal trade impediments. It is true that the United States
and the rest of the world has a lot to gain from progress in reducing those impediments. But the
benefits for Japan are equally great in terms of more choices and lower prices for the consumer
and the competitiveness of its economy.
Third, an issue that is closely related to opening Japan's markets, is the challenge of
building on Prime Minister Hashimoto's ambitious commitment to deregulation. Our view is that
the faster these reforms are put in place, the better, because they are critical to a stronger
Japanese economy over the long run. Ultimately, the measure of their success is the extent to
which the Japanese economy becomes more open, internally and externally.
Fourth, Japan faces the challenge of strengthening its financial system. In the United
States, one critical lesson that we have learned at great cost to ourselves is that, when problems
arise, they must be addressed quickly, as demonstrated by our failure to do that in the savings
and loan crisis of the 1980s. Japan has taken a number of steps in the right direct, but the job
doesn't seem to be over.
In a sense, Japan may be at a crossroads. Because of Japan's inherent strengths, it has the
potential for a robust economic future, but to realize that potential its challenges must be met.
And, again, a healthy and strong Japan is very much critical to the economic and national
security interest of the United States, the Asia-Pacific region, and the entire world.
4
The United States may be at a crossroads as well. We face a number of critical decisions
over the next few months which will help define our role in the international economy. Lately,
when I've gone to G-7 meetings of finance ministers and central bank governors, other countries
have started to express their concern about where we may be heading, as evidenced by U.S.
arrears to the United Nations and the World Bank, our inability to provide leadership on trade
liberalization, and the like.
And this takes me back to the beginning of my remarks. We must work together, the
government, and groups that are committed to U.S. international engagement such as the Japan
Society, to build a shared understanding among our citizens of one of the great lessons of the
20th century: withdrawal from international affairs cannot work. When we withdraw, we suffer;
when we engage, we prosper. Thank you very much.
5
D EPA R T lVI E N T
0 F
THE
T REA SUR Y
NEWS
lREASURY
omCE OF PUBLIC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIDNGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
May 20,1997
REMARKS BY TREASURY SECRETARY ROBERT E. RUBIN
Thank you, Mr. Vice President. The Treasury Department and the IRS look
forward to working with the National Performance Review as we continue the process
of creating an effective, efficient and taxpayer-friendly Internal Revenue Service.
There are real problems at the IRS that have developed over many, many years
and that will take time to correct. Though there is an enormous amount of work to do,
the IRS and Treasury have been intensely focused on this, and there has been real
progress.
The IRS just completed a very successful ftling season. Electronic ftling was up
19 %, teleftling was up 65 %, there were more than 140 million hits on the IRS WEB
site, and we have issued over 65 million refunds.
This is a great tribute to the commitment and ability of the 110,000 employees
of the IRS. They perform the absolutely vital function of collecting roughly 95 % of the
revenue for the Federal government under difficult circumstances. This allows the
Federal government to fund everything from our national defense to social security, to
Pell grants and to all else that our government
does. That is why politically motivated attacks on the IRS -- as distinguished from
constructive focus on problems -- are so detrimental to our national interest. These
employees deserve our support and all that we can do to help them fulfill their mission.
Again, Mr. Vice President, that is why we all welcome the contributions of the NPR to
help the IRS continue to move forward to improve customer service.
RR-1694
I
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I'd also like to acknowledge the work of the National Commission on
Restructuring the IRS, co-chaired 'by Senator Kerrey and Congressman Portman, which
is fruitfully engaged in a number of areas.
Let me now turn to an area where Treasury and the IRS have already begun
making real changes. One central area of difficulty at the IRS has been the computer
system. A little over a year ago, the IRS and Treasury pledged to make a sharp turn
on systems. Subsequently, we hired a new Chief Information Officer with a strong
record on tax systems, eliminated 26 wasteful contracts and collapsed the remaining
into 9, and began to draft a Modernization Blueprint to guide the overhaul of the IRS
technology. These steps were taken under the direction of a new Modernization
Management Board, which includes representatives from Treasury, OMB, and the NPR
and is chaired by Deputy Secretary Larry Summers.
Last week, after months of extensive consultations with private and public
sector experts, the IRS released the blueprint for technology systems to replace today's
patchwork with a coherent system. That plan, which breaks dramatically with the past
by establishing a strategic partnership with the private sector, will be implemented
incrementally, so that it can be tested as it goes along. Initial reactions to the plan have
been very positive.
This new technology blueprint was a product of the IRS working with effective
Treasury oversight, which is one element of a five point program that, two months
ago, Deputy Secretary Summers set forth for Treasury with respect to improving the
IRS. In brief summary, those five points were:
1.
Institutionalizing intense and pro-active Treasury oversight.
2.
Multi-year capital budgeting.
3.
Tax simplification within the existing Code -- we have since set forth 60
proposed simplification changes.
4.
Increased flexibility with respect to personnel management and
compensation, and appropriate use of outside services.
5.
A new Commissioner with extensive management experience.
2
Today I'm announcing three measures to implement the frrst of these points:
institutionalizing oversight.
First, we will seek an Executive Order and, subsequently, legislation to create
an IRS Oversight Board of administration officials that builds upon, expands the scope
of, and makes permanent the success of the Board of officials that Deputy Secretary
Summers has led in overseeing technology modernization. This Board will meet
regularly to review major strategic, personnel and procurement decisions.
Second, we will seek to include in this Executive Order a requirement that the
Secretary and Deputy Secretary appear twice yearly before an appropriate
Congressional committee to report on the conduct of their oversight responsibilities.
One purpose of such a step is to assure that all future occupants of these positions
energetically fulfill these responsibilities because of highly public accountability.
Third, I will issue an order establishing an IRS Advisory Board, reporting to
the Secretary and consisting of individuals from outside government to bring private
sector and consumer expertise to bear on IRS management issues. This Board will be
uniquely empowered to issue an Annual Report to the Taxpayers for transmittal to
Congress.
In addition, we will propose legislation that would grant the IRS Commissioner
a fixed five-year term for greater continuity of leadership and an improved focus on
ongoing management, similar to the model provided by the Director of the F.B.I.
This Board will draw on the expertise of the private sector, but I strongly
believe, after spending 26 years in the private sector and now 4-112 years in
government, that there are important differences between the two. For example, with
respect to the IRS, there are important law enforcement and privacy issues that are not
appropriate for private sector control. These special characteristics of law enforcement
and privacy underscore the importance of the IRS remaining accountable through the
normal government system.
Let me add on a personal note that the easiest path for Deputy Secretary
Summers and me would have been to walk away from the hard issues facing the IRS,
and focus our attentions on all of the traditional economic and law enforcement
functions of Treasury. But, in our view, that would have been an abdication of our
responsibility. Instead, we decided to take full and explicit responsibility for the
effective conduct of Treasury's oversight role. Moreover, in considering all ideas and
3
proposals with respect to the IRS, we have had only one criterion: What is most likely
to get the IRS where it needs to be, while avoiding risk to its essential function, real or
apparent conflicts with respect to law enforcement or other matters, and privacy
concerns.
As in all matters, there are no perfect answers to getting the IRS back on track,
but I believe this plan, with the exceedingly important addition of the National
Performance Review announced today, will best continue the process of putting the IRS
on the road to improved customer service, more efficient operations and increased
ability to further compliance with the Nation's tax laws.
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4
D EPA R T 1\1 E N T
0 F
THE
lREASURY ((I))
~~~~~~/78q
T REA SUR Y
NEW S
............................
omcr OF PUBUC AFFAIRS .1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C. •
20220 • (202) 622·2960
Internal Revenue Service
Blueprint For Technology Modernization
May,1997
Summary
The new IRS "Blueprint for Modernization" outlines a plan to update the technological
systems in order to provide superior service to the taxpayer, to move toward paperless
operations, and to increase compliance with the law. The Blueprint represents a new way of
doing business at the IRS. It is the first comprehensive attempt to form a strategic partnership
with the private sector in order to address the problems of the past and ensure that the IRS is
flexible for the future. The Blueprint uses a centralized, main-frame computer system that will
ensure taxpayer privacy and minimize cost, while enabling IRS customer service and compliance
personnel to easily access accurate and timely information.
History
In 1988, the Internal Revenue Service put into effect a plan to upgrade and modernize the
agency's technological system. The plan. known as the Tax System Modernization (TSM). was
implemented over the course of the next seven years. In 1995, the General Accounting Office
released a report that uncovered failures in the program and large financial losses. It called for
massive changes in program planning. management and implementation of TSM. Congress, in
tum, called on the IRS by May 15, 1997 to produce a plan for correcting and updating its
technological capabilities.
The primary failure of TSM was the result of inadequate design and planning. The
system's multiple computers and databases installed could not be integrated with existing
computers. TSM also failed to move the IRS toward a paperless system and made current
inefficiencies worse. IRS employees were unable to access current and correct information to
effectively serve American taxpayers.
A Sharp Turn
In early 1996 the Treasury Department - taking into account the serious problems with
the IRS computer system - called for a sharp tum in technology modernization. Treasury:
•
Hired a new IRS Chief Information Officer with extensive private sector experience and
launched a nationwide search for new technical managers;
•
Created the Modernization Management Board (MMB) to oversee the creation and
implementation of new IRS technological systems.
RR-1695
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•
Put a stop to existing TSM contracts in order to review and evaluate the system:
•
Eliminated 26 wasteful TSM contracts and collapsed the remaining contracts into 9:
•
Began to draft a Modernization Blueprint to guide the overhaul ofIRS technology.
Principles of the Blueprint
The new IRS "Blueprint for Modernization" outlines a plan to update the technological
systems in order to provide superior service to the taxpayer, to move toward paperless
operations. and to increase compliance with the law. The Blueprint represents a new way of
doing business at the IRS. It is the first comprehensive attempt to form a strategic partnership
with the private sector in order to solve the problems of the past and ensure that the IRS is
flexible for the future. In preparing the Blueprint, the MMB used a number of strategic
principles which were developed in accord with the 1995 GAO report. These principles are
designed to:
•
Ensure that the modernized computer system maximizes IRS employees' ability to serve
taxpayers~
•
Develop a centralized. main-frame computer system that guarantees taxpayer privacy and
minimizes cost.
•
Fully integrate the central computer with the existing computers and enable all systems to
communicate.
•
Require that technological improvements be implemented incrementally; that new stages
be installed only when previous stages have been proven successful.
•
Provide credible estimates of potential cost and deliverables before implementation.
The Plan
The Modernization Blueprint addresses the problems of the past. eliminates wasteful and
ineffective projects. and develops a plan that is flexible for the future. The Blueprint uses a
centralized. main-frame computer system that will ensure taxpayer privacy and minimize cost,
while enabling customer service and compliance personnel to easily access accurate and timely
information. The Modernization Blueprint calls for:
•
A centralized and flexible system that is capable of adapting to constant changes in tax
law.
•
A computer system that is easy to use and enables IRS employees -- customer service
representatives and compliance personnel -- to access accurate and timely information
from one terminal in order to be more productive and offer better service.
[IRS employees must currently use between 5-9 terminals.]
•
A centralized database that better analyzes taxpayer records to improve compliance.
•
An interactive computer system that will move the IRS to a paperless system. decrease
operating costs. and expedite processing of taxpayer returns and refunds.
Future Steps
Along with the release of the Blueprint, the IRS plans to issue what is known as a
Request for Comments (RFC), seeking input and guidance from the private sector. After
receiving and reviewing comments and revising the Blueprint, the IRS, working with the MMB.
will competitively bid a contract to assume overall responsibility. The selected contractor will
work in collaboration with the IRS and the Treasury Department as the Blueprint is put into
effect.
D E P \ U T 1\1 E
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() F
'( H E
T I{ F. '\ S t: R Y
NEWS
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W•• WASIUNGTON, D.C.• 20220 • (202) 622·2960
Plan for IRS Governance
There will be no dilution of executive accountability for management o/the iRS. However, there
are three legitimate concerns with the existing approach:
1) inadequate institutionalization of oversight;
2) insufficient continuity of leadership; and
3) absence of outside input.
The following plans attempt to address those concerns, while maintaining the fundamental
commitment to executive responsibility.
Commissioner
•
Fixed, 5-year term
•
Dismissable: at will of President
IRS Advisory Board
•
A fourteen-member board, consisting of 4 senior executives from the private sector, 1
small business representative, 1 representative of the state tax commissions, 3 tax
professionals (accounting and lawyers), 2 information technology experts, 1
representative from the of the non-profit or educational sector, and 2 commwtity leaders.
•
Members and chair are appointed by the Secretary of the Treasury
•
Meets quarterly with the IRS, and then reports to the Secretary
•
Board will present annual report to the taxpayers for transmittal to Congress
•
Secretary will provide staffing to the Board
IRS Management Board
•
Treasury will institutionalize a fonnal review board, consisting of the Office of the
Secretary, other Treasury personnel, and representatives of the IRS, NPR, OMB, OPM,
and other relevant government departments.
•
Board will meet monthly. In addition the Secretary and Deputy Secretary will report to
Congress semi-annually.
•
Accomplished through a Presidential Executive Order
RR-1696
May 20, 1997
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622·2040
DEPARTMENT
OF
THE
TREASURY
NEWS
TREASURY
omCE OF PUBliC AFFAIRS .1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C. • 20220 • (202) 622-2960
CONTACT:
EMBARGOED UNTIL 2: 3 0 P. M.
May 20, 1997
Office of Financing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The-Treasury will auction two series of Treasury bills
totaling approximately $15,000 million to refund $20,502 million
of publicly-held l3-week and 26-week bills maturing May 29, 1997.
This offering will result in a paydown for the Treasury of about
$5,500 million. In addition to the maturing 13-week and 26-week
bills, there are $13,487 million of maturing publicly-held 52week bills.
In addition to the public holdings, Fed~ral Reserve Banks
for their own accounts hold $12,696 milliqn of the three maturing
bills. These accounts are considered to Hold $6,856 of the
maturing 13-week and 26-week issues, which may be refunded at the
weighted average discount rate of accepted competitive tenders.
Amounts issued to these accounts will be in addition to the
offering amount.
Federal Reserve Banks hold 57,144 million of the three
maturing issues as agents for foreign and international moneta~
author1ties. Up to $3,000 million of these securities may be
refunded within the offering amount in each of the auctions of
13-week bills and 26-week bills at the weighted average discount
rate of accepted competitive tenders. Additional amounts may be
issued in each auction for such accounts ~o the extent that ~he
amount of new bids exceeds 53,000 million.
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, as amended) for the sale and
~&BUe by the Treasury co che public of markecab1e Treasury bills,
notes, and bonds.
Details about each of the new securities are given in the
attached offering highlights.
000
Attachment
RR-1697
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
HIGHLIGHTS OF TREASURY OPFBRINGS OF WEEKLY BILLS
TO BE ISSUED MAY 29, 1997
May 20, 1997
Offering Amount . .
~e9cription
.
. .
$7,500 million
$7,500 million
91-day bill
912794 SK 6
May 27, 1997
May 29, 1997
August 26, 1997
February 27, 1997
$13,442 million
IB3-day bill
May 27, 1997
May 29, 1997
November 26, 1997
May 29, 1997
$10,000
$ 1,000
$10,000
$ 1,000
of Offering:
Term and type of security .
CUSIP number
Auction date
Issue date . . . . .
Maturity date . . . .
Original issue date .
Currently outstanding
Minimum bid amount
Multiples . . . . . .
912794 5V 2
The following rules apply to all securities mentioned abovel
Submission of Bids:
Noncompetitive bids .
Competitive bids
Maximum Recognized Bid
at a Single Yield
Maximum Award . . . . . .
Receipt of Tenders:
Noncompetitive tenders
Competitive tenders
Payment Terms . . .
Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids
(1) Must be expressed as a discount rate with
two decimals, e.g., 7.10\.
(2) Net long position for each bidder must be
reported when the sum of the total bid
amount, at all discount rates, and the net
long position is $2 billion or greater.
(3)
Net long position must be determined as of
one half-hour prior to the closing time for
receipt of competitive tenders.
35% of public offering
35\ of public offering
Prior to 12:00 noon Bastern Daylight Saving time
on auction day
Prior to 1:00 p.m. Eastern Daylight Saving time
on auction day
Full payment with" tender or by charge to a funds
account at a Federal Reserve Bank on issue date
DEPARTMENT
OF
THE
TREASURY
-,
NEWS
omCE OF PUBliC AFFAIRS .1500 PENNSYLVANIA AVENUE, N.W.• WASIDNGTON, D.C.• 20220 • (202) 622-2960
EMARGOED UNTIL 10 A.M. EST
Text as Prepared for Delivery
May 21, 1997
CONTACT:
Public Affairs (202) 622-2960
STATEMENT OF JAMES E. JOHNSON
ASSISTANT SECRETARY FOR ENFORCEMENT
U.S. TREASURY DEPARTMENT
BEFORE THE
SENATE COMMITTEE ON FOREIGN RELATIONS
Mr. Chairman and Members of the Committee, I appreciate the opportunity to discuss a very
important trade issue, our critical enforcement responsibility to deny the U.S. market to products
of forced labor manufactured in the People's Republic of China that may be intended for the
United States. Key provisions of Federal law prohibit the importation of goods of any kind that
are the product of forced or convict labor. The United States Customs Service enforces those
laws along with over 400 other Federal laws and regulations at our borders. It is the
responsibility of the Office of Enforcement of the Treasury Department to provide policy
direction and regulatory oversight to the Customs Service in carrying out these important
responsibilities.
Section 1307 of the Customs title of the U.S. Code prohibits the importation of merchandise
mined, produced, or manufactured wholly or in part, in any foreign country by convict, forced or
indentured labor. Another statute, section 1761 of Title 18, makes its a criminal offense to
knowingly transport in interstate commerce or to import prison-made goods. These laws,
originally intended solely as trade laws, now serve two roles; they protect the U.S. economy from
unfair foreign competition and provide an important means of expressing our foreign policy
concerns about certain human rights abuses abroad. In exercising these statutory powers, the
Administration has imposed prohibitions against a broad range of trade goods from China.
Today, I would like to review with you a number of issues:
•
•
•
An overview of the Customs role in forced labor enforcement
The status and outlook for our enforcement arrangements with China
Avenues for strengthening our law enforcement measures
In carrying out its mandate to enforce the laws concerning forced labor, Customs has the power to take
two types of action -- one provisional, one permanent -- that prevent forced labor merchandise from
clearing Customs and entering the U.S. market.
RR-1698
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First, Customs can issue a detention order based on information that reasonably, but not necessarily
conclusively, indicates that the merchandise is the product of forced or prison labor. Products subject
to a detention order will not be released from Customs custody for importation while the order is in
effect. Normally an investigation would follow to determine whether a detention order should be
replaced by a "finding". If the Commissioner of Customs makes a determination based on probable
cause, with the approval of the Secretary of the Treasury, that the merchandise falls within the purview
of the statute, a "finding" to that effect is published in the Federal Register.
The publication of this finding has the effect of imposing a permanent ban on importation of
merchandise from the facility until the finding is revoked. In practice, the Office of Enforcement has
the responsibility for reviewing and approving these Customs actions for the Secretary of the Treasury.
The People's Republic of China (PRC) is currently the country most frequently associated with the
export of products offorced or prison labor to the United States, although the former Soviet Union,
Mexico, and Japan have been the subject of prison labor allegations. Of the 21 detention orders
currently in effect, 20 apply to China and one applies to Japan. Of the six current findings, four apply
to China and two rather old findings apply to Mexican facilities.
Administration's Commitment To Enforcement
I would like to outline our efforts to enforce the convict labor statute, particularly with respect to our
current focus on China. Firm enforcement to prevent entry of convict-made goods into the United
States is a matter on which there has long been bipartisan agreement. This Administration, from its first
months in office, has used the legal tools available to deny the U.S. market to forced labor products, as
did the pre.vious Administration and others before it. Seven of the 20 detention orders in effect against
Chinese merchandise, and two of the four "findings" have been issued under this Administration. These
actions have barred a wide variety of goods -- electric fans, hoists, surgical gloves, raincoats, artificial
flowers, tea, sheepskin and leather, and iron pipe fittings -- from entering the U.S. market.
Our Experience With Implementation Of Our Agreements With China
In an effort to improve enforcement with respect to exports of convict-made goods from China, the
United States and China entered into a Memorandum of Understanding (MOD) in August of 1992. The
MOU calls for, inter alia, prompt investigation of suspected violations of the either party's laws
respecting prison labor products, exchange of information on enforcement efforts, and the prompt
facilitation of visits to relevant facilities upon the request of either party.
Since the MOU was reached, we have experienced difficulties with China in implementation. The
Chinese have been slow to respond to our requests and their responses lacked detail. Following
complaints by the State Department, the U.S. and China negotiated a Statement of Cooperation (SOC)
that was signed in March of 1994. The purpose of the SOC was to establish clear rules for
implementation of the MOU.
experience under the MOU has been mixed. Since the MOU was signed, Customs has referred 58
inquiries to the Ministry of Justice for investigation, and has received responses to 52. Customs has
requested inspection visits to 20 facilities and 13 have been conducted. Over the last two years,
Customs attaches at our embassy in Beijing have been permitted to make only one visit to a suspect
OUf
2
facility, that visit occurring in April oflast year. Twenty-seven detention orders have been issued since
1991, the year before the MOU was signed, and 20 of those are still in effect; 6 others were revoked
after Customs determined that the facilities in question did not use convict labor and one was replaced
with a finding.
Notwithstanding the foregoing agreements, several problems have continued. The Chinese Government
has frequently denied that facilities in which Customs is interested are prisons. On the other hand,
where facilities are conceded to be prisons, the government takes the position that the products of that
prison are not exported to the United States.
Commissioner Weise's prepared statement reports in greater detail our recent experience with the MOU
and the SOC. Obviously that history is not a cause for rejoicing. Nonetheless, recent experience
suggests to those who observe matters closely from our embassy in Beijing that a page may be turning.
The U.S. Embassy in Beijing has continued to raise the issue of implementation of the prison labor
MOU with the Chinese. At the end of February, the Embassy was able to arrange with the Chinese
Ministry of Justice for investigation of two new alleged cases of prison labor exports to the U.S.
Although it is too early to tell whether this represents full cooperation on the MOU, the PRC appears
willing to engage with the U.S. Government on this sensitive issue.
I would note more broadly that Treasury and State have raised U. S. concerns on human rights at every
available meeting with the PRC. Treasury raised the issue with the Chinese Minister of Finance when
he was in Washington in November for bilateral Joint Economic Commission discussions. Secretaries
Christopher and Albright raised human rights at each of their meetings during their trips to Beijing, in
November and February respectively. Finally, Secretary Rubin raised the issue during his bilateral with
Vice Premier Qian Qichen in April in Washington.
More recent indications from our embassy are that the Chinese Ministry of Justice is expected to
improve cooperation over the coming months. Customs attaches at the embassy are prepared to take
advantage of this opening ifit occurs. Our first objective is to clean up a backlog of over a dozen cases
that require investigation in China. We are cautiously hopeful that the level of cooperation will improve
somewhat.
Plans To Improve Enforcement Regarding Convict-Made Goods From China
We intend continually to remind the Chinese Government of our expectation that they respect the
agreements they have signed with us dealing with forced labor, and that they will cooperate to enable us
to obtain the information we need to respond to allegations that convict-made goods from China are
entering the United States. Thus our approach through our attache's office in Beijing should be one of
diplomatic persistence. Among other things, if any provision of the MOU or the SOC seems to be
unclear or is being interpreted by the Chinese in a way detrimental to our enforcement efforts, we will
not hesitate to recommend consultations or renegotiation of these documents.
We also intend to continue cultivating strong working relationships with our counterparts in the
Chinese Government, and particularly in China's customs administration. We expect that this
cooperation will pay dividends across the spectrum of our enforcement concerns, including forced labor.
3
The U.S. Customs Service has an excellent record of establishing strong working relationships with the
services of other nations, through training and cooperation on enforcement matters. We want to
cultivate the elements within China who see the obvious benefits of a cordial
working relationship with a key U.S. agency such as Customs.
As we work to strengthen cooperative arrangements with the Chinese Government, we also expect that
the broadening and deepening of U.S. business involvement in China as a result of normal trade
relations will increase the amount and accessibility of information about China's
business enterprises, for law enforcement purposes as well as business purposes.
In our efforts to enforce the law, we will continue to use the law enforcement sources and methods
currently in place and expect to explore other avenues for obtaining better information. Among the
most important resources we can draw upon are the competitors of forced labor facilities and
competitors of those who import from them. It has been a consistent experience of the Treasury
Department and the Customs Service that information from competitors plays an important role in
making cases against violators of the Customs laws, the export and munitions control laws, and the
economic sanctions programs.
Additionally, former employees or even current employees of U.S. firms often can be counted on to
come forward with critical information if they perceive that their employers are profiting from
international trade that violates our laws. To maximize the value of these law enforcement assets, we
will strengthen our educational and outreach efforts in the forced labor area as we have in the areas of
narcotics, money laundering, and sanctions enforcement.
Also, importers can be reminded of the legal risks that they take in not knowing their suppliers or others
with whom they deal. Indeed, in some cases private businesses may have sufficient financial influence
over their suppliers to be able to obtain information about the conditions under which their products are
produced overseas or even to request plant visits. Failure on the part of U.S. importers to exercise
reasonable care regarding those with whom they deal can increase their risk of Customs violations.
Conclusion
In conclusion, I would like to strongly reaffirm the importance that the Administration, the
Treasury Department and the Customs Service attach to the enforcement of the forced labor laws.
These laws are important instruments for the implementation of both our trade and economic policy
and our foreign policy. We are going to do everything within our power to ensure that these laws are
vigorously enforced.
I thank the Committee for its interest in our enforcement of the forced labor laws, and look
forward to your questions.
--30--
4
DEPARTMENT
OF
THE
TREASURY
1789
OrnCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W. • WASHINGTON, D.C. • 20220 • (202) 622·2960
FOR RELEASE AT 1 P.M. (EDT)
May 21, 1997
Remarks by Treasury Secretary Robert E. Rubin
to the Exchequer Club
Thank you for the opportunity to speak here today.
I'd like to talk about fmancial modernization, and the Treasury's approach to dealing with this
important issue. Our objective is simple: modernizing financial services in a way that will
benefit consumers, businesses, and communities, enhance competitiveness of our industry
worldwide, and protect the safety and soundness of our financial institutions.
And the stakes here are enormous. The Bureau of Economic Analysis estimates that in 1995,
Americans spent nearly $300 billion on brokerage, insurance, and banking services. Even if
increased competition from financial modernization were to reduce costs to consumers by just 1
percent, that would be savings of $3 billion a year. And, as I'll explain a bit later, substantiality
greater savings than that may be likely.
In many respects, moving forward on financial modernization is a logical next step in the
financial services agenda the Administration has pursued since 1993.
We helped bring to conclusion one of the most costly chapters in the history of U.S. finance, the
savings and loan debacle, by helping four years ago to pass the Resolution Trust Corporation
Completion Act, and last year by helping pass legislation to increase capitalization of the
Savings Association Insurance Fund, which insures deposits at thrift institutions.
We've also worked to enact landmark interstate banking legislation, which will go into effect
nationwide on June 1st. And the bank and thrift regulators have been eliminating unnecessary
regulatory burdens that serve no clear purpose, while protecting consumers and communities.
In 1995, at President Clinton's urging, regulators completely rewrote their Community
Reinvestment Act rules, to enable banks and thrifts to focus on performance, not paperwork.
Today depository institutions and communities are coming together in innovative ways to help
serve creditworthy borrowers and rebuild areas long left behind. Similarly, the Treasury has
established the Community Development Financial Institutions Fund, whose primary purpose is
RR-1699
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622·2040
to help non-traditional lenders meet the financing needs of economically distressed communities.
All of these measures were good for the consumer, businesses and communities that depend
every day on financial services.
Today, our nation's financial marketplace is exceptionally strong. Unprecedented numbers of
Americans have access to credit. We have the most reliable, liquid markets anywhere. Our
financial institutions are innovative, and function effectively in a highly competitive global
economy.
The Challenge
But in the midst of all this progress, we're still operating under an outdated legal and regulatory
structure. National banks can sell insurance, but only from a town of five thousand. Securities
firms provide bank-like products, but can't actually own a bank. Bank holding companies can
underwrite securities, but with arbitrary limitations on the revenues they can derive from that
activity.
The Glass Steagall law may have been appropriate when we had a dramatically different
financial system. But think of the enormous changes that we've seen since then: We have
developed a very sophisticated system of bank supervision. Our securities markets are the most
liquid and reliable in the world. Geographic barriers to competition have come down. Financial
products are rapidly converging. Globalization has spurred greater opportunity and competition.
And technological innovation is a driving force behind the development of sophisticated
financial products.
As you know better than anyone, the old lines that separated the insurance, securities, and
banking industries have increasingly blurred as new financial products and services have
appeared. And regulatory and judicial rulings continue to erode many of the barrier that were put
in place to restrain competition among financial services firms.
Our goal now is to create a regulatory and legal environment in which: 1) consumers benefit
from lower costs, better services and greater convenience; 2) financial services providers operate
on a level playing field; 3) financial institutions can offer products and services without
maneuvering through a maze of archaic laws: and 4) we protect the deposit insurance funds and
safety and soundness. However. we don'1 simply want regulation to reflect the market realities
of 1997. We want to create a framework in which US financial markets can innovate, evolve and
compete well into the 21 5t century.
The Approach
Let me share with you our current thinking on several legislative changes we think should be
considered.
2
First, we would propose to break down barriers that inhibit or prevent competition among
various providers of financial products and services. We would pennit banks, securities firms
and insurance companies to affiliate with one another, reflecting the consensus that this reform is
long overdue. These affiliations would help promote a genuine two-way street, one in which all
participants have the opportunity to compete and innovate.
Second, we would give finns the choice to organize their financial activities in the most efficient
way they see fit -- either as a subsidiary of a bank, or as an affiliate of a bank holding company
regulated by the Federal Reserve Board. Banks would, if they took the subsidiary route, have to
subtract from their regulatory capital 100% of any investment in subsidiaries that undertake
activities not pennissible for the bank itself, and banks would have to establish firewalls
restricting certain transactions between the bank and its subsidiary. Safeguards like these -which will be the same for subsidiaries as for holding company affiliates -- will protect banks
and the federal deposit insurance funds from any risks posed by subsidiaries.
In establishing subsidiaries, banks could expand the range of financial products and services they
offer, and diversify the sources of their earnings. In this respect, subsidiaries can help promote
safety and soundness at banking institutions.
We should not and do not favor one fonn of corporate structure over another. But, by
developing equal and consistent safeguards for subsidiaries and affiliates, we give companies the
power to choose their structure for business, not regulatory, reasons. And let me emphasize:
banks and the federal deposit insurance funds will be equally well protected under either format.
Third -- and perhaps the most difficult question in this debate -- is whether to pennit companies
that include banks to engage in non-financial activities, the so-called "banking and commerce"
Issue.
As we examined this issue, we recognized that people on all sides have strongly held views about
this issue. There are, for example, some who believe that pennitting broader affiliations between
banking and commercial firms could have not only significant economic implications but also
important cultural and social effects. Therefore, because of the nature of the issues and the
complete lack of consensus, we think the issue needs to be further debated by Congress before
settling on a final approach.
Consequently, we believe that Treasury can he most helpful in resolving this issue by providing
two possible alternative legislative models.
Under the first model, Congress could decide to permit some modest measure of non-financial
activity for bank holding companies. In such a case, it would be sensible to set a high threshold
-- expressed in terms of gross domestic revenues -- to qualify the organization as predominantly
financial. Under this model, Congress also could prohibit any affiliation between a bank and any
of the 1,000 largest non-financial companies.
3
This alternative, would provide a basis for Congress to unify the regulation of banks and thrifts.
Under the second model, Congress may decide not to relax limits on non-financial activities of
firms affiliated with banks, while as I've already said permitting bank holding companies to
engage in the broad range of financial activities.
Under this alternative, the likely outcome would be for Congress to retain the separate thrift
charter and the current rules relating to unitary thrift holding companies. While this alternative
would not eliminate the current disparities between banks and thrifts, it does permit bank
holding companies to engage in the full range of financial activity.
Let me now turn to the fourth item in our approach -- the creation of a new wholesale financial
institution (so-called "woofies"). WFIs would be banks which accept only wholesale uninsured
deposits, but they would not be considered banks for the purpose of holding company regulation.
As chartered financial institutions with access to the payments system, they would be subject to
prompt corrective action and other safeguards to ensure they don't pose a significant risk to the
financial system. We would also require these banks to comply with the Community
Reinvestment Act.
Lastly, we believe that we should move closer to a system of regulation by function, whereby
specific financial activities would be regulated by the appropriate federal or state agency,
regardless of where these activities are conducted. In this way, consumers would receive
consistent regulatory protections. In the securities area, we would maintain and strengthen the
important role of the Securities and Exchange Commission, without pushing current securities
activities out of banks. With respect to insurance, we'd permit states to apply state laws to bank
insurance activities as long as those laws were truly non-discriminatory. Finally, we would
propose to create a council of financial regulators that would help resolve questions about the
regulation of specific financial products.
Safeguards
With all these changes, of course, we must ensure that any and all financial modernization
proposals are safe. In the past eight years, we've made great strides in restoring safety and
soundness to our financial system. We're mindful of the S&L experience and are committed to
avoiding anything of this sort again.
The Treasury approach would enhance existing consumer safeguards. We would provide for
important disclosures -- in plain, straightforward terms -- so buyers can understand whether or
not the products they purchase from financial services providers are insured.
For financial institutions, we believe that our proposal for expanded activities, which employs a
"belt and suspenders" approach, is safe and sound because it provides even greater safety and
soundness protections than current law. The expanded business opportunities we described
4
above are linked to greater protections for insured depository institutions. Banks would have to
be well-capitalized -- the highest regulatory capital category -- and well-managed to qualify for
broader affiliations. They would have to meet other important prudential safeguards that prevent
subsidiaries or affiliates from weakening the depository institution.
And finally, this proposal comes with an absolute commitment to safeguard communities. This
Administration will not tolerate any weakening of eRA in any legislation.
Benefits
In the past, when we have permitted greater competition in the fmancial services industry,
consumers of financial products have benefited significantly. For example, after the New York
Stock Exchange eliminated fixed commission rates in 1975, brokerage rates dropped by over 20
percent and an entire new industry -- discount brokers -- was created. From 1986 to 1989, as
affiliates of banks began to underwrite municipal revenue bonds, issuers like local governments
saved as much as $9 per $1000 of borrowed funds -- savings that could be passed on directly to
taxpayers to help build roads, .schools, hospitals and their communities.
Even more dramatic savings have accrued to consumers after the government has lifted barriers
to competition in other industries.
As I mentioned earlier, the Bureau of Economic Analysis estimates that in 1995, American
consumers spent nearly $300 billion on brokerage, insurance, and banking services. If increased
competition from financial modernization were to reduce costs to consumers by 1 percent, that
would be a savings of about $3 billion a year. Based on the efficiencies that could be realized
from increased competition, it is plausible to expect ultimate savings to consumers of up to 5
percent from increased competition in the securities, banking and insurance industries -- as much
as $15 billion per year. The bulk ofthese savings should come as financial services firms, driven
by increased competition, adopt best-practices.
As I indicated earlier, the financial services industry is undergoing fundamental and dramatic
change. The question we need to address is: what will be the rules of the road in the years to
come? Will we rely on the old rules -- crafted primarily in the depth of the Depression -- or will
we look forward to creating a legal and regulatory structure that will meet the needs of a dynamic
and ever-changing system?
I share the views of many others who feel that the time has come to modernize the rules of our
financial services system. Such a move, if done with due regard for safety and soundness, will
benefit the broad range of users of financial services: consumers, small and large businesses,
communities, and state and local governments. A more rational system, with a level playing
field and appropriate safeguards, is in everyone's interest.
We look forward to working with the Congress on this important initiative in the time ahead.
5
I
D ... P \ I{ T 'I I" \ T
0 I,
TilE
T
I{
F \ S
(I
I{ Y
I
NEWS
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANlAAVENUE, N.W•• WASHINGTON, D.C. • 20220 • (202) 622-2960
-,------------------------~~~----~--~~~~~~~---KEY PROVISIONS OF THE TREASURY'S
FINANCIAL MODERNIZATION PROPOSAL
May 21,1997
1.
FINANCIAL ACTMTIES OF COMPANIES OWNING INSURED DEPOSITORY INSTITUTIONS
•
•
2.
Companies that own banks (bank holding companies) and meet certain
qualifications would - subject to certain safeguards -- be pennitted to engage in
any financial activity, including the full range of:
•
securities activities;
•
insurance activities;
•
investment advisory activities and mutual fund sponsorship; and
•
merchant banking.
Likewise, fmandal companies could own banks.
FINANCIAL ACTIVITIES OF INSURED DEPOSITORY INSTITUTIONS AND THEIR
SUBSIDIARIES
•
National banks (and state banks to the extent pennitted by state law) would be
authorized, subject to certain safeguards, to conduct any financial activity through
subsidiaries (except that national bank subsidiaries would not be authorized to
engage in real estate development).
•
National banks would be pennitted to engage in the full scope of activities that
had previously been pennissible for national banks or federally chartered thrifts
(except investing in real estate development).
•
National banks (and state banks to the extent pennitted by state law)
would be permitted to act as general agents for the sale of insurance.
National banks would be prohibited from engaging directly in insurance
underwriting other than what is currently permissible (e.g., credit-related
insurance ).
For press releases, speeches, public schedules and official biographies, call our 24-hourfax line at (202) 622-2040
.,
<
•
3.
National banks (and state banks to the extent permitted by state law)
would be permitted to underwrite and deal in municipal revenue bonds in
addition to other securities activities currently permissible in the bank.
NONFINANCIAL AFFILIATIONS
Two alternative approaches will be suggested:
•
•
Under the "basket" approach (Alternative A), bank holding companies that
derive some significant percentage (specified by Congress) of their gross revenues
in the U.S. from fmancial activities could derive the remainder of their revenues
from nonfinancial activities.
•
In addition to the "basket" limitation, we would suggest prohibiting any
affiliation between a bank holding company and a nonfinancial firm
having assets in excess of a specified amount (calculated to approximate
the 1,000 largest nonfinancial companies).
•
The federal thrift charter would be eliminated after two years, and existing
unitary thrift holding companies (which presently have no activity
restrictions) would be given a grandfather exemption from the "basket"
test (terminable upon a change of control).
Under the "financial-only" approach (Alternative B), bank holding companies
would not be permitted to engage in any nonfmancial activities.
•
4.
The existing thrift charter would be preserved, and thrift holding
companies would retain their current authority to engage in any lawful
activity.
CAPITAL PROTECTIONS AND OTHER SAFEGUARDS
•
The following safeguards would apply if a bank holding company or a subsidiary
of a bank engaged as principal in activities not permissible for a national bank to
engage in directly:
•
The bank would have to remain "well capitalized" -- that is, to be in the
highest regulatory capital category, with capital exceeding normal
requirements.
•
The bank would have to deduct from its regulatory capital the
entire amount of its equity investment in any subsidiary engaged in
such activities. Thus even if the investment were to be a total loss,
the bank would still be well-capitalized.
-3•
The bank. would have to be well-managed.
•
Any company controlling the bank would have to give an undertaking that
if the bank's capital fell below the well capitalized level, it would be
promptly restored.
•
Existing limits on loans and other transactions between banks and affiliated
companies (sections 23A and 23B of the Federal Reserve Act) would be extended
to bank subsidiaries engaged in such activities. Thus any transactions between the
bank and the subsidiary would have to be conducted at arm's length, could not
exceed 10 percent of the bank's capital, and would have to be fully collateralized.
(In addition, the bank's transactions with all affiliates, including the subsidiary,
could not exceed 20 percent of the bank's capital.)
•
Banks could not be held vicariously liable -- under the "piercing the corporate
veil" theory - for obligations of a subsidiary or other affiliate that the bank had
not assumed.
•
•
5.
Bank regulators would be specifically required to assure that banks
observed principles of corporate separateness.
Under Alternative A. banks would be prohibited from extending any credit to, or
for the benefit of, any nonfinancial affiliate. (Alternative B would pennit no
nonfinancial affiliates.)
FEDERAL RESERVE REGULATION OF HOLDING COMPANIES
•
The Federal Reserve would continue to approve the fonnation of, and to supervise
and regulate. all bank holding companies.
•
•
Federal Reserve examinations of a bank holding company would be limited, to the
fullest extent possible. to holding company units that could have a materially
adverse effect on the safety and soundness of a bank. affiliate.
•
•
The Federal Reserve would be able to require financial reports from
holding companies if they are not reasonably available from other sources.
The Board would have access to infonnation that was provided by the
holding company or any of its units to other regulatory organizations.
The Board would, to the fullest extent possible, make use of examination
reports made by, or on behalf of, regulators of holding company units.
The Federal Reserve would be pennitted to set consolidated capital requirements
for a bank holding company if:
-4-
6.
•
the holding company and the bank fell into size categories (to be defined)
that could raise questions about systemic risk if problems were to arise;
•
the holding company's insured depository institutions account for a
predominant percentage (to be defined) of the holding company's total
assets; or
•
an insured depository institution owned by the holding company has been
less than well capitalized for more than 90 days, and the holding company
engages in activities not permissible for a national bank to engage in
directly.
•
Bank holding companies not meeting any of these criteria would presumptively be
excluded from consolidated capital requirements, although the Board could
impose such requirements (for an individual holding company or class of
companies) if it determined that it was needed to avert a material risk to the safety
and soundness of a subsidiary bank presented by unusual risk in the holding
company's activities, or particular characteristics of its financial structure.
•
Where the Federal Reserve did impose holding company capital requirements, it
would be required to develop rules for excluding from the holding company's
consolidated assets and capital: (1) the assets and capital of those company
components subject to capital requirements of other regulatory authorities; and (2)
the assets and capital of other company components capitalized in line with norms
for firms engaged in the same line of business.
THRIFT CHARTER, REGULATION, AND DEPOSIT INSURANCE
•
Under Alternative A (the "basket" approach to nonfmancial affiliations), there
would be a two-year conversion period by the end of which all federally chartered.
thrifts would convert to bank charters, and all remaining state-chartered thrifts
would be treated as banks for federal bank regulatory purposes.
•
OTS and OCC would be merged at the end of the conversion period.
•
The authority of unitary thrift holding companies to engage in
nonfinancial activities would be grandfathered, and would terminate upon
a change in control.
•
Each of the banking agencies would be required to adopt programs to
promote housing finance and to accommodate the conversion of thrifts,
including the development of guidelines that assured that former thrifts
could continue to specialize in residential mortgage finance.
-5-
•
7.
8.
•
With the elimination of the ors. the FDIC Board would be restored to its
original three-member size.
•
The FDIC's Bank Insurance Fund (BIF) and Savings Association
Insurance Fund (SAIF) would be merged.
Under Alternative B (the "fmancial-only" approach to bank affiliations). the
thrift system would be left as it is today.
•
OTS and OCC would be kept intact (although the prohibition against
combining functions of the two agencies would be lifted).
•
No conversion of thrifts would be required, and unitary thrift holding
companies would retain their diversified affiliation authority.
•
BIF and SAIF would be merged.
WHOLESALE FINANCIAL INSTITUTIONS
•
Wholesale financial institutions (WFIs) could be chartered as either national
banks or state member banks.
•
WFls would not have FDIC insurance and could not accept retail deposits.
•
The OCC and Federal Reserve would supervise WFls and set their capital
requirements.
•
Owners of WFIs would not be treated as bank holding companies, could therefore
engage in any lawful business.
•
WFIs would be subject to Community Reinvestment Act (CRA) requirements.
FUNCTIONAL REGULATION OF INSURANCE AND SECURITIES ACTIVITIES
•
Insurance activities of banking organizations would be subject to normal state
insurance regulations. if those regulations do not discriminate against financial
institutions. States could not apply to national banks laws that had the purpose or
effect of discriminating against, or had a disproportionately adverse effect on,
financial institutions.
•
Securities activities of banking organizations would be regulated as follows:
•
The Securities Exchange Act's exemption of banks from broker and dealer
registration would be narrowed to permit SEC regulation of activities
other than traditional banking activities.
•
The SEC would be required to amend its net capital rule to avoid a de
facto pushing out of broker-dealer activities from the bank.
9.
•
SIPC insurance would not apply to broker-dealer activities conducted in
the bank.
•
Products traditionally provided by banks would not subject to SEC brokerdealer regulation, and the primary banking regulator and the SEC could
jointly exempt new banking activities.
•
The Investment Company Act's application to banking activities would be
updated and clarified. Banks' exemption from the Investment Advisers
Act would be narrowed.
•
The SEC, rather than the banking agencies, would handle registration of
bank-issued securities and periodic reporting by banks having securities
registered under the Securities Exchange Act of 1934.
CONSUMER PROTECTION
•
The banking agencies, in consultation with the SEC, would be required to
prescribe rules regarding banks' retail sales of nondeposit investment products, in
order to avoid customer confusion about the nature and applicability of FDIC and
SIPC insurance, and to protect against conflicts of interest and other abuses.
•
•
Such rules would address such matters as sales practices, qualifications of
sales personnel, incentive compensation, and referrals.
The rules would require simple, direct and understandable disclosures, such as the
following:
"NOT FDIC-INSURED OR SIPC-INSURED
"NOT GUARANTEED BY THE BANK
"MA Y GO DOWN IN VALUE."
•
Customers could prevent sharing of confidential customer infonnation between
banks and their nonbank affiliates.
•
The National Council on Financial Services would periodically assess the
effectiveness of such regulations, and could adopt regulations more stringent than
those of the agencies.
-710.
t t.
NATIONAL COUNCIL ON FINANCIAL SERVICES
•
A National Council on Financial Services would be created.
•
Among other fimctions, the Council would do the following:
•
Prescribe (under Alternative A) the method for applying the gross
revenues test for measuring the extent of a bank holding company's
financial activities;
•
Consider whether additional activities are fmancial;
•
Impose additional fIrewall restrictions, if determined to be necessary,
between banks and their affiliates, including subsidiaries of banks;
•
Review the adequacy of consumer protections to detennine whether
modifications are needed; and
•
Resolve differences among the agencies on such questions as whether an
activity is "fInancial," or whether a particular product or activity is
insurance, securities, or banking.
TIME FRAME FOR MODERNIZATION
•
Under Alternative A, modernization of bank activities and affiliations would
occur two years after enactment. The two-year period would accommodate
unifIcation of the bank and thrift charters, as well as the respective federal
regulators.
•
Under Alternative B, the thrift system would remain intact. Thus modernization
of bank activities and affiliations would begin nine months after enactment.
DEPARTl\1ENT
OF
1789
THE
TREASURY
NEWS
OmCE OF PUBUC AFFAIRS .1500 PENNSYLVANIA AVENUE, N.W.• WASIDNGTON, D.C.• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
May 21,1997
Contact: Paul EUiott
202-622-2960
TREASURY PROVIDES BLUEPRINT FOR FINANCIAL MODERNIZATION
Treasury Secretary Robert E. Rubin Wednesday unveiled the Clinton Administration's
plan for modernizing the financial services industry~ a step the Secretary said could save
consumers up to $15 billion a year through improved efficiencies and increased competition.
"The stakes are high for the American consumer, businesses and entrepreneurs," Secretary
Rubin said. "The goal should be to give consumers more choice, bring down the cost of financial
services, and make them more convenient for customers. Just as important, this proposal comes
with increased safeguards."
American consumers spent nearly $300 billion on financial services in 1995. Based on the
efficiencies gained from increased competition from financial modernization, consumers could
save up to 5 percent -- as much as $15 billion per year, Treasury estimates.
Secretary Rubin said the challenges to reforming the 1933 Glass-Steagall Act would be to
create an environment that ensures a level playing field for financial service providers, gives
businesses the ability to be innovative without a new layer of red tape, and protects the deposit
insurance funds.
The Treasury plan includes:
•
Breaking down of barriers that inhibit or prevent competition among various
providers of financial products and services. Treasury supports permitting banks,
securities firms and insurance companies to affiliate with one another.
•
Giving firms the choice to organize their financial activities in the most efficient
way they see fit -- either as a subsidiary of a bank or as a bank holding company.
•
On the issue of "banking and commerce," Treasury will provide two alternative
legislative models for debate and consideration.
RR-1701
Far press releases. sbeeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
•
Consumer safeguards would be protected and enhanced. We would provide for
important disclosures -- in plain, straightforward terms -- so buyers can understand
whether or not the products they purchase from financial service providers are
insured.
•
Safety and soundness protections would be strengthened. The expanded business
opportunities will be linked to greater protections for insured depository
institutions. Banks would have to be well-capitalized and well-managed to qualifY
for broader affiliations.
"The time has come to modernize the rules of our financial service system," Secretary
Rubin said. ','Such a move must be done with regard for safety and soundness to benefit the broad
range of users of financial services: consumers, small businesses, communities, and state and local
governments. "
Secretary Rubin will provide the details of the Treasury Department's proposal on
financial modernization to Congress during the first week in June.
--30--
DEPARTMENT
OF
THE
TREASURY
NEWS
TREASURY
OFFICE OF PUBliC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
~OOED
UNI'IL 2:30 P.M.
CQ.NI.?l.,..'-:
May 21, 1997
TREASURY
Office of Financing
202/2l9-3350
ro AUcrION
2-YEA,R Pom 5-YE'AR N:JI'ES
'IOIALING $28, 500 MILLION
The Treasury will auction $16,500 million of 2-year notes and $12, 000
IT~llion
of 5-year notes to refund $28,858 million of publicly-held securities
maturing t-~¥ 31, 1997, and to pay da.-m arout $350 million.
In addition to the public holdings, Federal Reserve Banks hold $1,128
million of the rraturing securities for their evvn accounts, which tray be
refunded by issuing additional arrounts of the new securities.
The rraturing securities held by the public include $2, l70 million held
by Fe::.eral ?-.eseI"V'; Banks as agents for foreign and international rronetary
authori tiss . ~..rrounts bid for these accounts by Federal Reserve Banks v.'ill be
adC.ed ~o 'C.he offeri.Jlg.
Bot...'rJ. the 2-year and S-year note auctior..s will be conducted in the
single-pric;;! auction fortrat. All carp:titive and noncarpetitive awards will
be at the {l.i.ghest yield of accepted co.1pStitive tenders.
TeI"-=-ers will be received at Federal Reserve Banks and Branches and at
the Bureau of the Public r:.ebt, Washin:3t-on, D. C. This offering of Treasuri
securities is governed by the tems a.."'ld conditions set forth in the Uniform
Offerin3 Circular (31 CFR Part 356, as arrended) for the sale and issue by the
Trea::.-ury to the public of marketable TI:=-a.sLlIY bills, notes and bon:is.
I
Details arout each of the ne'w
offering 0 i ghlights.
s~ities
are given in the attached
Attachrrent
R-R-1702
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622·2040
HIGHLIGHTS OF TREASURY OFFERINGS TO THE PUBLIC OF
2-YEAR AND 5-YEAR NOTES TO BE ISSUED JUNE 2, 1997
May 21, 1997
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 .
$16,500 million
$12,000 million
2-year notes
AF-1999
912827 2V 3
May 28, 1997
June 2, 1997
June 2, 1997
May 31, 1999
Determined based on the
highest accepted bid
Determined at auction
November 30 and May 31
$5,000
$1,000
5-year notes
G-2002
912827 2W 1
May 29, 1997
June 2, 1997
June 2, 1997
May 31, 2002
Determined based on the
highest accepted bid
Determined at auction
November 30 and May 31
$1,000
$1,000
None
Determined at auction
None
Determined at auction
The fo11owinq rules apply to all securities ment10ned above:
Submission of Bids:
Noncompetitive bids
Competitive bids
Maximum Recognized Bid
at a Single Yield
Maximum Award .
Receipt of Tenders:
Noncompetitive tenders
Competitive tenders
Payment Terms .
Accepted in full up to $5,000,000 at the highest accepted yield
(1) Must be expressed as a yield with three decimals, e.g., 7.123%
(2) Net long position for each bidder must be reported when the
sum of the total bid amount, at all yields, and the net long
position is $2 billion or greater.
(3) Net long position must be determined as of one half-hour prior
to the closing time for receipt of competitive tenders.
35% of public offering
35% of public offering
Prior to 12:00 noon Eastern Daylight Saving time on auction day
Prior to 1:00 p.m. Eastern Daylight Saving time on auction day
Full payment with tender or by charge to a funds account at a
Federal Reserve Bank on issue date
D EPA R T 1\1 E N T
0 F
THE
T REA SUR Y
NEWS
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W•• WASHINGTON, D.C•• 20220. (202) 622-2960
EMBARGOED UNTIL 9:30 A.M. EDT
Text as Prepared for Delivery
May 22,1997
TREASURY DEPUTY ASSISTANT SECRETARY FOR
COMMUNITY DEVELOPMENT POLICY MICHAEL S. BARR
HOUSE GOVERNMENT REFORM AND OVERSIGHT SUBCOMMITTEE
ON THE DISTRICT OF COLUMBIA
Mr. Chairman, Members of the Committee, thank you for the invitation to discuss the
President's Plan to revitalize our Nation's Capital. I will briefly summarize the President's plan and
then focus on one of its key elements -- how the President's plan will help spur economic
development in the District of Columbia. After I conclude my remarks, I would be happy to answer
any questions that you may have.
OVERVIEW
As you know too well, our Nation's Capital faces not only structural financial problems, but
serious obstacles to providing the most basic services to its residents. The President has presented a
plan to assume a number of responsibilities normally performed by states, in order to put our capital
city on finner financial ground and its prospects for success.
The plan is a first step, not a panacea. The District's government and Financial Authority will
have to continue to do the hard work necessary to create a City where streets are safe, where
children enjoy the quality education they deserve, where every resident has the chance to earn a
decent living -- and where the City's government spends within its means.
Through the plan, the Federal government will assume over $4 billion ofD.C.'s costs over
the next five years, and will invest well over $1 billion in the District for economic development,
transportation, criminal justice improvements, and tax collection. The plan would also end the
annual $660 million Federal payment.
The plan is not a "bailout." All Federal assistance will be conditioned on the District taking
specific steps to improve its budget and management. The plan will require the District to submit a
balanced budget for 1998 and for each year thereafter, to continue to comply with the requirements
RR-1703
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
of the Financial Responsibility and Management Assistance Act, and to take a number of specific
reform steps in each area of the President's plan. Last week, the Council of the District of Columbia
and the Mayor took an important first step in signing a Memorandum of Understanding with the
Office of Management and Budget committing the District government to fulfill these requirements,
including a requirement to implement timely and efficient zoning, permitting, and licensing processes
by the end ofFY 1998.
ELEMENTS OF THE PRESIDENT'S PLAN
The President's plan would help the District through four main elements:
First, under the plan, the federal government will take on major financial and managerial
responsibilities that are beyond the financial capacity of the District and that are nonnally assumed by
states. The Federal share of the District's Medicaid costs will increase. The Federal government will
assume responsibility for the vast majority of the District's existing pension liabilities. The Federal
government will take on responsibility for housing D.C. felons, offender supervision and services,
prison construction, and funding (but not administering) District Courts. The U.S. Treasury will
structure loans to assist the City in appropriately addressing its accumulated deficit.
Second, the Federal government will invest in improving the City's transportation
infrastructure. It will take responsibility for the funding and oversight of certain National Highway
System (NHS) capital projects -- including roads, bridges, and transit -- and NHS operations and
maintenance projects in consultation with the District. A National Capital Infrastructure Fund
(NCIF) for road, bridge, and transit projects will be established in FY1998 and continue through the
end ofFY 2003.
Third, the Federal government will provide technical expertise to help the city government
become more effective in such areas as income tax collection, education and training, housing,
transportation, and health care delivery.
Fourth, the plan will spur economic development in the Nation's Capital through new federal
tax incentives and a new Economic Development Corporation -- or EDC. The remainder of my
testimony will focus on this economic development component. But let me underscore that spurring
economic investment and opportunity in the District is not limited to the economic development
portion of the plan. All of the plan's elements, taken as a whole, will provide the District with a
climate conducive to economic growth -- if they are combined with the continued efforts of District
residents, the District government and Financial Authority to realize the fiscal sustainability, high
quality services, good schools and safe streets upon which growth depends.
ECONOMlC DEVELOPMENT PLAN OVERVIEW
Drawing on the best practices of states and local communities throughout the country and
extensive discussions with the District's business and community leaders, the Administration has
2
proposed several new tools for the District of Columbia to grow its economy and provide
opportunities for its citizens by promoting private-sector investment and jobs. These tools include an
Economic Development Corporation (EDC) which is designed to facilitate business expansion, and
widely available tax provisions to ensure that the District's residents as weD as its businesses have
opportunities to participate in this expansion .
.
Economic Development Corporation
Central to the President's plan for the District's economic revitalization will be a new District
of Columbia Economic Development Corporation, or EDC, whose mission, governance, powers and
resources reflect both "best practices" nationally and the unique circumstances of the District. In
cities and states throughout the nation business expansion is often facilitated by groupings of private
and public economic development entities whose responsibilities range from the management of
large-scale redevelopment projects to encouraging entrepreneurship in low-income communities.
Successful economic development efforts, whether in places like Cleveland, Ohio or Tupelo,
Mississippi, depend on the efforts of many entities working cooperatively to perform the tasks
essential to promote their City's economic future.
In-depth assessments of the economic development efforts of the District of Columbia were
undertaken by Treasury and OMB, as weD as by private sector organizations such as the DC Agenda
Project. These assessments came to the same conclusion: A key missing link in the Capital's ability
to advance economically is private-sector driven economic development corporation to bring the city
together behind an economic development strategy and to push that strategy to completion.
The EDC would provide a focal point for development. The EDC's mission would be to
bring together the private sector, civic leaders and government to develop, market, and promote an
economic development strategy for the District, facilitate longer-term and regional approaches to
economic growth, help develop major projects to revitalize our Capital, and link the District,
including its economically distressed areas, to local and regional growth opportunities.
The EDC created by the plan will provide the District with the type of organizational
structure that other state and local governments have used effectively to stimulate economic growth
in their communities. Development corporations, by bringing together the private sector,
government, and civic leaders, can often overcome barriers to development that no single private
sector firm could overcome on its own. For example, while a large retail business may be
economically viable in a neighborhood if customers are drawn to the area by the presence of
numerous other retailers, no one firm may be willing to make the first decision to locate there, in the
absence of decisions by enough other firms. By bringing numerous interested parties together,
development corporations can help overcome such market failures.
This package of federal tax incentives and the new Economic Development Corporation are
designed to respond to the unique economic situation of the District of Columbia, while drawing on
successful models around the country. Many states, including Virginia and Maryland, provide an
3
array of financing options, targeted tax incentives, loans, training, and other services to retain and
attract businesses. The EDC was modeled on best practices from economic development
corporations elsewhere in the nation. including the Baltimore Development Corporation. the Boston
Redevelopment Authority, the Erie County Industrial Development Agency, the Kansas City
Economic Development Authority, and the Philadelphia Industrial Development Corporation.
What these entities have in common is an ability to draw together the disparate interests in a
community, lower barriers to development, and spur growth. They are governed by boards that can
focus on long-term economic development strategy, and that represent the broader business and civic
community. They use a variety of tools, including revolving loan funds, private activity bonds,
eminent domain. and targeted tax incentives to catalyze economic growth. Finally, the experience of
other development organizations suggests that in fulfilling the EDC's challenging missions, the EDe
must work carefully to build experience and capacity over time.
EDC Mission. Building on work done by a number of private sector District groups, the EDe
will develop an economic development plan, help implement large-scale development projects,
support efforts to create jobs and business opportunities in the District, and connect District
development to regional growth. We expect that the EDC will have five core missions:
Strategic Planning -- provide technical support and a forum for hard-nosed thinking about the
District's longer-term economic opportunities and options;
Project Development -- participate with developers and investors in the planning and
management of large-scale development projects that present significant economic growth
opportunities for the city;
Business Promotion - market the District and its region as potential sites for business
investment, tourism, and other approaches to promote economic growth;
Link Distressed Communities -- facilitate linkages with D.C. residents, community based
organizations and other entities, such as employment intermediaries and micro-loan
programs, that can connect the residents of the District's economically distressed
communities to economic opportunities available within the city and in the region, and;
Regional Action -- work with economic development organizations in surrounding suburban
jurisdictions to implement win-win regional efforts, so that the entire region's economy
benefits from cooperative regional economic development strategies.
EDC Structure. Under the proposal, the District of Columbia EDC will be governed by a
nine member Board of Directors. The President will appoint five of the Board members in
consultation with Congress, of which four will be selected from private sector businesses, and one
will be selected from community based organizations. The Mayor, with the approval of the City
Council, will appoint an additional member. There will be three voting, ex officio members, one each
4
selected by the President, the Mayor, and the City Council respectively. The EDC will be run by a
Chief Executive Officer and served by a professional staff.
Federal Capitalization and Tax Incentives. As described more fully below, the EDC will be
given the authority to spur development with federal tax credits for loans and investments in D.C.
businesses, and to issue project revenue b~nds, including new tax-exempt private activity bonds.
Under the plan, Congress would capitalize the EDC with an investment of$50 million in FY 1998.
The EDC would use these funds for planning, project development, investments, operating costs, and
other statutory purposes. Of this amount, $20 million would be made available on a competitive
basis to non-profit entities in the District for job creation. The EDC would also be required to
conduct an independent evaluation of the efficacy of the tax incentives provided under this proposal,
to ensure the effective use of federal tax dollars.
Expedited Approvals. The EDC will also have a number of other important powers, including
eminent domain, the ability to seek expedited review by the District government of necessary
permits, requests for land transfers, and the like. As part of the MOU with the Federal government,
the District government has committed to achieve reforms with respect to permitting, licensing, and
zoning by the end ofFY 1998 and to cooperate fully with the EDC.
New Federal Tax Incentives for Jobs and Growth
The President's plan provides for $250 million in federal tax incentives to encourage business
investment in the District and to foster job growth for District residents. A D.C. Capital Credit and
new Private Activity Bonds will flow through the EDC to businesses. A new D.C. Jobs Credit and
Additional Small Business Expensing will be available directly to D.C. businesses. Prudently used,
these tax incentives could leverage over $1 billion in private sector investment in D.C. businesses.
We are encouraged that Speaker Gingrich and Senate Majority Leader Lott have agreed to seek to
include in balanced budget legislation the Administration's proposals for tax incentives designed to
spur economic growth in the District of Columbia.
D.C. Capital Credit. The plan will authorize the EDC to allocate $95 million in federal tax
credits for investors in, or lenders to, District businesses, for up to 25 percent of the amount invested
or loaned. This incentive would be available for business investment throughout the District.
Investors and lenders will compete for the credits, which will reduce the costs of capital for
economic development projects throughout the District. The EDC will evaluate the long-term
potential for the investment or loan to generate jobs for D.C. residents and to improve the D.C. tax
base. The EDC will be given the authority to allocate the tax credits for loans and equity
investments in much the same way that state economic development agencies and state housing
agencies allocate tax-exempt private activity bonds and the low income housing tax credit. As a
recent GAO study of the low income housing tax credit demonstrates, allocation of a federal tax
credit by a state agency allows the credit to be efficiently targeted to meet local priorities within the
broad federal policy goals established for the incentive.
5
Private Activity Bonds. The plan provides for the new EDC to issue a new category of
tax-exempt private activity bonds to finance commercial and retail development projects in the
District. Tax-exempt financing is traditionally used by state and local governments as a way to tap
the public bond market as a source of capital. The new bond categories are tailored to the economic
development needs of the District. The proceeds of the economic development bonds must be used
to finance projects located in census tracts with poverty rates of 15 percent or more. Some 45
percent of the District's population and 37 percent of its land area are included in such census tracts.
Businesses that benefit from this lower cost borrowing must employ a workforce at least 35 percent
of which is made up of District residents. The bonds would be subject to the annual $150 million cap
on the issuance of private activity bonds for the District of Columbia, half of which is directly
allocated to the EDC under this plan. Although the bonds would be issued by the EDC, repayment
would be secured by the revenues from the private businesses funded.
D.C. Jobs Tax Credit. The Plan provides for a D.C. Jobs Tax Credit, a 40 percent tax credit
on the first $10,000 of eligible wages in the first year of employment, including employer-provided
health care, child care, and educational assistance. The D.C. Jobs Credit would be available to
District businesses that hire D.C. residents earning up to $28,500 a year who live in areas with 15
percent poverty or more, and other targeted D.C. residents. Over the next five years, tens of
thousands of workers could benefit from higher wages or new jobs because of the D.C. Jobs Credit.
The Jobs Credit will help expand private sector employment of D.C. residents, increase the tax base,
reduce dependency on public assistance, and lower the costs oflabor to D.C. firms.
Additional Small Business Expensing. The Plan provides for greater tax deductions to
encourage the creation or expansion of small businesses in economically distressed neighborhoods,
those with poverty rates of 15 percent or more. Eligible small businesses will be permitted to deduct
(rather than capitalize over time) up to $20,000 in additional costs per year for certain equipment.
This incentive will give a boost to small businesses, help revitalize D.C.'s neighborhoods, and create
jobs for D. C. residents.
CONCLUSION
Mr. Chairman, that concludes my description of the economic development component of the
President's revitalization plan for the District.
The President's plan is ambitious. It will benefit the City, the region, and the Nation.
.
It be~efits Di.strict residents by reducing the D. C. government's financial burdens, improving the
delivery of CIty semces, and investing in criminal justice, economic development, and transportation.
It benefits the ~egion by strengthening the District's criminal justice system~ by improving key
components of the. regIonal transportation infrastructure; and by fostering the City's economic
rec~~ery -- accord~ng t~ ~ro:essor S~ev~ Fu.lIer of George Mason University, for every dollar of
additIOnal econonuc actiVIty In the Dlstnct, Its suburbs pick up $1.50 in new growth.
It benefits the Nation because it will help build a Capital city of which all Americans can be proud
Mr. Chairman, that concludes my testimony.
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DEPARTMENT
OF
THE
TREASURY
NEWS
EMBARGOED UNTIL 10:30 A.M. EDT
Text as Prepared for Delivery
May 22, 1997
TREASURY UNDER SECRETARY FOR
DOl\1ESTIC FINANCE JOHN D. HAWKE, JR.
SENATE COMMITTEE ON BANKING, HOUSING
AND URBAN AFFAIRS
Mr. Chairman and Members of the Committee, I thank you for the opportunity to appear
before you today to discuss implementation of the law that requires the federal government to
make its payments electronically by January 1, 1999. This new law, which excludes only tax
refunds, is of great importance to millions of Americans. I commend the Committee for the
concern it has shown that this law be carried out in a manner that truly benefits all federal
payment recipients. We share that concern, and we will keep it foremost in our thinking as we
move forward in our rulemaking process
This electronic funds transfer (EFT) initiative--what we refer to as "EFT '99"-- was
enacted by the 104th Congress as part of the Debt Collection Improvement Act of 1996.
It includes four distinct elements
•
After July 26, ] 996, federal payments to newly eligible recipients who have bank
accounts must be made bv EFT.
•
Starting January], ]999, ALL federal payments -- again, other than tax refunds - must be made by EFT
•
Treasury is directed to ensure that all recipients who are required to receive
payments electronically will. for that purpose, have access to an account at a
financial institution at reasonable cost, and with the same consumer protections as
other account holders at that financial institution.
•
The Secretary is authorized to grant waivers based on recipient hardship or where
otherwise necessary
Treasury was given these responsibilities because of its role as the government's bill
payer. Last year, Treasury's Financial Management Service (FMS) issued over 850 million
payments on behalf of non-defense agencies, including various kinds of benefits, federal salaries,
RR-1704
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
tax refunds, vendor payments, grants and loans. Currently, 57% of our disbursements, or
roughly 480 million payments a year, are made by EFT, most through the Direct Deposit
program, which uses the commercial automated clearinghouses to transfer funds directly into a
recipient's account. Sixty percent of all benefit payments are made electronically.
The goal of the Department of Treasury is to issue payments by a method that will
provide the best service to recipients, the lowest possible cost to taxpayers, and the greatest
amount of transaction security. Treasury has been issuing Direct Deposit payments for over two
decades, and our experience is that EFT is substantially more convenient, cost-effective, and
secure than paper checks.
Electronic funds transfer improves service to recipients because it is the most reliable
method for the delivery of payments. Recipients are 20 times more likely to have a problem
with a paper check than with an EFT transaction. Each year Treasury replaces over 800,000
checks that are lost, stolen, delayed or damaged during delivery. Waiting days for a replacement
check is an inconvenience and burden on recipients, especially those living on low incomes. On
the other hand, misrouted EFT payments are never "lost," and are typically routed to the correct
bank account within 24 hours. The new law could eliminate over 1 million complaints annually
associated with check payments.
EFT '99 will save taxpayers money. While our disbursement centers are extremely
efficient, the cost of issuing checks is approximately 43 cents apiece, including postage, paper,
and labor. By contrast, Treasury issues EFT payments at an average cost of just 2 cents. We
estimate that full implementation of EFT "99 will save taxpayers approximately $500 million
over 5 years in postage and check production costs alone. A substantial amount of these savings
will accrue to the Social Security Trust Funds. Beyond these direct savings, there are also
savings realized by relieving the payments system from the burden of paper processing -savings that will ultimately be realized by consumers.
EFT '99 increases transaction security and significantly reduces opportunities for crime.
On average, 75,000 Treasury checks per year are forged and fraudulently negotiated. These
crimes are traumatic for the victims, and they cost the financial industry as much as $70 million
annually. In comparison, EFT payments are extremely secure.
Mr. Chairman, I'd now like to share with you some information about who our federal
payment recipients are and what these recipients have told us about their preference for
electronic payments. I will also describe our efforts to provide low cost service to those
recipients without bank accounts.
2
FEDERAL PAYMENT RECIPIENTS
Federal Payment Recipients With Bank Accounts
Most federal benefit payees -- 88%-- are recipients of Social Security Administration
(SSA) benefit payments. Others receive payments from programs administered by the
Department of Veterans Affairs and the Railroad Retirement Board. SSA estimates that 91 % of
all Social Security recipients currently have a relationship with a fmancial institution, and
therefore could presumably receive payments by direct electronic transfer without undue
hardship. Over 64% of all SSA benefit recipients already receive their payments by Direct
Deposit.
Recipients who receive their benefits electronically praise its safety and convenience.
Among the reasons they have given for choosing Direct Deposit are these:
•
It is safer and more convenient than receiving a check in the mail and taking
checks to the bank.
•
Their money is deposited on schedule even if they happen to be sick or out of
town and thus unable to cash a check.
•
They are assured delivery.
•
Many banks offer fee-free checking for Direct Deposit.
SSA has seen the rate of increase in Direct Deposit enrollment nearly triple the normal
growth rate since the legislation went into effect on July 26, 1996. Clearly, more and more
people are seeing the benefits of receiving payments electronically.
Federal Benefit Recipients Without Bank Accounts
It is estimated that eighteen percent of all federal benefit payment recipients -approximately 10 million individuals -- do not have accounts with a financial institution.
Fulfilling our mandate to assure these families access to an account at a financial institution, at
reasonable cost, in order to receive electronic payments is perhaps the single most significant
challenge Treasury is facing in the implementation of EFT '99. The law provides adequate time
to address these issues carefully and ensures a smooth, well-planned transition for recipients and
for payment-paying agencies
ACCESS TO REASONABLE COST AL TERNA TlVES TO CHECKS
Treasury has already undenaken initiatives aimed at providing low cost alternatives to
checks, including the development of a program called Direct Deposit Too. Direct Deposit Too
is a model account, based on debit card access with no minimum balance requirement, that has
been suggested to banks as a low cost alternative to traditional checking products. Treasury is
considering other alternatives that are being reviewed with the benefit of substantial consumer
outreach, consultation with the financial services industry, and research. Our objective is to
balance the need for low cost banking services with the requirement for convenient access to
3
funds by those without bank accounts.
One of Secretary Rubin's top domestic policy goals is to encourage those without bank
accounts to move into the financial services mainstream. Financial service providers offer
many services that are critically important, if not essential, to virtually all American families.
These may include access to federally insured deposits, the opportunity to earn interest on
deposits, the availability of personal credit, and access to home mortgages. Some 40 million
American households with incomes under $25,000 need these services. The programs described
earlier are an attempt to assist those without bank accounts to transition into the traditional
fmancial services world without sacrificing convenience or low cost.
TREASURY PRINCIPLES
In implementing the provisions of the statute, we believe the following principles should
be observed:
•
The transition from a paper-based system to an electronic transfer system should
be accomplished with the interests of recipients ranking of paramount importance.
•
Our objective should be to assure that we maximize private sector competition for
the business of handling federal payments, so that recipients not only have a
broad range of choice of payment services and service providers, but also that
they receive their payments at reasonable cost, with substantial consumer
protections, and with the greatest possible convenience, efficiency and security.
•
All recipients, and especially those recipients having special needs -- the elderly,
individuals with physical, mental or language barriers, those living in remote or
rural communities -- should not be disadvantaged by the transition to electronic
payments.
•
The EFT '99 program should, to the maximum extent possible, seek to bring into
the mainstream of our financial system, those millions of Americans for whom
the system is as a practical matter not presently available.
These principles have and continue to serve as our guideposts as we move through the
implementation process.
In our view, effective implementation of EFT '99 will depend on Treasury developing
strong working relationships with and understanding of the concerns of the various program
agencies, consumer groups, the financial Industry, and other interested parties.
Treasury has been working with the agencies to identify and resolve the major issues
confronting key stakeholders. Initial implementation focused on agency education and
awareness, as well as development of agency implementation plans:
In addition, Treasury has held numerous meetings with representatives from consumer
interest groups, financial service providers, and federal agencies to gather comments and discuss
4
issues related to mandatory EFT implementation. Our outreach efforts to consumer oriented
organizations began in earnest with a meeting that I convened this past November. Since July
1996, Treasury representatives have met individually with eight different consumer groups.
Treasury also held an EFT '99 consumer brieftng and question and answer session, at which
over 30 consumer groups were represented. Also, Treasury representatives met with 15 different
fmancial service providers including ftnancial institutions as well as non-bank entities. Since
passage of the Act, Treasury has contracted for two major research studies related to the
electronic payment mandate. One of the studies was a socioeconomic study designed to obtain
information regarding the characteristics of federal benefit check recipients. The other study
was designed to obtain information related to entities that might serve as intermediaries,
payment methods, and needs for waivers that could be used in developing the regulations.
Another major initiative is our plan to conduct a comprehensive education and marketing
program to ensure that there is sufficient information available to the public about the
requirements of the mandatory EFT legislation. A nationwide campaign will encourage check
recipients to convert voluntarily to electronic funds transfer in advance of the January 1, 1999
deadline. The campaign will use the best vehicles available to relay our message, and it will
include the use of inserts with check payments. Treasury included such inserts in all federal
benefit checks mailed in April of this year.
Treasury believes that the success of the mandatory electronic funds transfer program is
dependent in large part on the involvement of the various affected parties in the rulemaking
process. The interim rule we published on July 26, 1996, outlined the two phases of the
conversion mandate and requested comments on both the interim rule and on issues related to
implementation of the January 1999 mandate. We received 29 comments from consumer
organizations, trade associations, federal and State agencies, banks and non-bank financial
service providers, addressing such issues as the definition of authorized payment agent,
consumer protections, services for those without bank accounts, costs to recipients and the need
for waivers. These comments are being carefully considered and will be addressed in the
proposed rule, which itself will invite additional comments.
As is apparent from this discussion, Treasury is confronted with a wide array of issues
and concerns that must be addressed in order to satisfactorily implement the statutory mandate. I
share your concern Mr. Chairman, that the price of the government making its payments
electronically not be the imposition of unreasonable costs on the recipients of payments. The
statute requires that this program be available at "reasonable cost" and we will accomplish that
goal. The task before us is formidable and we are in the early stages of that process. We intend
to work closely with all interested parties to develop an implementation strategy that, as best as
possible, balances everyone's needs In this regard, our current focus and most important task is
the development and publication of a proposed rule to solicit public comment and policy
guidance on this payment program. Let me reiterate: this is a proposed rule; it will leave a
number of key questions unanswered; and we will actively seek input from the public on the
proposed rule. None of these important issues have yet been finally decided.
CONCLUSION
In conclusion, Mr. Chairman, the Treasury Department believes that this legislative
mandate provides an important opportunity for us to improve the quality of service that our
customers want and need, and at the same time to lower the cost to taxpayers of our payments
systems. We plan to enhance access and choice for recipients. Benefit recipients have told us
that they want to be able to receive their payments at points that are easily accessible and that
increase their safety and security if this can be done at a reasonable cost. Our proposed
regulation will attempt to address these needs. We welcome, encourage, and look forward to the
public comments that we will receive on our proposal, and we look forward to working with this
Committee as we move forward.
-30-
6
DEPARTMENT
OF
THE
TREASURY
NEWS
OFflCE OFPUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASlllNGTON, D.C. - 20220 - (202) 622-2960
FOR RELEASE AT 2 P.M. (EDT)
May 22, 1997
STATEMENT OF
LA WRENCE H. SUMMERS
DEPUTY SECRETARY
DEPARTMENT OF THE TREASURY
BEFORE THE COMMITTEE ON COMMERCE
SUBCOMMITTEE ON COMMUNICATIONS
UNITED STATES SENATE
Mr. Chainnan and members of the Committee:
I am pleased today to have this opportunity to present the views of the Treasury
Department on the Internet Tax Freedom Act, S. 442. The Internet Tax Freedom Act would
impose an indefinite moratorium on subnational taxation of the Internet, interactive computer
services, and electronic commerce. The restrictions would not apply to income taxes, franchise
taxes, and generally applicable sales and use taxes, administered in a neutral manner. The
Secretaries of the Treasury, Commerce, and State, in consultation with other interested parties,
would be required to study the domestic and international taxation of the Internet and electronic
commerce and to develop appropriate policy recommendations. Finally, the Bill declares that it is
the sense of the Congress that the President should seek bilateral and multinational agreements to
establish that "activity on the Internet and interactive computer services is free from tariff and
taxation. "
Treasury fully supports the goals and underlying objectives of this Bill.
The growth of the Internet. and the resulting growth in electronic commerce, is one of the
most exciting technological and business developments of our era. As President Clinton has said.
"The day is coming when every home will be connected to it, and it will be just as nonnal a part
of our life as a telephone and a television. It's becoming our new town square, changing the way
we relate to one another, the way we send mail, the way we hear news, the way we play." The
Administration's goal is that every school and library in the United States will be connected to
the Internet by the year 2000.
The Internet, which is part of the "Infonnation Superhighway" or Global Infonnation
RR-1705
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
Infrastructure, is not a single computer network or means of communication but instead refers to
the convergence of previously separate communications and computing systems into an
interoperable, global network of networks. The Internet has been described as
a world-wide network of networks with gateways linking organizations in North and
South America, Europe, the Pacific Basin and other countries .... The organizations are
administratively independent from one another. There is no central, worldwide, technical
control point. Yet, working together, these organizations have created what to a user
seems to be a virtual network that spans the globe.
The Internet has grown from a computer network linking a handful of universities to a rapidlygrowing worldwide network linking over 16 million computers that is used for education,
commerce, and entertainment.
The Internet permits information to be created, transmitted and used at speeds and in
ways never before imagined. Information is one of the nation's most critical economic resources,
for service industries as well as manufacturing, for economic as well as national security. By one
estimate, two-thirds of U.S. workers are in information-related jobs, and the rest are in industries
that rely heavily on information. In an era of global markets and global competition, the
technologies to create, manipulate, manage and use information are of strategic importance for
the United States. Those technologies will help U.S. businesses remain competitive and create
challenging, high-paying jobs. They will also fuel economic growth which, in turn, will generate
a steadily-increasing standard of living for all Americans.
The Internet will have a significant impact on our lives in almost every area imaginable.
Using the Internet and other elements of the global information infrastructure:
The best schools, teachers and courses will be available to all students, without regard to
geography, distance, resources or disability.
The vast resources of art, literature, and science will be available everywhere, not just in
large institutions or big-city libraries and museums.
Services that improve America's health care system and respond to other important social
needs will be available on-line, without waiting in line, when and where you need them.
You will be able to live in many places without foregoing opportunities for useful and
fulfilling employment, by "telecommuting" to your office through an electronic highway instead
of by automobile, bus or train.
Small manufacturers will be able to get orders from all over the world electronically with detailed specifications - in a form that the machines will use to produce the necessary
items.
- 2-
You will be able to see the latest movies, play the best video games, or bank and shop
from the comfort of your home whenever you chose.
You will be able to obtain government information directly or through local organizations
like libraries, apply for and receive government benefits electronically, and get in touch with
government officials easily.
Individual government agencies, businesses and other entities all will exchange
information electronically - reducing paperwork and improving service.
The growth of electronic commerce -the ability to perform transactions involving the
exchange of goods or services between two or more parties using electronic tools and techniques
- is one of the most exciting aspects of the Internet. Electronic commerce will playa significant
role in our economy in the years and decades to come. Electronic commerce will provide an
integrated collection of low-cost, reliable services to handle tremendous volumes of business and
technical transactions and to amass, analyze, and control large quantities of data. Organizations
will be able to improve efficiency and accuracy, and reduce costs, while providing faster, more
reliable, and more convenient services. U.S. companies will be able to reengineer their business
processes, and then use the Internet to realize the productivity potential of their current and future
information technology investments. Smaller firms will be able to enter and participate at lower
cost and with greater efficiency in new markets, and larger firms will be able to evaluate, select,
and more readily work with other companies. New ways of doing business and new forms of
economic activities will become commonplace, including telecommuting, global sourcing
arrangements, new training and education capabilities, and disaggregated alliances or networks
of companies.
Already, millions of dollars of goods are being bought and sold over the Internet every
day and although forecasts vary, electronic commerce could account for tens of billions of dollars
in sales by the year 2000. Electronic commerce is exciting because it allows businesses, both big
and small, to do businesses around the clock and around the world. For example, industrial
companies are now buying billions of dollars of goods annually from their suppliers on-line and
many of these purchases are from small suppliers that they had not previously dealt with.
Computer-equipment manufacturers are selling billions of dollars of products annually. And a
one-woman book shop specializing in hard-to-find needlework books is now doing business with
customers all over the world as a result of the Internet. This is just the beginning and as
entrepreneurs develop new businesses and scientists create new technologies, electronic
commerce will continue grow in ways that we cannot now imagine.
In order to encourage the growth of this technology and the resulting social and economic
benefits, it is crucial that government take a responsible role toward regulating and taxing the
Internet. In the realm of international taxation, the Administration's key objectives are: no new
Internet taxes, neutrality in taxing electronic commerce as compared with economically similar
-3-
transactions and above all, no tax rules at the national international, federal or subfederal levels
which inappropriately impede the full developments of these exciting new technologies.
Treasury has been a leader in adapting international tax rules to electronic commerce. In
November 1996, Treasury published Selected Tax Policy Implications 0/ Global Electronic
Commerce, an issues paper which set forth both the major international tax issues created by
electronic commerce and the general tax policy principles that will be applied in this area. This
paper has been very well-received and has been widely read both in the United States and abroad.
The paper requested comments on the issues raised and these comments will be used in
formulating specific administrative guidance and any necessary legislative proposals. Treasury
has also been active in the work of the Organization for Economic Cooperation and
Development, which has been at the forefront in developing international rules in order to
. achieve our mutually desired objectives.
In addition to Treasury's efforts, the administration as a whole is committed to
encouraging the growth of electronic commerce. We recognize that the success of electronic
commerce will require an effective partnership between the private and public sectors.
Government participation will be coherent and cautious, avoiding the contradictions and
confusions that can sometimes arise when different governmental agencies individually assert
authority too vigorously and operate without coordination. For the past year, Ira Magaziner,
Senior Advisor to the President for Policy Development, has been leading an interagency
working group that is developing a set of principles to guide government's role in promoting
electronic commerce. These principles deal with financial issues, such as tariffs, taxation and
electronic money; legal issues, such as a "Uniform Commercial Code" for electronic commerce,
intellectual property protection, privacy, and security; and market access issues, such as
telecommunications infrastructure and information technology, content regulation, and technical
standards. These principles, which are contained in a document titled A Framework For Global
Electronic Commerce, were released in draft form last December and are expected to be finalized
shortly.
While recognizing that government has an important role to play, we also recognize that
the private sector must lead this growth. Furthermore, as stated in the draft Framework/or
Global Electronic Commerce, "Innovation, expansion of services and participants, and lower
prices will depend upon the Internet remaining a market-driven arena, not one that operates as a
regulated industry." Government's role should be limited to extending appropriate regulatory
policies to the Internet and electronic commerce. For example, businesses need to know that
contracts entered into on-line are valid, consumers need to know that goods and services
purchased on-line are subject to consumer protection laws, and government needs to know that
the Internet is not being used to further criminal activity. This must be accomplished while
recognizing the unique qualities of the Internet and electronic commerce.
In this context, we note that section 5 of the bill states that it is the sense of the Congress
that the President should seek multilateral agreements through the World Trade Organization, the
-4-
Organization for Economic Cooperation and Development (OECD), the Asia Pacific Economic
Cooperation Council, or other appropriate international fora to establish that activity on the
Internet and interactive computer services is free from tariff and taxation. The Administration is
already working to achieve these goals. In the tax area, Treasury is currently working in the
OECD to develop neutral and uniform principles for the taxation of electronic commerce. With
regard to tariffs, the United States Trade Representative will advocate in appropriate international
fora, such as the World Trade Organization, that the Internet be declared a tariff-free
environment whenever it is used to deliver products or services.
One of the most important areas in which government must adopt appropriate rules is in
the field of taxation. Unreasonable taxation of the Internet, or even the fear of unreasonable
taxation, could be a significant impediment to the growth of the Internet and electronic
commerce. Some are tempted to view the Internet as a source of new tax revenues. We believe
this strategy will be counterproductive in the long-term. The Internet has a major role to play in
ensuring the continuing vitality of our economy and our global competitiveness. The imposition
of new taxes that are limited to the Internet or electronic commerce will inevitability discourage
the growth and use of the Internet. While new taxes will raise some revenue, they will impede
the growth of the economy. Instead of seeking to impose new taxes on the Internet, we should
encourage the growth and use of the Internet, which will result in a growing economy and greater
revenues from existing taxes.
Therefore, Treasury is opposed to any new taxes specifically imposed on electronic
commerce, whether imposed by other countries or at either the federal or subfederal level. This
position is also shared by many of our major trading partners. Although proposals have been
made for a European "bit tax," these proposals have been rejected. For example, EC
Commissioner Mario Monti recently stated that he sees no need for a "bit tax" because the tax
burden on electronic commerce should not be heavier than the tax burden on traditional
commerce - confirming our neutrality concept.
Instead of enacting new taxes on the Internet or electronic commerce, Treasury believes
that neutrality should be the fundamental principle guiding the development of tax rules in this
area. Neutrality requires that the tax system treat economically similar transactions equally,
regardless of whether such transactions occur through electronic means or through more
conventional channels of commerce. Ideally, tax rules should not affect economic choices about
the structure of markets and commercial activities. This will ensure that market forces alone
determine the success or failure of new commercial methods. The best means by which neutrality
can be achieved is through an approach which adopts and adapts existing principles - in lieu of
imposing new or additional taxes. In addition, tax rules should be uniform across jurisdictions, so
as to minimize the possibility of multiple or no taxation and these rules should be transparent and
easy to administer.
Adapting existing tax rules to deal with electronic commerce raises a number of novel
issues in international, federal and local income taxation because all systems must seek to
-5-
allocate taxing jurisdiction over income that crosses jurisdictional boundaries. The relevant tax
rules generally require that income first be classified as to type and then this classification is used
to assign a geographical source to this income. The jurisdiction of source generally has a right to
tax income arising within it although in many cases this right to tax is ceded to the country in
which the person earning the income resides. Income derived from electronic commerce poses a
number of problems under this traditional framework. In the world of electronic commerce, it is
often difficult, if not impossible, to link an item of income with a specific geographic location.
Therefore, traditional source rules become more difficult to apply. In addition, electronic
commerce often involves income from "digitized information," i.e. information expressed in the
binary format of ones and zeros. This type of income can be difficult to classify under traditional
rules, which were developed for an economy based on manufacturing. Treasury is working to
resolve these. issues in the international arena and it looks forward to working with the states to
resolve these issues at the state level. However, Treasury recognizes that the implementation of
basic principles of tax policy may vary at the state level.
The goals of the Internet Tax Freedom Act are consistent with the general tax policy
principles I have described. The Act would prohibit new state or local taxes specifically imposed
on the Internet or electronic commerce, while income derived from and transactions effected
through electronic commerce would remain subject to existing taxes, neutrally applied. The bill
would also require the Administration to establish a consultative group to develop policy
recommendations on the taxation of electronic commerce, so that existing taxes can be applied in
a neutral and uniform manner. Treasury wholeheartedly supports the goals and underlying
objectives of the Internet Tax Freedom Act and we are prepared to work with the Committee in
order to assure the realization of our shared objectives.
-6-
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt. Washington, DC 20239
FOR IMMEDIATE RELEASE
May 22, 1997
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 52-WEEK BILLS
Tenders for $13,777 million of 52-week bills to be issued
May 29, 1997 and to mature May 28, 1998 were
accepted today (CUSIP: 9127944V3).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.s3%"
5.56%
5.55%
Investment
Rate
S.8S%5.89%
5.88%
Price
94.409
94.378
94.388
Tenders at the high discount rate were allotted ll%.
The invescmenc race is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
Received
$48,Ol5,258
Accented
$l3,777,108
Type
Competitive
Noncompetitive
Subtotal, Public
$46,636,000
1,099,258
$47,735,258
$12,397,850
$13,497,108
Foreign Official
Institucicns
TOTALS
280,000
!?48,O15,258
280,000
$13,777,108
TOTALS
1,0~9,,25a
An addicional $1,190,000 thousand of bills will be
issued to foreign official institutions for new cash.
In addition, $5,840,000 thousand was awarded to the
Federal Reserve Banks for their own accounts.
5.54 -- 94.398
RR-1706
IJ
t:
I~
ART 1\1 E N T
() t'
... II t:
... R E :\ S {; I( \'
NEWS
EMBARGOED UNTIL 9:30 A. K.
Remarks prepared for delivery
May 27~ 1997
DEVELOPMENT OF AFRICA'S PRIVATE SECTOR:
SOME NEW APPROACHES BASED ON OLD TRUTHS
KEYNOTE ADDRESS BY LAWRENCE H. SUMMERS
DEPUTY SECRETARY OF THE U.S. DEPARTMENT OF THE TREASURY
SYMPOSIUM ON PRIVATE SECTOR
OEVE~OPHENT
ABIDJAN, COTF. d'IVOIRE
Hr. Kabbaj, Minister N'Goran, Hr. Qureshi, ladies and
gentlemen, distinguished guests, I am glad to have the chance to
speak at this important symposium on private investment in
A:Frir.:R.
Tt-
1~
~h.:;.
"'il)h~
,.imp. for
~llr.h
It
c1i
Rr.uF:f';i on.
There
i~
perhaps more room for well grounded optimism about economic
development in Sub-Saharan Africa than at any time in a
generation. Old leaders and old ideas are giving way to new
. leaders with the new idea that the nations of Africa can best tap
the energies of their people by relying on markets, integrating
with the global economy, and running hard in the global race to
attract capital.
This is not just rhetoric. The best growth figures in two
decades for the region as a whole, growth rates at or approaching
double digits in some countries, and rising investor interest as
evidenced by attendance at these meetings are all good signs.
A~r;r.~'~
r.nmmi~mAn~
Tn rpfn,..m
h~~.hppn
Itnn
will hp. mpt with
n
strong response from the world. Investors are more prepared to
put money into developing countries today than at any time in
nearly a century. And the recent proposals to shift u.s. policy
and the prominent role African issues will receive at the Denver
Summit, suggest that industrialized country governments are
determined to reinforce the market in Africa.
In my remarks tOday, I want to consider
p.~onnmi~
np.vp.lopmpn~
ovp,..
~hp.
l~R~
~n
yp.~",~
what the history of
r.8n
~e~~h
~frica_
and
what it can teach the international development community
concerned with promoting private sector-led growth in Africa.
For it is these lessons that shape the new approach to African
development that the United states has recently announced and
that we will be promoting internationally over the next several
years.
RR-1707
For press releases. speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622·2040
I.
Why has
Arri~an
economic growth lagged?
AS promisinq as t:hc:\ performance of Sub-Sahoran econumles
hac bCGn over the Id~l two years, and even though there are a
number nf countries that have achieved good results over longer
intervals, includina Botswanf'l )4'Alll" 1 of-; lie, It',7l:t.nda I ChClnCl, Clnd ':;'\,U.
Ivoir;f'ln hosts:, it muc:t be Qcknowledgeu LliClt ACriesn eeonom'i~
perrormance over tne last 25 or )0 years has been profoundly
disappointing. Disappoint.ing by tne standard of t.he goals that
African governments set for thcmoClveB, by the standard or
perfonnanl;~ l;ornparea to tne rest nf the world, and by the harsh
standard of the b~sic ability to maintain even a constant living
standard tor a growing population.
#
In the 1960s, Sub-Zuhoran Africa/~ per capita income was on
a par with East Asia'n. Tn 1995, average per capita income w~s
still jU3t $490. and 262 mi11inn ~~n~10 ~ivod on j~ot C1 0 day.
Korea and Taiwan are nnw about 30 times 80 rich on a per CQplt~
baciG thQn the Sub-SdlldHm African averagp., Malaysia about' 10
times rich@r, Thailand about 6 times. Development 1n~1cators
reflect this enduring poverty, with infant mortality of the
reqion, at 92 per 1000 in 1994,' the highest in the world, versus
35 1n 1!:ast /t.f;ia. Today, on the brink of a new millennium, in
larqe. parts of sub-Saharan Atrica ~ child is more likely to be
malnourished than to learn to reau, ~nd more likely to dip. b~fore
the age of ~ than ~n ryo to ~econdary c:chool.
Thp
~~~~~
~i££QrOnOOD
between
levcl~
VL
ueve1opmen~
ln
Africa and in othE:'!r developing countriA~ reflect many yearG in
whir.h growth rates in Africa have laggeu badly. During thp.
19805, per-capita qrowt.h in Africa lagged growth in other
developing countries ~y 5 percent -- this figure actually
increa~p.n to 6.2 percent during the first pal'L of the 19~Os.
Growth pE:'!rformance has .been ~(') poor that standards of living ill
sub-Saharan Africa as measured by consumption per ~~pita have
declined by almns~ one-fourth since 1980.
Tho African growth record has HUW been studied carefully
by e~onom1sts and other ~r.holars working at the internationaJ
financial institutions, government aid mini~tri~s, and
universitiA~.
Statis:tical Gtudies have explured the Qeterminant~
of growth. Case study analy5P'~ have contrasted the experience or
particular countries in Afril;~ with particular countries in other
reqlons. Whi.l Po thl'?rQ are differences between clirr~,nmt analvses.
;a Cltzoi)cin'J d ... " ... ceo VL I,,;Vlltiefl::;U~ nas emerqed.
Tt. points to three
primary factnrs in explaining Africa's disappulntinq pertormance.
~L~uillLY
First, booie politicol
is a
prere9ui~it~
for
Nearly l~ perr.t!'mt of tha population of ~uh-~"'h~-:a~
"rr'!ca 11vQS in oountrie~ thot were severely atrected hy cl.vll
War during the 1990~.
A much higher fraction lives in ~ountrles
wherc inve~tor5 cannoL us con! ident ot· a ~table political
gl:uwLll..
2
envir.onment cllml whero as a conseQuence propElrty righ~s are
innerAn~ly insecure.
It is noteworthy th~t Atrica's standing has
deteriorated bo~n relatjvAly and absolutely on international
scales of political risk.
Second, ~ne lack of macroeconomio stability is
to .grow~h. While inflation I:Cltes have come down j n th~
last'several years, infl~tion rates in many African countri~~
have been well into douule diq1~s for much of the last two
deca.des. Ann t-htlo n::n.... O'o 'l::ho,,' do kn" bee ..... c-...t""' ....w..,\o1 1.17 .c J.ncanclaJ.
repression.
j ninlit.~al
Third, policies that qrm'Rly distort the allocation of
resources JIlake growt.h impossible. These pOliCies include but are
not 11ml~ed to export taxes, hiqh tariff and non-tariff
protectivHI uubeia1zea parastaLetl inpu~s, and government-set
purcnase prices for agricultural product6. In some ~ountries it
h~e been estimated that as mucn a~ 1/4 of manufacturing output
ar.tually involves nogative value added. or ~he pOlicies that
distort resource allocation, a growing body of evidence suggests
that thc most serious Q~~ those Which interfpr@ with integration
wi~n the rest of tho world economy.
In a recent study, Paul Collier or oxtord UniverRity and Jan
willem Gunning lnok at the performance of countries that have
avoided the three pitfalls ot civiJ war, macroeconomio
inAtability, and gro~3 resource allocation. They find that only
about 1/4 ot sub-Saht'trMI Africa's population live6 in COUll tries
that avoided these piLfalls in l~Y~, but t.hat this group averaged
3.2 perr.ent per-capita growth.
Thie point bear~ emphd~l~ because it implie~ that whQn
conaltions are right African countries can grow rapidly. Tne
difficulty of tropical agriculture, closed world markots, and
high dQbt burdens arc not adequate eX~U5es for slow growth.
Imleed, ~ne variou~ ~pec.ial factors oftcn suggested fot why
Afrioa cnn only grow ~lowly, need to be halanced against tho
subs~ant;~l potential repro3ented by the large qap between
Africa'S current ana previou~ly achieved level of productivity.
II. Lagging Performance uespite Availability of Forci9n
RI,\s::r.mreos;
Whatever the l'L"oblems Of growth in Africa, they cannot be
traced to lRC.k of official external ~upporL. Aid flows
represenLed l2.4~ of SUD-SahRran Africa's GNP in 1994, according
to the 1996 World DevelopmenL Report, and tnis fjgure represents
~ declinc trom that of
earlier years. Relntive to GOP,
external aid has been nearly five ~ime5 R~ important in Afric~ os
1n o~neT pArts of the low-income world.
Where Africa nas fallen
down is in the worldwide racp. to attract private capital. In
1996, Bub-Saharan Africa received $15 billion in of.ficial
but only $12 billion in priv4L~ capi~al
flows. In conlrast, Latin America received only $4 billion in
private capital hut a~t.ract.ed $73 u.i.llion 1n privCl\.~ capital.
developmen~ finAnc~
Recently a Humber or analyses havp. looked at the
impact of Atd flows using a number of differfolnt metho<1010gies.
consistent p~ttern has bequn to emArqe. Without political
stability, macroeconomic contrOl, tunl reasonably tunctioninq
markets, aid is at hAst ineffective. The capital Gtock per
worker in Africa tOday is lower than it WAS in 1965. It is
noteworthy that on one sct of estimates, African wealth owners
have rnv~",r.Arl ~7 percont of t.heir wt!alth outb.&.U. A"clea. It
Africa could hold itG residents' capilal as well as Asia, ltS
I::iluck ot productive capital would be 50 percent greater.
A
Air! 1:"0 government£; purouing the wrong policies can actually
be coulIl.t:>r-pro<1uctive. It l11Qy enr.:t"'lurage public inveGtment that
crowd~ out private investment.
IL allows governments to postpone
paintul steps neceAsary to gain oredipility. It can le~d to
overvalued exchange rates whiCh in~erferp. with the development of
expoTt ~ectors. And it oan lead to the accumulation or
unsustainable <1e~t burdens. These are not just hypothetical
poSlsibilitics. Studies at the World BanK by Burnsid@ and Dollar
have suggestp.r! that in distorted policy envirorUlumts, ala nas
actually slu~eu growth.
More aid cannot: bP. the key to cUGtainnble rl'lpid gL'uwth in
Afrioa. Instead, whal we have seen arounli t.h@ world is that
countri.es prosper when thoy earn their external resources by
add; n'J VA 1l1P an~ oxportinCf, or by Cl.'Cftt.; . " ) ..... ~1.1uc1.ng
environmp.nt for private capitol. This has been the key to
success ill Asia, 1n Chile, And in the African Guooese stories.
Sub-Saharan Africa will not taKe orr it it. continu@s to attract
only 2 pa~p~t of ~ho flow of pr~ya~~ ~~pitQl-~o-~~v~lo~ing
countries, as it has in recen~ years.
III.
New Approache6
~u
u.s. pOlicy
The powerful examples of grnwrh based on market reforms in
Mauri tius, Botswana Uganda, Ghana cmd here in Cote n / lvoire, in
the context ot the niscouraging re~ults of official d~velopment.
finance during the last 25 years. sugqP.~t to me that durable
econom;~ developmc:mt can only come os a \,;onsequence or propp.r
domesLic policies tnat cre~~p ~hp ri~ht kind of environment fVL
pri vAt.e investment both domestic and foreign.
I
I
La&t month, the
eliul-UII
Admlnist.rat.ion proposed a no,,",
'part.nersnip for Economic Growth Qnd Opportunity' to our congress
for consideration.
The partnership
4
i~
not another
donor-inspi~ed
~Africa Initiative', as some mRy Sl'~ it.
Rather, it is our
responco t.o the initiatives thaL African governments are taking_
We start £rom the lessons of recAnt development history.
Thp. partnership we propose empha5ize~ ~~lectlvlty, the importAnce
or international intp-gratlon, private oapital over official
qrantG, Qnd the role of markets 1n driving development
The
partnerAh;p we've proposed io not Q panacea, nOLO does 1t pretend
to addret:i~ the fUll range of Suh-Saharan Africa'e many
development eho.llenges.
Itf; core ideas are, first, t.hAt t.he
reforms countriel": undertake bring their own reward5, and, ::iecond.
th.,.t the best way Llle United States can f;upport those countricG
if; by makinCj trade and inve3tment -- JluL just alC1 -- the
centerpiece of our economic relations. It oontains these
elements:
1.
Expanded market access.
'1'0 encouT"CJE! further trade with the United State~, we will
offer betteL" access to U.!:i. markets for African exports under .,.
renQwQd and expanded GSP program. Thl~ will increase the number
uf products that can Ant"er the United StatCG duty free from alJuut
4000 to Qbout ~,800.
For those countTip.~ r_Ariy to ombark ~~ hold
traae re!orms, we hAvP. also proposed to congress an expansiun of
Qccess to OUt· maL"ket tor several sensi ti ve products such as
t9vtiles and leather 90ods. And in the future, as appropriate,
t-h .... Unitod
Stat~n
ui I I
h ........p.n t. ... !-' ... .&.a...u,) ergg traCle
with the stTong~st-perforroing, moot growth-oriented
African countries.
~.
"<JreelU~Hl..b
Su~-5aharan
Investment.
To eneourage invcotment, the u.s. Over~eas Private
Investment Corporation wi 11 1 ;mnrh a $150 million equity fund to
support commercial and natural l:"4::!s(Jl,lrce development projects.
The Fund Will be ha~A.d in Africa and will hQve the flexibility to
invest in project~ I..hrouqhout !:iub-Saharan ).frica. A cacond OPIC
funn, to be capitalized at $500 million, i:; beinq prepared and
will {(Jeus on 1nfrastruct.uTp. development. countries pursuing the
doepe£t market-oriented n:~[urm::; are liKely to capturE' the lion I s
share of the investmgnts.
3.
Sharpenin9 the focus of
~xl~tlng
U.S. programs.
USAID is focusing i~s development activities in SubSAharan Africa to support trade and inv~stment. The Initiatlvp.
£OL" Southern Africa will d~vote up to $25 million annually tu
promote trade and trans}Jurtation protocols, harmonization of
investment pnJicies, and strengthening regional uusiness
associations within tne Southern "\frir.a Development Community.
5
USAID will provide addit.ionAl technical aeeiotance to
90vernmentc il1 Sub-Daharan A!l: h.:a to help them ~aKe advHnt:agEcJ of
t:he trade prAfE'!rence programs to be made available, and 60 that
reforming cou.uLrles become more tully engRged in the World Tradc
Orqani2ation.
Tne u.~. ~xpor~-Impo~t Bank will worK wi~n creditworthy private compAni@s in Africa to structure asset-baCKed and
project finanCe u~~l~ even wnere the publi~ ~actor is not deemed
credit-worthy.
Co]ftlftodi ty as s it; Lam..:e under the oepart:ment of
A9riculture'R PL-480 program will bo targeted at the ~ou.ntr1es 1n
Sub-Saharan Africa taKing tne boldeRt steps to reform, but the
assistance will be channeled to count.ries on a market basis, to
promot:e private sector distribution channcla and well-functionillq
commodit.y markets '-tiLh.in recipient countriAS.
4.
Debt relief to restore financial viability.
Deht relief is essential if Sub-Saharan African countries
are to uvercorne the legacy of fRil~rl devalopmont r~lioioo and
ouotain private bt::I,;Lu(-l~t\ growcn.
.Hecoqnlz1nq t.his, we in the
United States have led the effort to establish multilateral debt
relief for the Heavily Indebted roor Countries -- eften calleQ
the KTPr. ini tiat1 V&. We arc now taki nO' 1"1 "t-,HIl"l .. T Tho wor~a "anJ~
and IMP to provide maximum relief for eligible countries pursuing
st.rong l't::£orms within the program',,; framework.
we've alreAny agreed that Uganda ohould be the fiu;L
beneficiary or tllt:: proqram, and 1 want to C':ongratulate President
Mu~eveni and his economic team for their ~ustaine~ record of
l'e£orm that ~arned thei r r.nuntry f ir£t place in the nIPC queue.
The dCQl reached just Lhl:;; month will mean that. about $340
mi I J ion in ta')l rCl'venuc!: th:lt loJould othel.'wi;:sc: 90 to c1:edl t.ors w111
be available fOL' investment in other areas, such as education of
Tlganda1s children. A number of othel" Arrican coun'Cries should
~eon be in train tor su~h debt relief.
The Pre~ident hd~ "l~u decided ~o eeek ~pprQprlat1ons th~L
WOuld make possible not just the reduct.ion hut the extinction of
bilaterAl conceg~ional dcbt~ that eligible r~formers in ~ub
saharttn Africa may still havp. to us,
Finally, we recognize in the tlnited States that if we have
to reorient our economl~ c~lat1ons witn SUb-SAh~ran
African countries to ~r~ate stronger trade and inve5tment linkS,
we noed ~n ~nsure thdL uur governmen~'5 officlalK who meet wi~h
their African counterparts are no~ just those of uur aid agency.
~~pirations
6
Our Trade Minis~ries, our Commerce Ministrie~t and our Finance
Mlnls~rles mus~ also worK ~oge~ner.
To tnis end, ~ne Clinton
Administration will be holding annual ministerial-level meetings
wit.h
~p.l
IV.
Conclusion
p.C"!t.t"!d )'frican countries undertaking bold reforms.
In my remarks, I hav9
concen~rated
on the rcquioiteo for
private investment.
In pArT', "his i!O: hpr.Rl1~1? of the s:ubjoct of
this conference and the thrust of the policy roorientation that
we are pursuing in the United States. But it is al~o hP.C"!AURP. T
Qm convinced that African countries that an~ oble Lu \,;.1eaLt: all
p.nvironmenT That attracts private capital will also have created
an onvironment tovol.."oble 't.v ':::'1..1.:::.Lol.uc::U \4,-vwl..l ••
Tomorrow in my remarks to the Alrican Development Bank
annual meeting, I will focus on the many challenges facing t.ll~
~p.C"!t.or in Africa, everything from educating a growing
pOp\:lJ.ot.1.on to oombating h1:00, to l.-o'9"\,Ilatin~ banko, l..v ,"a.i..Jll..a..i.lIl.H~
public
civic order. And I will reflect on the rolp of external
n::5si:stance in the5e anel otheL ell. ~Cl::;, tlltS\,;u::s::slont:> taJdnq place
b~tw~~n the G-7 and th~ Brgtton Woods Institutionc, and what we
see as the appropriate rble tor tne ArDB. These inst1tut1onh
obviouoly have Q critical contribution to make.
But
Lh~
nlotSl important external juC1gemen't aetermining
Africa's economic future will not be mQde by my government or any
other one. Nor i t will b9 made on either aide Waahin9ton/~ 1Qth
ctroot by the IHF or the World Dank. It will bemo.de by vevv1e
like tho~p. in this room as they decide where to put their money.
And that JIlUlley will follow those who are helping themselves.
-30-
7
D EPA R T 1\1 E N T
0 F
THE
T REA S U I~ Y
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W•• WASHINGTON, D.C. _ 20220 _ (202) 622.2960
CONTACT:
EMBARGOED UNTIL 2: 30 I? M.
May 27, 1997
Office of Financing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $15,000 million, to be issued June 5, 1997.
This offering will result in a paydown for the Treasury of about
$4,800 million, as the maturing publicly-held weekly bills are
outstanding in the amount of $19,807 million.
In addition to the public holdings, Federal Reserve Banks for
their own accounts hold $7,439 million of the maturing bills,
which may De refunded at the weighted average discount rate of
accepted competitive tenders. Amounts issued to these accounts
will be in addition to the offering amount.
Federal Reserve Banks hold. $3,727 million as agents for
foreign and international monetary ~uthorities, 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 Sureau 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, as amended) 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-1708
HIGHLIGHTS OF TREASURY OFFERINGS OF WEBKLY BILLS
TO BE ISSUED JUNE 5, 1997
May 27, 1997
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 . . . . . .
$7,500 million
$1,500 million
91-day bill
912794 5L 4
June 2, 1997
June 5, 1997
September 4, 1991
March 6, 1997
$13,096 million
$10,000
$ 1,000
182-day bill
912194 5W
June 2, 1997
June 5, 1997
December 4, 1997
June 5, 1997
°
$10,000
$ 1,000
The following rules apply to all securities mentioned above:
Submission of Bids:
Noncompetitive bids
Accepted jn full up to $1,000,000 at the average
discount lLlte of accepted competitive bids
(1) Must be expressed as a discount rate "lith
two decimals, e.g., 7.10%.
.
(2) Net long position for each bidder must be
reported when the sum of the total bid
amount, at all discount rates, and the net
long position is $2 billion or greater.
(3) Net long position must be determined as of
one half~hour prior to the closing time for
receipt of competitive tenders.
Competitive bids
Maximum Recognized Bid
at a Single Yield
Maximum Award .
.
.
.
Receipt of Tenders:
Noncompetitive tenders
Competitive tenders .
Payment Terms
35% of public offering
.
35% of public offering
Prior to 12:00 noon Eastern Daylight Saving time
on auction day
Prior to 1:00 p.m. Eastern Daylight Saving time
on auction day
Full payment with tender or by charge to a funds
account at a
Federa1 Reserve ·Bank on i.sue date
D EPA R T 1\1 E N T
0 F
THE
T REA SUR Y
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622·2960
EMBARGOED UNTIL 2:30 P.M.
May 27, 1.9.97
CONTACT:
Office of Financing
20.2/219-3350
TREASURY TO AUCTION CASH MANAGEM!:NT BILLS
The Treasury will auction approximately $30,000
of ~4-day Treasury cash managemene bills to be
issued June 3, 19.97.
~llion
Co~etitive and noncompetitive tenders will be
received at all Federal Reserve Banks and Branches.
Tenders will ~ be accepted for bills to be maintained on
the book-entry records of the Department of the Tre.asury
(TREASURY DI~CT). Tenders will ~ 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, as amended) for ehe 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-1709
HIGHLIGHTS OF TREASURY OFFElUNG
OF 14 -DAY CASH MANAGEMENT SI:LL
May 27, 1997
gffaripg
!m9un~
pe.c;ip~iQD
. . . . . . $30,000 million
of Offering:
Term and type of security .
CUSIP number . . . . . . .
Auction date . . . .
.
Issue date . . . . . . . .
Maturity date. . . .
.
or~gina~ issue date .
.
. CUrrently outstanding . . .
Minimum bid amount.
.
14-day Cash Management Bill
912794 6Z 2
June 2, 1997
June 3, 1997
June 17, 1997
June 3, 1997
- - $10,000
Multiples • . . . . . . . . $1,000
Minimum to hold amount . . $10,000
Multiples to hold
. . . . $1,000
lubmi •• io.n of Bids:
Noncompetitive bids
Accepted in full up to $1,000,000 at
the average discount rate of accepted
competitive bids
(1) Must be expressed as a discount rate
with two decimals, e.g., 7.10%.
(2) Net long position for each bidder must
be reported when the sum of the total
bid amount, at all discount rates, and
the net long position is $2 billion or
greater.
(3) Net long position must be determined
as of one half-hour prior to the
closing time for receipt of competitive tenders.
Competitive bids
Kax1p~
at a
Recogpized Bid
S~ql. Yield
. 35% of public offering
"p}.%IIl Award • • • • • . . 35% of public offering
I,e,ipt of Tenders:
Noncompetitive tenders
Competitive tenders
PIDlpt Tams . . .
. . . .
Prior to 11:00 a.m. Eastern Daylight
Saving time on auction day
Prior to 11:30 a.m. Eas~ern Daylight
Saving time on auction day
Full payment with tender or by charge
to a funds account at a Federal
Reserve Bank on issue date
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
May 27, 1997
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $7,553 million of 13-week bills to be issued
May 29, 1997 and to mature August 28, 1997 were
accepted today (CUSIP: 9127945K6).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.02%
5.03%
5.03%
Investment
Rate
5.16%
5.16%
5.16%
Price
98.731
98.729
98.729
Tenders at the high discount rate were allotted 55%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
Received
$38,991,542
Accepted
$7,553,476
Type
Competitive
Noncompetitive
Subtotal, Public
$37,022,198
1,377,044
$38,399,242
$5,584,132
1,377,044
$6,961,176
Foreign ·Official
Institutions
TOTALS
592,300
$38,991,542
592,300
$7,553,476
TOTALS
In addition, $3,671,180 thousand was awarded to the
Federal Reserve Banks for their own accounts.
RR-1710
UBLIe DEBT NEWS
Department of the Treasury • Bureau of the Public Debt. Washington, DC 20239
FOR IMMEDIATE RELEASE
May 27, 1997
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $7,535 million of 26-week bills to be issued
May 29, 1997 and to mature November 28, 1997 were
accepted today (CUSIP:9127945V2).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
5.25%
5.27%
5.26%
Investment
Rate
5.47%
5.49%
5.48%
Price
97.331
97.321
97.326
Tenders at the high discount rate were allotted 19%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
Received
$43,737,122
Accepted
$7,534,682
Competitive
Noncompetitive
Subtotal, Public
$39,664,365
1,072,757
$40,737,122
$3,461,925
1,072,757
$4,534,682
Foreign Official
Institutions
TOTALS
3,000,000
$43,737,122
3,000,000
$7,534,682
TOTALS
Type
An additional $299,900 thousand of bills will be
issued to foreign official institutions for new cash.
In addition, $3,185,000 thousand was awarded to the
Federal Reserve Banks for their own accounts.
RR-1711
D EPA R T M I!: N 'J'
0 F
TilE
T K J~ A S lJ R l'
omCE OF l'U81.1C A.FFAl.RS • 11>00 PENNSYLVANIA AVt:NUt;, N.W .• WASHINGTON. D.C .• 20220· (202) 622·2960
Remar:k~
pn:~Pdred
May 28,
1':J':J7
for Delivery
A New Partnership tor an Emeryll~ Africa
Lawrence H. Summer5
Deputy Spr.rt=!tary of tne Treasury
Annual Meetinq
tlle Afl-ican Development Bank Group
Abidjan, Cote d' Ivojrp.
0'
Good afternoon. PresidQnt Kabbaj, distinguisned governors, and
honorpn quests. !'m very ple~~~u to return today to Abidjan,
four years after my firot address to an African nevelopment ~ank
meeting.
This is Q different Africa than thp one I visited four years ago.
Per capjt~ incomes are growinq l:iyc:11n, at a more rapid rate than a
decade aye. A majority of countries in Africa ~rp. enjoyinQ
rioing standards of livtnq. Democracy continu~~ to spread.
Private capital flOWti are rising and invcotment conferenc@s likp
the one held here yesterday are drawing standinq room only
crowds. In ~outt:l. Africa, a new yuverlllnent is bringing new hope
1:0 the entl.te region, while recent events in thfo\ cpntp.T at the
continent offer new r~asnn~ for op~imism.
A Hew generation of leaders is omerging, shapp-d by some basic
truths: there c~n he no enduring econcml~ progress in the fQCO of
war and civil t>LLife; macroeconomic instability is th'!' pnp-my ot
economic growth; and financi~l repression and severe public
rp~ource misallocations ~Lirle p~ivate sector initiative.
These a~e precisely the obstacles that have suppressed progress
in Africa for fAT too lonq. Wi thout til~JU Afl-ican economieG could
grow as Cast ~s any in the world.
Thi!=; i!:; the basic convictlull undel-lying I.meriCQ'::; commitment to a
n~w engagement with Africa.
Tho specific f(')('!u~ of president
Clinton's new initinttve tor private trad~ e1nd investment build::;
on the principle of helping those helping themselvQ5, and the
demonstrated fQct that rosources fl (')Wl ng trom value added exports
and pri vat.~ C':npi tal are a much mort::! potent impetus for growth
than forelyn aid that does not meet a market test.
RR-1712
r",/"eS$ ,{·lNI...,·'..(,<pcL!ches. public ~("('dlllt:S Gild u[Ticiul u;ugmpllir.J.
lY/{/
our 21 hUll,. fa:.: litll! at (202) 622·2().1fJ
2
Pre~luent Clinton has also put Africa promingntly on the a9p.nn~
of the Economic Summit.; n I)enver. In addition 'to support CUI:
deep debt relle!, we a.t·~ asking the international financial
institutions to reexamine how they might more Affectively support
countries in t.hp.ir search tor better qrowth through better
pOlicies. Se~Letary Rubin, on beh~lf of his G-7 colleagu~s, ha~
specifioally asked the IMF ~nn the World Bank to prepare a
reinforced strategy to spur YLUWtl1 in Africa: additional
concessional finance where bold structural r.p.form~ lead 'to
greater finanr.inq needs; more agqressive ~uppurt for primary
heal th aml C:luucation; and, financing for thg infrastructllTp.
improvements needed to support private sector led qrowth.
Of course, meeting the challenge of enduring nevelopment in
Africa is about: much more than raisinq e~onomic growth. It is
also very much about educating Q :;:;chool age population who~p. s:i2e
double:;:; every genQration, cmnhiiting the scourge ot AIDS Cillu
dAhilitatinq diseases, safeyudrding preciou~ natural resources
fOL' future generation:;:;; and it is about securj ng property rights,
the rule of law, ~nn participatory democracy.
Africa I:;:; partners are hrin9ing ii new sense ot hope and comml t.nnmt
to t.hese cnallenges. But W~ are also bringing ~ greater sense of
redlism and selectivity in the assistance wP. provide, Ooth
bilaterally ann througn the Internation~l financial institutiono.
Thp. 'Role of tne In'ternatiofICll Financial Institl.ltionc
I see two major ann interlinked tasks for Lh~ International
financial 1nstituU.uns in Africa in the year ... immediatQly ",hAi=10.
They must focue increasingly ",nn more effectively on the priority
task of private sector developm~ut.. And, directly related to
thi~, Lhey must help improve the public SQctOT'~ capacity to do a
more limited job morp. effectively.
Throughout the developing worJn, inclUding Africa, the privdte
s~ct:nr doesn't need more im..:~t1 ti ves, but rather fewer obstacles.
PuniLive taxes on exporte are a comlnon sp.rioll~ distortion
throughout Africa. So are impene'trable leyal and regUlatory
Oarriers. otten P~Lvdsive corruption, and the sweeping prot.p.r.tion
against private competition rh~t invariaoly accompanies heavy
state ownership ot productive assets. The rFIs are ideally
plac~~ Lo tackle these obotacles head on, and to provide 'the
additional financinry that temporary adjustment ~usts might
require.
Measures slIr.h nS these on the privat~ ::;e(;tor side must be
re1nforce~, and indeed accommodated by, dgQP reform nf pUblic
3ector institutions. Hprp the fundamental issue is mULe about
how PUblic resources ~c~ used than about the overall quantity of
those re~oureec. Ineffici~nt ~r~t.A-owned enterprises should ue
divp.~ted and otner dls~ortiondry subsidy programs eliminated.
PrIority use of public funds should be for tho~p. purposes tnat
3
yield the highest and most I;IndurinC) np.vp.l npmf:!nt returns for the
qreatest. number or people. Prlmctry c;u.luc...:C1Lluu (;uts into the cycle
of deprivation and povcrty; and primary education for girls has
been shown to hp. ~~ high a return invest.ment as 1s available.
Women who rec~lv~ primary education have healthier, h~ppicr,
3mallcr and better educated families. Expendit:lIrp.~ ~uch as these
mU5t be at the ~op of the list.
::)0 t.oo, must be lJlv~~LJlIt:nt5 in primary healt.h, especially in
rurQl arcae. Many Americans have a growint)' ~p.n~p. nf outrage at
the appallinq practice or genital mutllcttlufl LilC1t afflicts
millions and millions of young African girls evory year and
throughout their livp.~. Tts health and social, anO t.heretore
economic, impact~ C1L~ ~normously destructive, and it muot be
stopped. he with so many development i5~1IP.~, F!ciucation is t.ne
kRy. I urge tne African Bank to use lLs u~erations to confront
Lh~~e daily tragedies head on.
The 11"'.1S will continu~ Lu have OU1- strong support as they move
ahead with thi3 priority work. with an infusion of $1 hillion in
nt,1lw rp.!':otJr<":p-s from non-regional Oonors, the Afric...:111l Development
Funu l~ once again providing hiqhly ooncce:e:ional funding for
priority development invp.~tments in Atrica's poorest. countries.
We have also aqreeu Lu d major IDA replenishment earmarking an
additional $9 billion for the same countri~5_
The African Development: Rank:
partnerShip
A Sharper Agenda and a New
lTIP. t:.1lrn now to some specirlc institutIonC1l dll1llenges facing
tht! A'cLican Development Dank. For uc, this Bank symbolizes both
our highest hopes for econolTli~ ~hnnge in Atrica and the
untinisned worK t.hat lies i:1h~d.u. We share the 5pirit of promicc
it which it was created, we highly value our particjpRt1nn, and
we appr'ilcj::tt:p. thp. contributions it has made over the years.
LE't
But too often in the p~~t:. m~nngernent mistaKes and inst.itutional
dritt frust.rat.ed thIs ~LuJllise and undercut the Dank's erodibility
with its cliont~, with the markets, and with thp ~hnrp-holders
providing mn~t at it.s financial backinq. I ther~[ure welcome the
un~r~~~uented reforms of the past 18 months.
Under President
Kabbaj's able administratinn thp. jnstitution is making real
st.rides toward restoring lLs finances, re5tructuring ita
portfolio, refocu~~ing its operations and renewin~ i~~ ~rnmi5e.
We salut'? you Mr. President., and we reaffirm our full ~un[idence
and support.
Rut there is alSO much more to do,
community of its shoreholderc.
The BC111k. it:s~lf needs to
them better.
fOCU3
On
lJy Llie BC1nk.
fewer
tQ~kG,
itself and by the
and it needs to do
4
First, it must mun~ ::;hC1r. ply der ine its role in a region f lUl5h
with development assistanoe. This means real selectivity. It
means finding priority niches where it can brinq qenuine value
added. Smaller scale operation3 in primary health and eduoation,
especially in rural aTA~R, i~ nnA ~uch niche. The Bank's
ambi tious new 1ntormcttlufl pul.ll.:y urren.; another. Consulting
fully with people affected by Bank projects will give them a real
voir.p. in thAir future -- a voice that many have never had.
Ami, it means helping to build a vibrant private 3ector by making
selective direct investments and hy hp.lping to huiln microcredit
networks.
~p.r.onn,
thA Bank must rurther deepen its collaboration with the
Woods inl5titutions. coordinated country !:>tratcgies,
joint lIlissions, and common p.vHlu1it;on standards are all logical
candidates.
BL"t~LLon
Finally, thp. Rank must press ahead with its own institutional
reLUL"ru ~:UJd renewal, stressing full implementation and building
further on the groundwork that hHR HlrA1iny heen laid. Given what
we now know about the qreat@st uusLal.:le to development in Africa
-- the lack of transp~rent and accountable government -- I urg~
the Bank to ;;tciopt a comprehensive governance pOlicy, as did the
Asian BctnX a y~Qr ago.
.
Mr. Chairman, (lur1nq the pa~t Lwu yea!.':!; We hove rebuilt a strong
ba~is for real partnorehip with tho African Bank.
But thP.TP. i~
mor.p. t:o hE=! oone. Capit.al shares and governance arrangements in
th.l.s lm,;t..itution mUl5t be brought morE: direotly into line with our
interests in and support fnr thiA institution. Tnis was the
essence Of the Governanl.:e;: Re;:VUL t cOlluni:.;sioned by the Dank IS
Governor~ in 1~~5.
And it is Lhl::! basic i:.;sue at stake in the ongoing capital
increase negotiation -- partn@rship ~nn fair represent.ation. uur
hopes for the negotiation are simple;:. Tlll.ougl1 a limited capital
increase we seek a non-regional capital share of 45 percent and
Executiv~ Bn~Tci voting rules that will ensure us a more effective
voice in Ull::! lnstitution.
Let me De perfectly clear. Ttlt:: f1ufI-n:lyional members do not seek,
nor will we seeJ<, majority ownership of this Bank. What W4 do
se@k is t:hp. k1nci of equitable partnership that now exists in the
Inter-American Bank, the Asian Dank, and the European Bank. Each
of theee institutions has been strengrhp.np.ci hy hath its regional
Character and st:rong non-req.i.onal paLLSler.::;hips. It is high time
for the African Diln]e to forge cuch a partnership.
Without. such ct C;UJlSLluctive change, the African Banlo;'3 ~bility to
comm~nd non-rcgional support will be reduc@d.
It- wnlllci he a
great trageay it a te~ lntranslqent voices weuueu Lv altitudes of
the past were to prevent the richer and deeper partnership We
seek. T r.hp.Tp.fore urge my tellow Governors t.o cons1der this
crucial 1~8ue cQre!ully nnd to signal by thia foll your
5
willingness to move anead construct1vely.
The Cnallenqes Posed
~Y
Lh~ N~w
congo
Tt. 1~ not possible to adaress completely the development
chall~lIY~s facing Afl.-ica today without speaking of recent event:>
in the Democratic R,"public of th@ ConCJo. Al; Afrir.;t'~ third
larqest country 1n area and population, loc~t~d iJI Lhe heart or
the Continent, and :>haring bordere with nine nations, the new
ConCJo i~ t.ruly ~entral to the Challenges of African development.
The new Congo's centrality is r~cogni7.An hy Afr;ca'~ leadership.
president Mandela' s skilled diplomi:lcy 1:1111.1 !Uol:al authol.-i ty played
a crucial role in bringing about political transition. African
cOopAr~t;on will continue to be vital in promoting necessary
chdny~ti in othel.- spheres.
This i:s how it should bo given how
much is at stake for th@ p~opl~ of th~ n~w Congo and to allot
Africa.
As with thA And of apartheid, a new government offers tremendous
opportuniLy fur positive change -- opportunity to create a
participatory democracy, a prosp~rou~ mark~t Ar.onnmy, and to
institute the rule or law. African mltiorl::> dml the rest of the
international community ohould eeek out ways to support such a
transforro~t.;on, taking into account the new congolese
Govermll~llL ~ own efforts to secure human ri9hts, advance
democratization, provide r@fury~e~ with ~cr.~~s to humanitarian
relief and begin the hard work. of I:H.;unumic stabilization and
reform.
I
I
If Lll~ JI~W Congolese authoritie:s embark on thi3 couroc, they will
find the United states firmly r.nmm;tt~d to reinforcing
constructive Change. To b~glll rruilful cooperation, Ambassador
Bill Richardson will Goon lead a high-level Am9rican team to th@
n@w ConCJo t.o ~i~r.u~s practical ways in which we can be helpful to
the new gOV(;!L"IUU~lI t as it focusel5 on economic and democratic
reforms.
The international financial inetitutions must also re~pond
vigorously t.o ~ C":ongolese commitment to reform. This means
mQ~lny 4valldble the best expert5 to a:ssist the new 90vcrnmcnt in
devising sound fiscal and mon~tary polir.;~~ ~nd creating the
institutions to carry these oul. PutilLiv~ evolution of the
$ituation in the ncw Congo would present the World Bank and IMF
with thp opportunity to put into practice the1r recent
CUl1lllll. L.1I1~Ilts to do more -- and more quickly --- in post conflict
eituations. As conditions p@rmit and on teTm~ with whi~h the new
government can agree, we would hope that ultlmdL~ly theSe
institutions could provide financial eupport.
Yet, I au /JuL want to under-estimate the difficultie3 new lending
would involve. The Congol@s@ authori~ip~ h~VA ;nhpr;t.~rl A
Oankrupt treasury, a narruw [l::>~al l.Jdti~, w~ak. 11l:sLitutions, and
6
an ,mormous foreign dli'b1", ; nr.l lin; nq i=:uht=:tantial arrears to the
very inst1 tut10ns from wtllc.:h r lwwc.:,ial support would ol-dinar 11y
be nvnil~blc. EXQeptional efforts and creativity will be
rAquired on all sioes it the new ~ongo 1s to emerqe tram its
current predicament. In this regard, recognition by the
Congolese authorities of th~ fnrmpr 7.~irp'i=: n~hts is a very
constructive and welcom~ flr~L tiL~~ 111 promoting normal relations
with the international financial community.
Conclusion
Lcdies and gentlemen, I ~m convinced that there are more grounds
for w@ll fOllnnpn optimism about Atrica's economic future than at
any tlm~ 111 dec.:ildes. The African Development Dank can playa
major role in what can be a major succ~~~ ~tnry_ Afr;~a and the
worl0 cannot afford another lost decade of yruwLh dud
opportunity_ Let uo oeize the opportunity that we now have.
--30--
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
May 28, 1997
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 2-YEAR NOTES
Tenders for $16,501 million of 2-year notes, Series AF-1999,
to be issued June 2, 1997 and to mature May 31, 1999
were accepted today (CUSIP: 9128272V3).
The interest rate on the notes will be 6 1/4t. All
competitive tenders at yields lower than 6.328~ were accepted in
full.
Tenders at 6.328~ were allotted 42~. All noncompetitive and
successful competitive bidders were allotted securities at the yield
of 6.328~, with an equivalent price of 99.856. The median yield
was 6.312~i that is, 50~ of the amount of accepted competitive bids
were tendered at or below that yield. The low yield was 6.280%-;
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
$40,026,880
Accepted
$16,501,355
The $16,501 million of accepted tenders includes $1,410
million of noncompetitive tenders and $15,091 million of
competitive tenders from the pUblic.
In addition, $1,360 million of
high yield to Federal Reserve Banks
international monetary authorities.
of tenders was also accepted at the
Reserve Banks for their own account
securities.
RR-1713
tenders was awarded at the
as agents for foreign and
An additional $653 million
high yield from Federal
in exchange for maturing
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
May 29, 1997
RESULTS OF TREASURY'S AUCTION OF 5-YEAR NOTES
Tenders for $12,001 million of 5-year notes, Series G-2002,
to be issued June 2, 1997 and to mature May 31, 2002
were accepted today (CUSIP: 9128272W1).
The interest rate on the notes will be 6 1/2t. All
competitive tenders at yields lower than 6.616t were accepted in
full.
Tenders at 6.616t were allotted 37t. All noncompetitive and
successful competitive bidders were allotted securities at the yield
of 6.616t, with an equivalent price of 99.513. The median yield
was 6.600ti that is, 50t of the amount of accepted competitive bids
were tendered at or below that yield. The low yield was 6.500t;
that is, 5t of the amount of accepted competitive bids were
tendered at or below that yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$33,384,758
Accepted
$12,000,903
The $12,001 million of accepted tenders includes $738
million of noncompetitive tenders and $11,263 million of
competitive tenders from the public.
In addition, $1,000 million of
high yield to Federal Reserve Banks
international monetary authorities.
of tenders was also accepted at the
Reserve Banks for their own account
securities.
RR-1714
tenders was awarded at the
as agents for foreign and
An additional $475 million
high yield from Federal
in exchange for maturing
I) t~ I~ ,..\ R T "
I
t:
N T
() t-
T H
t~
T R E ,\ S 1J I{ Y
1REASURY {., NEW S
t1
OFFICE. OF rlJDLlc AFFAIRS • 1:;00 rJ!'.NNSYLVANIAA~'-It:. N.W•• WA::iHIN\iI'ON. D.C•• :.tozzo· (201) eU·2'GO
Will Afric~n Economies Co~verge?
(And what we can do to see that it happens)
Auun:=ss by Lawrence H. Summers
Uruverstry or wtrwatersranCl
Johannesburg, South Africa
Mny 29, 1997
1.
A Change
ill SculUlltmL
Thank you, It's a pleasure to be back in a university community. I just had a
very interesting session with a nwnber of faculty who an: c~pcrl 011 the South
AU il.iWI l.il.ilmvrny. Thuu,l:l;h not an expert myself: I was SU·U(;A by whal ~celJ1 LU lJc
-- al lcasl on the face of it -- strong parallels iIi the kind of economic ch~J1enees
hoth our
countrie~
face: high rates of unemployment that aTe coincident· with
race; a need to make health care more widely available, to achieve higher returns
r,on Qr.hlr."ntit:\n.nl
e~p,,pn.dit1..1.rc~, ~d
to pr~iCJl""CJ ne:eal diocipline.
~(oro
s,;n.ocolly,
both countries must fmd ways to expand economic opportunity for those whu
li:l\,;k il, whil~ preserving the market's uncontestahle ahiliry to generate
opportnnity in the first plac.e,
I just corne from I\.nnual Meetings of the African Development Rank in Ahj(1j~II,
where thel'e was a polpo.blc sell5e of progress un the CunLincnt. J3y contrast with
ideas and rhetoric tbat had bCCll pnwal~rrt earlier about "planning development",
slfspic:inn of markets and foreign investment, state control of "strategic
industries", and aid "gaps", this time thc buzz in the corridors was about market
rr.fonns,
privatization, capita) 1ll31kcl J",,,tllupment, and O)ttracting foreign
investment.
It wasn't JUSt the rhetoric of public offic.ials that seems to have changed, I spo"!<e
at a private sector mvestment conference the day before the mcetings that was
standing room only. An investment banker based in Louuon lOlU me about his
.fi ••,,,',,, -.. ; __ -"yl.l
...
Lu~l
th... prQ .;)pwwt.:3
£'01'
l"'lL&.lW
VU
I~\wuJQJI
L-lIUI.,.
TIu;; llCdU
Ur
l::i
F'Tr frress re18ases. ,.,pet!ches. public schedules and official bl~p,raPhip..~. rnU nllr 'J.4.1rclUr fax /i'ne (It (202 J 622-2040
<I}
RR-1715
major project finance outfit in my countTy seems pOIsed to set up an Africa tlmd,
and would be raising money from U.S. pension funds and i.llsurance companies to
UU :so.
I\n u"a alsu St!!I::!IIIS
to have shifted dramar.ically, even from RS. recen.tly as 1993, when I last led the
U. S delegation to the AflJH annual meetings. Then, the mood was gloomy
about the prospects for maintaining high levels of U.S. aid in the face of Africa's
pressing and, I was told, ri5ill~ uee~. Th.is (illltl it wu~ abuut auracting hiidIer
level s of U. S. investmcnt, and I was asked repeated questions auuul lht: ClinLoll
Administration's new policy t.o make trarle Rnn inve~tmenr, nor aid, the
ceuterpiece of our economic relations wIth Afrtca. One country's finance
minister told me bluntly at dinner. that he thought all aid should come to an end.
Th(.: ConUl1cnU .and cl;tic.is!llS 1 Lu:ard auuut U .:':i. }.Iuln,;)' luwl:inl
While the hallway ebatter in Abidjan seemed a bit effusive at times, 1 believe that
the prospects for economic growth in the developing countries of Africa are the
brightest they"ve been in a generation. What I'd like to talk to you about today is
why 1 think stlb-SahQr:ln Africa's development is of vital intcrcst to both our
....ountl'lQ... lndc.c.d, I th.iul.. Ll•.!;'''' Ulw»l b", U "'UU'W\';l~\';l1\';\'; i.l1 l\,;vd;:l or \ll;;vclopIw:nl
within Africa, 6lld between Afriea and the world's most advanced economies.
And ullkss a (,,;Ollvt:rgen(,,;t: O(";CW'S through an active strategy 1:0 promote private
sector gro\Vth, the.re is a real risk for all of us that a convergence will- occur
anyway, but that ito direotion will be- do·wnward.
II.
Africa on (he Move?
Sub-Saharan Afriea has begun to grow. The region's average annual growth rates
rose from I .4 percent in the years 1991-94. to 4% in 1995, and did as well or
b/:'!tter in 1996. A number of others. including Botsw::mn., Mn.urit.iull., I Jp,nndn.
Ghana and Cote d'Ivoire have achieved good resulTS over longer intervals.
As pTOmlSIng as the performance of Sub-Saharan economies has been over the
last few years, it must be acknowledged that African economic perfonuancc OVCI
the lallit 25 or :10 yel'lrs has be ell J.J1'ufuundly di~.RJlJlointinH n'!:.AI'I'nintinc hy thl?
stondllfd of thc goals that African govenlments seL [0(, lh~mselves, by the
~lamJ(ud of performance compared to the rest of the world, and by the harsh
~r~nc\~Td of the basic ability to maintain evell a constant living standard foz: a
growing population.
2
on a par with Cast Asia's .- yet in 1995, average per capita income ill AfJi",a still
was jusl $490 and 262 million people got by on a dollar a day or less. On a per
capita basis, Korea and Taiwa.n now are ahollf :~o time~ rkhp,T th~n the sub-.
::So.hilI"il.n average, Whllc; Malay:mt JS about 10 lum:;o':! IIloitn.a 11m! Tbiulwltl, 6 time!).
Thp.sp. diffeT'enceS in the developmental record reflect many years In WhlCh
gT'O\vth rates in Africa have lagged badly. During the 19809, per capito. growth in
Africa lagged growth in other dcveloping areas by 5 percent -- and the
d.«....o ... t • .,.1 ""0 .....""11,· .;,..... r ......' ..;•.! to G.:l p ...r ...... n.t tn tl~" 1 91)0.... I"..... rvu............. w J.,......, 1"",... u
so poor that stnndards of living in sub-Saharan Africa~ as measured by per capita
consumption, have declined by nearly one fowth since 1980.
As a consequence, large parts of th.e continent. remam marginalized ond
;mI"n ...·~ri:~h(":rI
At 1')';.1. pr.r t'hnn,q."nrl, thr. infAnt ""',orl"lity r~tc:. is the. hiShc:::-st in the
world, as is the illiteracy rate. Life e"'-peclancy at birth is only 54 years. Today,
on the brink of a new millennium, Ul la['g~ Pl1l'ls of sub-Sahanm Africa a child is
more likely to be malnourished than Jearn to Tead, and more likely to die before
th~ Ctge of 5 than go to school.
Ill.
"·orelgo Aid is not the Answer
Whatever the problems of growth in AfrieQ~ they C£1llnot be traced to lack of
officio.} extemal support. Aid flows represented 12.4% of Sub-Saharan Afi:ica's
GNP 1n 1994. ~cordi.ug to UU;: 1996 Wurld Development Report. and this fignre
r.pr."onta a. cl.:. .. lu.1..::r £.... ,;:,'11
u.......
uf ... _-1i ...r ,..W:-l.l,
bt:eu lleady five times as imponant in Amca
world.
rl.lQtiyt;; to
a.~
our.....Al....Uu:d
a.illltQ,;)
in other parts of the low-income
Where Africa has fallen down is in the worldwide race to allJacL private capital.
In J996_ sub-Saharan Africa received $15 hi11inn in offil".i::tl rlp.veJopment finance.
but only $ I 2 billiou ill pIlvate capital t1ow~. Tn c()ntra!\t, T.atin America received
only $4 hi11ion in development fInance but attracted $73 billion in private capitol.
Recently a number of ana.lyses have looked at the impa.ct of ~iti flows using a
munber of different methorlokwjes. A con$;lstent pattern hM h~l.!nn tn P''''''PlTgP.
Without ..,ulili~l:ll :;,u:J.bility. macroeconomic conu-ul, i1ml f't::m;onahty 111nCtioning
mal kcl~. aid is at best ineffective. The capital stock per worker In Africa today. is
lower than it was in 196", It IS noteworthy that on one set of estimates, African
wealth owners have invested 37% of their wea]th outside Africa. If Africa could
hold
jf:.~ re,";~ ...n.'"
.......l.. i.nl nil> , ....·..,11
"$
A.:Jia, its stoo;:.J... "'1 VI UUUIol"h't/ uu.pjlu.l would be:
.~
5U% greater.
Aid. to governments pursuwg the wrung policit:s can actually be counter-.
plOuucli Vi:.
Il may t:ncourage public investment that crowds out privaTe
mvesuuem. It allOWS iOVe.llllUel1l~ to postpone pamIUl steps necessary to gam
credibility. It can lead to overv~Jued exchange rates which interfere with the
development of export sectors. And it can lead to the accumulation of
unsustamable debt burdens. These are not just hypothetical possibilities. Studies
at the World Bank by Burnside and Dollar have suggested that in distorted policy
environments, aid has actually slowed growUl.
it m::ly ~eem Ironic th2.t m,2.1ly of th.e. analyc"c
:11'''
"merging frOD'l the :Bretton
Woods institutions. But we should take it as a good sign that the IMF and World
Bank arc recognizing publicly that they don't have all the answers. III my
pcrsonal view. aud as a fuullcr Wurld BaIlk. official myself. I think that
in$titutional humility at rhc Datu... ~uu ruml w.e "lu~cly \,;ollchut:<.l lO insrirurional
effectiveness. I also [hink the Rank and Fund need to get their timing right: they
sometimes seem to run on the wrong schedules - too slow for countries that
want to reform fast; too fast for countries that wallt to rWl :sluw.
IV. TIlt: Nt:ed for Private Sector-led Growth
The African growth record has been studied carefully by economists at the
international financial institutions, aid ministries, and universities. Case studies
and other analyses have contrasted !lle ~Apt=rit=nce of African countries with those
in mher regions A STriking degree of consensus has emerged, pointing to three
prtmazy factors 11l explaining .Africa's disappointing pcrfonnancc.
First, basi\,; pulitical stability is a prerequi~jte for growth, Nearly 15
pen..:enl of the population of ~llh-Sah~ran .A..frica lives in countnes that- were
several affected by civil war durmg the '90s~ A much higher fraction lives in
countries where investors cannot bc confident of a stable political cuviJofllIlent,
and where as a eOllsequellc.:t: property rights are in~ecllre, rt is noteworthy that
Africa's sranding has rleteriorated both relatively and absolutely on international
scales of political risk.
Second, the lack of Jmic.;ru~conornic stability is injm1c~l to growth.
While inflati(JII t ales have come dnwn in the last several years, Inflation rates in
many A fiiean countries have been well into double digits for much of the last two
decades. And the damage thcv do has been eompowlded hy f'immdHI rp.["Irp.~sion.
Third, policjes that grossly distort the Rllocation of resources make
4
growth unposslble. These policies include, but are not limited to, export taxes,
high tariff and llon-tariff protection. subsidized parastatal inputs, and
g(J\'-cnuucnt· cstablii>hcu prices for tlgIicullural product::i. In some countries. it.
has been estimated thar as much as 1/4 ofmanufaeruring output acmaHy involves
negative value ndded. Of the policies that distort resource allocation, a gr-owmg
body of evidenc.e suggests that the most serious are those that interfere with
tntegratjon with the rest of the global economy.
In a recent study, Paul CoUier of Oxford and Jan WiUem GUlUllng look al 11u;:
performance of countrie~ thaf have avoided the three pitfalls of civil war,
macroeconomic mstability, and gross resource misallocation. They find that only
one-fourth of sub-Saharan Africans livcd in countries that avoided these pitfalls
in 1995. but that tllls group averaged 3.2 pereenl pCI-capili:1lUowlll.
Thl" flolnt h~;:tT" ~lTlplul~i~ hp.r.~n~p. it impHp.~ that when C'.ondition~ are right.
African countries can grow rapIdly. The difficulties of trop1cal agriculture,
closure of some export markets, and high debt burdens are not adequate excuses
for slow 1rrowth. Indeed, the various reasons often sugge~tert to explRln wby
A fric;:t c~n er('lw only slowly must be balanced against the substantial potential
represented by the large gap between A..frica's current and previously achieved
levels of productivity.
V.
Engaging the Puhlic Sector to Support the Private
Proposals for U.S. Action ...
Sec..~tor
The powerful eAamplcs uf growth based on market reforms in Mauritiu~>
Botswana, Uganda, Ghana, TO m~m~ ;t few, and the discouraging results or 3ld
rturing the last 15 years, have underpinned the thinking of the Clinton
Administration's proposed "Partnership for Economic Growth and OpportunityH.
Presented last month to our COl1gress~ the parlnership is not another donorinspired «Amca Initiative", as some may see it. Rather, it is our response to the
initiatives that African governments are taking.
We start from thc lessons of Ic\,;cllL df,welopment history. The pattner~hip we
pi opose emphasizes selectivity. lhe importance of international mtegration,
private ~::Ipirtll over official grants, and the roJe of markets in driving
development. The partnership we've proposed is not a panacea, nor does it
pretend to addrcss the full range of Suu-SC1.hi:U.'an Africa"s many development
challellgc~. It:> cure ideas are. first. that the reforms cotmtries undertake bring
their own rcwards, and, second, that the best way the United States can support
those countries is by making trade and investment -- not just aid ~- the
5
cemeqliece of our economic relations. It contains these elements:
).
~~'P€\nded
market access.
trade with the Unired S[fl'[e~, we wfll offer bener access to
U.S. markets for African exports wldel" a renewed and expanded asp progri:lIIl.
For those countries ready to embark on hold trade refonn~. W~ have also
proposed to Congress an expansion of access to our market for several sensitive
products such as textiles and leather goods. In the future, as appropriate, the
U.S. will be open to pursue free trade agreements witll the stJ.·ouAest-pcafolluil1g,
most ,i;rowtb-oriented Sub-Saharan AfiiCaIl countries.
To c:;n,-<owag-=
2.
fun.h~r
Tuvc::sllllclIL
To encourage investment, the U.S. Overseas Private Investment Corporation will
Jaum;h a $150 million equity flmd thaI win be based here in Johanneshnre A
seconc1 OPTC funn, to bp. capitalized at $500 million. is being prepared and will
focus on infrastructure development. Countries pursuing the deepest marketoriented reforms are 1il<ely to capture thc lion 7 s share of thc investments.
3.
Sharpening the focns of existing U.S. programs.
USAlD is focusing its development activities ill Sub-Sabarall A.fiica
to sUPpoJ1 trade and iuvcslIlltml. The Initiative for Southern Africa will devore
up to $25 million annually to promote rr~de and transportation protocols,
h;mnoni7.flt)On of investment poliCies, and strengthening regional business
associations withIn SADC.
1JSAJD will provide technic.a1 assistance to governments in SubSaharan Africa to help them take advantage of the trade preference programs to
be made available, and so that rcfonning countries become more fully engaged iu
dlC WTO.
The {J S. Export-Import Bank will work with credit-worthy private
compames in Africa to structure asset-backed and project finance deals t:v~n
where the public sector i:lll1ul d'-<cmcd credit worthy_
C:ommorlity assistance under the Department of Agriculture's PL480 program wIll be targeted at the countries in Sub-Saharan Africa taking the
boldest steps to refomJ, but the assistance will be chan.neled 011 a mwkt:l basis. to
promote private sector distribution charmels and well.funct1oning commodity
6
markets within t'c\,;iVi~lll 4.;UUIltri~S.
4
neht rellefto restore financial viability.
The U.S. is taking Q stand at the World Bank and Th1F to provide max.imwn relief
for eligible COllllb:ies pursuing SllOlIg Icfullms wiLlun lh~ framework of the
pro1:,Tfam for Heavily Indebted Poor Countries. As you know,
;t h::.s already been
agreec1 that Uganda should be the first beneficiary of t.he program. and a number
of other !;trong re.termers in Africa should soon be in train for such debt relief
Pres::ident C.linton htl!)
0.1110
dooidod to seck appropriation a that "''''ould lUa.k.
possible not just the reduction but the extinction of bilateral conccssional debts
that ehgible refonners in Sub-Saharan Africa lllay still have lo us.
5.
A J.)ialogue among econom1C officials.
Finally, we recognize that if we have aspirations to reorient our economic
relations with sub-Saharan African cowltries to create suougt:l' traue amI
invesnnent links, we need to en~llre that nnr government's officials who meet
with their Afric,3Il counterparts are not just those of our aid agency. Our trade
Minisfries and our finance ministries must also work together. To this end, the
Clinton AUllluJislralioil will be holding annual ministerial-level meetings wiTh
selected African countries underTaking holc1 Tefonns.
trade and investment policy toward Africa emphasut::s selectivity. though
beneficiary coumrie~) through their own actions to refonn, will in effect be selfselecting. While we haven't yet agreed on eligibility criteria. with our Congress,
no one I've heard has disagreed with the notion that South Africa should be
eligible, despite its very diff'crcllt level of dcvelu~lll~llt liOlI1 the rest of SubOUf
Sdhcu an
Thi~ IS
Mri~a.
not just a
QueE:tion ofyonT r:tntIlT$
on tho ContiDent. We
Vo'fl.nt. t<:l Td.nfo'l'''.~
the prindplp. that this program is about wirmers: countries that succeed with
retonns should capture more benefits from their trade and investment links with
\.\5, not less.
Proposal~
1.
for Somh A fric;m action ...
Accelerate growth.
Yom stature in the Ati1ean economy also mal<es you n key agent for promoting
1
trade and investment ::Imnng )lonT nf~iehh(m: Gl\ll:'n thf.' ec,onomic heft of South
Africa. perhaps the mORT important thing you can do for your neighbors -- if I can
presume to suggest -- is to accelerate your own growth. We are reminded of the·
same obligation ot G7 meetings.
Revcmd the-: need to ke.ep macroec.onomic policje~ !l:trnng, aecelflT':ltu:lg !Vowth
will mean t:hat South Africa wilJ have to ildnress the reaHy dlfficult structural
issues like lahor m~Tke:t refonn, upgradmg the skills of the workfOTce~ and
liberalizing your tradable goods sector. As I understand the GEAR OTOtaaIn. it
can make a good start at confronting these problems.
A fast-gfowing South Africa will attract more foreign investment. And when
these inve~toTs make good returns in your countrY, they will notice the
possiblllt1e~
2.
tOT' profit in the economies that 3re closely tied to you.
Promote regional tradc integration.
Regional trade integration IS another very useful way to promote your neighbors'
economic growth. As an enthusiast of the NAFTA among Mexico. the U.S. and
Canada, r m con\'inced that SADe has Ln:mt:ndous potential to benefit an
parties, despite substantial differen.ces in the leve1 of developlT1ent Rmong your
economies.
The Mexican ccon.omy, with an econollly.only 1I20t11 the:: :;ize oftbe U.S.-and a
jJ~f capita income of about 1/7 of our!'\. imported substantially more goods from
Th~ U.S. in 1996 than it did In 1993, the year before NAFTA. And this was
despite a ver), substantial devaluntion of the peso in end-1994 and a deep
recession in '1995. I should also mention that Mexico~~ export sector has
increased to 320/0 of its econQUly ~il1ct: NAFTA, up from about 24°/t. in just three
years, and rea1 wage~ ~.re on track to rise 5% this year whde inflation is coming
down.
NAFTA h::.l,s "It>o ~erved all of its members re~i~t the pleadings of dOlllcslh.:
prouucers that seck and mighT mherwise get -- speci,al protection that is costly
TO rhe ~conolDy. I think SADC ofters the same advllDtages to you as an anchor
tor your own trade reforms.
R_
The main concern I would
h~ve about
any free trade agreement is not abQut
di~parrlte levels of economic development, but thnt the degree of liberalization
should at Jaast match that of the most open economy among. we:: contracting
parties. not the most closed. And an or lIlt! mn'lie~ ~hn111,; n~p rptrinn~l tT<;Ir1",.
integration as a step toward. ratller than a substitute for or diven:ion from,' global
integration.
3.
Encourage outbound foreign invc:ttmcnt..
A third way you call promote plivi:lle sector growth in Sub-Saharan Africa is by
¢n~oura~in¥ outbound inve!\tment. Your finns may enjoy a competltive edge as
cross-border investors in Africa in that they nre o.lrendy prominent in the mining
sector, enjoy geographic proximity. and benefit from better trau:spurlalion and
communications links with a pall of thc world that is unusually poorly ~erved hy
such infi:astruClu(c.
Outbound investment will also catalyze greater trading opportunities for South
Africa. This win arise in part because tlle illve~llllenls will draw in jrnport.~ of
capital anti iulennedjate ,goods, and, in part, hec8Hse of the stimulating effects to
the targeted economy that such investments would have.
I don't know If there are episodic bouts of criticism of outbound investment in
your country as there ilre in minc. NAFT~ for example. raised fcars for some
that there would be a giant "sucking sound" of johs heing lost to Mexi.co. The
evidence ~ugge~t~, however, that job creation and efficiency gains from the
dramatic expansion in trade between our two countries have overwhelmed. the
short-term, scctora1 costs that may have been im;UlTed.
4.
Deepen and broaden
im:egr~rion
beyond trade
Private sector growth can be advanced through econom.ic inle!:.'T"cllion in way~
beyond promoliug fi'ee or freer trade. An ohviollS example is South A:lTJca's
involvement in developing the Maputo Corridor. It is also possible, and probably
much more effiCient, to integrate telephone systcms, elcctricity grids, and
railways across international boundaries where national markets arc small.
Adoptjoll of \,:OIIllIlon standards and regulatory practices, especially those of
tinancial markels, C.;}tTI have a big effect on modernizing the sector, capturing
economles of scale, and improving financial safety and soulJdll~:Ss. Financial
and beneficially wiThin the EU, NAFTA
sector integration has advanced quite
and, to S0111e u~gree. across Latin Americ::t. Rut again, I should c.aution that the
\.:vtlvergence ought to aim at the highest possible standard with an eye toward
glohal he~r practices. Common standards that al1 parties would readily accept
are probably too low.
9
nu
5.
CUIllinue policy and technie~1 niscl1ssions
The fifth way that South Anica can nnd does contribute to private sector growth
in the region is through policy and teclmical discu~sioIl!;. I am quite struck hy rhe
rangc of matters that I wulenmwd your government work~ on with its SADC
counterpalls. and the frequency with whieh such discussions OCCUT.
Some of these disc.ussions may seem arcane Olld prosaic. Dut as SOllleom; who
has conducted ,- if not always enjoyed - international discussion~ over such
matters as treatment of foreign corporation~ for taxation purposes, and capital
standards, for fimmcial conglomerates, 1 know that these meetings yield real
results upon wh1ch private sector aotivity depends. That's why, in OUf owu
Africa initiative, we've made: frequent and high-level dialogue with Africa'~
bo Idcst reformers a central plank.
V1.
Conclusion: Convergcnce or Divergence?
the enthusiasm r picken IIp in Abidjan is causmg me to get ahead of
realities. For it is still not at all clear whether the economies of Africa wiH
r.nnverge or dJverge. It is clear, however, that Q generational shift in lcadelshiv. a
global economy that is becoming increas1ngly integraleu. i:Wd a world that ~eems
to shrink in size eal,;h day, present Sllh..Saharan Africa with an enonnous
opportunity,
PerhalJ~
The crucial question is whether the less developed cu'wd.l'i~s of the sub-Continent
reverse YC(1rs of economic decliw: and economic margina.li7J1rion? Or will they
fail to suslaill !)ound pOlicies, fail to r.nlst markets, and tail to create an
environment that wHl attract the investment these capital-poor economies so
desperately need?
The 4ueslion is of no smal1 consequence to you as a neilWbor'-- and to us. For
we f~cp. essentiaJly the same policy choices as the less developed coulltries of
Sub-Saharan Africa in considering our economic relationship to thcUl. Unless we
embrace the economic opportunities and meet the c.lofIli:SUC challenges createri by
global integration, our ceollonllcS will stagnate and, ultimately, Jose their capacity
to generate good joh!\ for OlJr respective populations. Like those of Sub-Saharan
A.frica, our economles cannot cany on ns if a globaJ economy didll' l exist.
10
For South Africa this jmplj~s A 6l"cat virtue in spurring strong growth and
economic relations WIth your African neighbors. For thc United States. this
implies D. strong commitment to reorient our ¢couomic relations with Africa so.
that we call lll"cst iu tim.l trade with what may bticome 47 emerging markets.
Th~ ;tllematives. for both of us, ar~ national economiAS that over time lose their
capacity to hring ;Jhollt ("!(:onamic convergence tor our OW11 disadvantaged
poplll~tjo.tJs, and an Africa that is mired in poverty, disease, and civil strife.
Make no mIstake, this affects us too) despite the oooan thot sepaTutes us.
1 hope it is now cleai' why the United States views Sub-Saharan Africa' S
economic development as in our own nat10nal interests, and why President
Clinton 18 committed to reorient our economic relationship toward the Continent
to help contributc to this end thrOUg11 trade and iuvl:.sLIII~nl. This is also why we
support South Africa's leadelshj~ in Lhe process of regional integrar.ion thr.ough
SADe. And it is why: ir will no longer he just U.S. aid officials, but Our trade
and financial offic1Rls that will be visltmg Afuca to pursue opportunities for
fruitful collaboration.
11
fE3deral financing
WASHINGTON. D.C .. 20220
bankNEWS ........
.......................................................
~
May'30, 1997
FEDERAL
FIN~CING
BANI<
Charles. D. Haworth, Secretary, Federal Financing Bank (FFB),
announced the following activity for the month of April 1997.
FFB holdings of obligations issued, sold or guaranteed by
other Federal agencies totaled $53.2 billion on April 30, 1997,
posting a decrease of $445.2 million from the level on
March 31, 1997. This net'change was the result of a decrease in
holdings of agency debt of $249.8 million, in holdings of agency
assets of $170 million, and in holdings of agency guaranteed
loans of $25.4 million. FFBmaqe 14 disbursements during the
month of April.
FFB als'oreceive.d 17 prepayments in April.
Attached to this release are tables presenting FFB April
loan activity and FFB holdings as of April 30, 1997.
RR-1716
Page 2 of 3
FEDERAL FINANCING BANK
APRIL 1997 ACTIVITY
DATE
tOlliER
leY
AMOUNT
OF ADVANCE
FINAL
MATURITY
INTEREST
RATE
DEBT
,O:LUTION TRUST CORPORATION
:e 29 1Advance #1
~R~ENT
~ERAL
7/1/97
5.478% S/A
4/3
4/24
4/24
4/24
4/25
$12,672,940.21
$2,210.63
$167,359.34
$2,917.24
$367,401. 21
$22,966.00
$9,235.37
$57,750.00
4/1/99
7/1/25
1/2/25
9/5/23
7/31/25
7/31/25
9/5/23
1/3/22
6.597%
7.225%
7.225%
7.224%
7.228%
7.228%
7.228%
7.258%
4/17
$10,949,475.23 '
11/2/26
7.246% Sf A
4/2
4/7
4/7
4/21
4/28
$2,434,000.00
$43,000.00
$278,000.00
$163,000.00
$3,041,000.00
12/31/12
12/31/26
1/2/18
1/3/17
12/31/97
6.978%
7.212%
7.152%
7.055%
5.916%
4/1
$2,921,030,823.11
- GUARANTEED LOANS
SERVICES ADMINISTRATION
amblee Office Building
Headquarters
mphis IRS Service Cent.
kland Office Building
ley Services Contract
ley Square Office Bldg.
kland Office Building
arc,i Law Enforcement
FA
4/1
4/3
4/3
S/A
S/A
Sf A
S/A
Sf A
Sf A
S/A
S/A
A/PADC
TC Building
~~
UTILITIES SERVICE
Irry Tele. Coop. #419
:ntral Power Elec. #395
B.N. Telephone Co. #423
Nebraska Tele. #398
~zos Electric #437
'A is a Semi-annual rate: Qtr. is a Quarterly rate.
laturity extension or interest rate reset
Qtr.
Qtr.
Qtr.
Qtr.
Qtr.
Page 3 of 3
FEDERAL FINANCING BANK
(in millions)
Program
Agency Debt:
Export-Import Bank
Resolution Trust Corporation
U.S. Postal Service
sub-total·
Agency Assets:
FmHA-ROIF
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
OoEd-HBCU
DHUD-community Dev. Block Grant
DHUD-Public Housing Notes
General Services Administration +
DOl-Virgin Islands
DON-Ship Lease Financing
Rural utilities Service
SBA-State/Local Development Cos.
DOT-Section 511
sub-total·
April 30
1997
March 31. 1997
$ 1,357.3
$ 1,357.3
2,671.2
.
0.0
4,028.5
2,921.0
I
3,675.0
16,505.0
5.5
1B.8
4,598.9
0.1
24,803.3
3,146.4
0.2
37.0
1,561.4
2,367.6
19.0
1,308.1
15,674.4
293.1
4.0
24,411.2
========
grand-total.
.figures may not total due to rounding
+does not include capitalized interest
$ 53,243.0
Net Change
FY '97 Net Change
4/1/97-4130/97
1011/96-4/30/97
4,27B.3
-249.8
-464.5
-3,324.9
-1,500.0
-5,289.4
3,675.0
16,675.0
0.0
-170.0
0.0
0.0
0.0
0.0
-170.0
0.0
-2,195.0
0.0
0.0
0.0
0.0
-2,195.0
-2.7
0.0
0.0
0.0
-100.8
0.0
-2.1
-65.4
35.3
-0.8
-74.7
-1,076.2
-25.3
-§.7
-1,318.9
$
0.0
$
2..:..Q
5.5
18.8
4,598.9
0.1
24,973.3
3,149.0
0.2
37.0
1,561. 4
2,357.5
19.0
1,308.1
15,695.6
296.8
10.1
0.0
0.0
-21.1
-3.7
-8.Q
-25.4
12.0
24,436.6
-==::'======
$ 53,688.2
0.0
-249.8
;:;;=2111::=====
:=$
-445.2
$
-B,803.3
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt. Washington, DC 20239
FOR IMMEDIATE RELEASE
June 2, 1997
R~SULTS
CONTACT: Office of Financing
202-219-3350
OF TREASURY'S AUCTION OF 14-DAY BILLS
Tenders for $30,022 million of 14-day bills to be issued
June 3, 1997 and to mature June 17, 1997 were
accepted today (CUSIP: 912794622).
OF ACCEPTED
COMPETITIVE BIDS:
R~GE
Low
High
Average
Discount
Rate
5.23%
5.28%
5.25%
Investment
Rate
5.30%
5.36%
5.33%
Price
99.797
99.795
99.796
Tenders at the high discount rate were allotted 69%.
The investment rate is the equivalent coupon-issue yield.
TEND:2RS RECEIVED AND ACCEPTED ( in thousands)
TOTALS
Received
$64,243,000
Acce12 t ed
$30,022,000
$64,243,000
0
$64,243,000
$30,022,000
0
$30,022,000
0
0
0
$64,243,000
0
$30,022,000
Type
Competitive
Ncncomcetitive
Subtotal, Public
Federal Reserve
Foreign Official
Institutions
TOT~.LS
5.24 -- 99.796
RR-1717
5.26 -- 99.795
5.27 -- 99.795
l)
E P \ R T 1\1 E
~
'I
() F
'I H E
T I{ F '\ S t: R Y
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE. N.W. - WASHINGTON, D.C. - 20220. (202) 622·2960
EMBARGOED FOR 3 PM EDT
Remarks Prepared for Delivery
June 2, 1997
Remarks by Treasury Secretary Robert E. Rubin
on the 50th Anniversary of Marshall Plan .
George Washington University
I'm pleased to have been invited to speak to you today on the occasion of the 50th
Anniversary of the Marshall Plan, and I am honored to be with those of you here who worked on
the Marshall Plan.
Let me start by looking back for a moment, and then 1'd like to discuss the carrying
forward of the spirit and vision of 1947 to the World of today and tomorrow.
Fifty years ago, George Marshall spoke at Harvard and proposed the outlines of the relief
plan for Europe that would bear his name. At a time when we were exhausted from war, a time
when the temptation to withdraw from international engagement was strong, we reached out with
a dramatic infusion of aid for a Europe in crisis. The costs of the Marshall Plan were immense -$13 billion over three years, or nearly 10% of the Federal budget at the time. But the return on
our investment was equally immense. The Marshall Plan was crucial to the rebuilding of Europe
and the strength and prosperity of the Western economies. That Plan -- its spirit and vision-marked one of America's finest moments,
There is no doubt that, in moral terms, the Marshall Plan was the right thing to do. But
the Marshall Plan was also vitally in our economic and national security interest. America
needed then -- and needs today -- a prosperous and thriving world to remain prosperous and
thriving herself. Visionaries such as George Marshall understood that. Though Marshall was a
military man, he knew that victory did not come when the guns were laid down and the flag was
raised ... that victory would only come when the conditions for long term peace and prosperity
were established. He knew, in short, that stability today could quench conflict tomorrow, that the
most effective diplomacy is preventive diplomacy.
RR-1718
1
For press releases, speeches, public schedules and official biographies, caU our 24-hourfax line at (202) 622-2lHO
Today the legacy of the Marshall Plan is clear. It helped build a European continent both
prosperous and free, one moving ever closer to integration. It firmly set the United States on the
course of leadership and engagement in international affairs. And it showed that we had learned
the lesson from our decision after World War I to withdraw from global affairs.
The imperative for U.S. leadership and engagement in the global economy have not
changed since the Marshall Plan -- though the circumstances obviously have. In fact, in some
respects that imperative have increased, just as the centrality of economics to foreign policy,
which was great then, has also in some respects increased. In 1947, 12 percent of our economy
relied on trade. Today, that figure has more than doubled. In 1947, the vast preponderance of
leading U.S. corporations viewed themselves as American companies with offices abroad.
Today, they see themselves as global corporations based in the United States. In 1947, capital
markets wee national, with very little flow across country borders. Today, there is an enormous
integrated global capital market, with vast cross-border investment and financing flows every
day. Technology, political change, and market openings have sped our economies toward
integration and created new opportunities for growth, but also new risks. It is no exaggeration
when we say that our economic well-being is enormously and irreversibly linked to the rest of
the world. I saw a column the other day in which the author was decrying the globalization of
economic life. I think he might as well have been decrying the rise and fall of the tides. The
reality in my view is not at issue. The only question at issue is whether we turn this to our
advantage -- with the great benefits that can flow therefrom -- or we turn our back on reality,
\Vith the results that usually flow from that. There is no question where George Marshall would
have come out.
Fostering a healthy global economy is enormously in our interest in 1997, as it was in
1947. At that time, to confront the economic challenge of post war Europe, Marshall laid out a
three-part strategy: providing much needed capital to reconstruct devastated nations;
conditioning that assistance on key economic policy reforms; and integrating Europe in the
international community. That conditionality and that vision of integrated economies are now
sometimes forgotten, but they were an integral part of the Marshall Plan.
The strategy for promoting growth and economic well being in both the developed and
the developing countries of to day's economy is very similar: .supporting sound economic
policies in conjunction with providing assistance, now largely through the international financial
institutions and their policies of conditionality; breaking down barriers to economic integration,
including through the trade liberalizing efforts ofNAFTA, GAIT, APEC and the Free Trade
Area ofthe Americas; and providing capital, though in today's world this is increasingly by
promoting conditions that attract flows of private capital.
And that highlights a central difference between the challenge of rebuilding Europe in
1947 and the challenge of spurring development and growth around the world today. In the
1940's. there were no global capital markets. The Marshall Plan's $13 billion in direct
government-to-government lending was critical to the reconstruction of Europe. Now, the key to
2
development and growth is less official aid, whether bi-Iateral or through the international
fmancial institutions, although that remains important, than creating the environment that will
attract private investment.
And key to creating that environment is another product of this remarkable period of
international vision and leadership in the late 1940s, the Bretton Woods Institutions -- the
International Monetary Fund and the World Bank -- and their more recent companion
institutions, the regional development banks and the GATTIWTO.
Take the case of the developing countries around the globe which have undergone a
remarkable transition over the last twenty~five years. In Asia, in Latin America, in Central
Europe, in country after country there is an almost universal emerging consensus that free-market
economics are the key to prosperity with many countries in each of these regions achieving great
improvement in economic conditions over the recent years or, in some cases, particularly in Asia,
over recent decades. And the International Financial Institutions have been central to this,
investing in education, health care, and the other underlying requisites for a successful marketbased economy, and encouraging sound financial and other policies by conditioning their
assistance, just as the Marshall Plan did fifty years ago. This in turn is critical to our country, as
prosperity in developing countries and in the countries transitioning from Communism furthers
political stability and Democracy, all of which contribute to economic activity in our country and
enhances our national security.
However, despite all of the progress with respect to the developing and transitioning
countries, the challenge of bringing the whole of the world's population into the economic
mainstream remains, and our future -- our economic well being, our national security, our
environmental conditions, and our public health -- depends on meeting the challenge. The World
Bank estimates that 1.3 billion
people live on less than one dollar per day, and even in many ofthe countries where significant
progress has been made, those gains are not irreversible.
Many parts of Asia have achieved economic conditions unimaginable 30 years ago, but a
vast number of Asians still live in poverty. And with Africa there is a whole continent that has
remained mired in poverty, though some countries have begun to adopt reform regimes and have
begun to experience real economic improvements. Applying the spirit and vision of the Marshall
Plan to Africa, I don't think that there is any question that an economically successful Africa is
not only in the interest of Africans, but is important in our interests as well.
Towards these ends, the Administration is working with a bi-partisan group in Congress
on developing a vigorous African strategy and with the International Fund Institutions to greatly
increase their focus on Africa. An Africa that succeeds in a commitment to democracy,
economic refonn, and sustainable development will provide lrigher standards of living for its
people and be more stable politically and socially. That, in turn, will benefit American
3
businesses and workers, but it will also strengthen or national security by lessening the need to
respond to crises in Africa.
However, every component of forward-looking inter-national economic policy
immediately encounters the debate about our country's role in the global economy and more
generally in the world -- just as the Marshall Plan triggered an enormous debate in its day. That
debate can be seen on a number of fronts. One is the area of resources.
We are the world's largest and richest economy by far, and yet we are the largest debtor
to the United Nations and we account for the lion's share of the arrearages to the World Bank
and its sister multi-lateral development banks. We were instrumental in creating those
institutions, and now we threaten their health.
Similarly, on trade liberalization, as nations around the world join together in all sorts of
ways, as with the common market in Europe, MERCOSUR in Latin America, and ASEAN in
Asia, the United States seems increasingly resistant to trade liberalization. This movement
towards integration will continue, with us or without us; the only question is whether we will be
inside, and participate in the benefits, or on the outside, much to our detriment.
To secure the political support to maintain our leadership abroad requires building public
support for these forward looking policies. This, too, George Marshall understood very well.
When he spoke at Harvard in 1947 about his proposal to help Europe he recognized the political
challenge ahead when he said: "An essential part of any successful action on the part of the
United States is understanding on the part of the people of America of the character of the
problem and the remedies to be applied. Political passion and prejudice should have no part."
After he made the proposal, President Truman, Republican Senator Arthur Vandenberg and
members of both parties launched a campaign to educate the public about the Plan and build
support for it. The Marshall Plan, which was initially met with skepticism and opposition,
eventually passed overwhelmingly in both houses of Congress.
Today, we face that same challenge of building in Marshall's words, an understanding on
the part of the people of America of the character of the problem and the remedies to be applied.
Those in government who are committed to meeting that challenge cannot do so alone. All who
understand how vitally our well being is linked to the well being of the rest of the world need to
join together in building a
shared understanding among all Americans of that vital linkage.
After World War II, much of the support for the Marshall Plan came from the urgencies
of the Cold War. Today, there are also great urgencies for American leadership in the world, but
they are less obvious and more difficult to understanding, making the challenge of building
public support all the greater. I would like to conclude by urging that you leave today's program
at George Washington University not only with a deepened understanding of the Marshall Plan
4
and General George Marshall, but with a commitment to honoring his spirit and vision to the
challenges of today -- including helping to build this shared understanding amongst all our
citizens of our common interest with the rest of the globe. I have focused primarily on economic
interdependence this afternoon, but in today' s world national security, public health,
environmental protection, crime, terrorism have all become issues that no nation -- even the
richest and most powerful -- can face alone. Surely one of the great lessons of the 20th Century.
a lesson George Marshall clearly understood. is that withdrawal from international affairs cannot
work. When we withdraw, we suffer; when we engage, we prosper. Thank you very much.
-30-
5
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
June 2, 1997
RESULTS OF TREASURYIS AUCTION OF 13-WEEK BILLS
Tenders for $7,525 million of
13~week
bills to be issued
June 5, 1997 and to mature September 4/ 1997 were
accepted today (CUSIP: 9127945L4).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
DiscQunt
Rate
Low
High
Average
4.90%
4.94%
4.93%
Investment.
Rate
5.03%
5.0/%
5.06%
Prica
98./61
98./51
98.754
Tenders at the high discount rate were allotted 42%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
Received
TOTALS
$34,014,112
Accepted
$7,525,476
Type
Competit. ive
$33,526,312
$5,/14,411
1.323.265
$/,037,676
487,800
$34,014,112
$/,525,476
$32,203,047
Noncompetitive
Subtotal, Public
1,323,265
Foreign Official
Institutions
TOTALS
48/,800
In addition, $3,993,955 thousand was awarded to the
Federal Reserve Banks for their own accounts.
4.91 -- 98.759
RR-1719
4.92 -- 98./56
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
CONTACT; Office of Financing
FOR IMMEDIATE RELEASE
202-219-3350
June 2, 1997
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $7,538 million of 26-week bills to be issued
June 5, 1~97 and to mature December 4, 1997 were
accepted today (CUSIP: 9127945WO).
RANGE OF ACCEPTED
COMPETITIVE BIDS;
Discount
Low
High
Average
Rate
5.21%
5.22%
5.22%
Investment
Rate
5.43%
5.44%
5.44%
PricL
97.366
97.361
97.361
Tenders at the high discount rate were allotted 94%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Type
Competitive
Noncompetitive
Subtotal, Public
Received
$38,769,126
Accepted
$35,044,970
1,162,156
$36,207,126
$3,813,716
1.162,156
2,562,000
$39,769,126
2,562,000
$7,537,B72
$7,537,872
$4/~75/872
Foreign Official
Institutions
TOTALS
In addition, $3,445,000 thousand was awarded to the
Federal Reserve Banks for their own accounts.
RR-1720
o
E P \ K T 1\1 E
~
'1
() F
'I H E
T R F '\ S t: R Y
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIUNGTON, D.C. - 20220 • (202) 622·2960
EMBARGOED UNTIL 10 A.M EDT
Text as Prepared for Delivery
June 3, 1997
TREASURY SECRETARY ROBERT E. RUBfN
HOUSE BANKfNG AND FfNANCIAL SERVICES COMMITTEE
Mr. Chainnan, I appreciate this opportunity to discuss with you Treasury's approach to
financial modernization. You, along with the members of this Committee, have played a critical
leadership role on this issue, I look forward to working with you in the weeks ahead.
With me today is Jerry Hawke, Treasury Under Secretary for Domestic Finance, who has
played an important role in developing the Treasury's proposal.
The Treasury has a very simple objective in modernizing financial services: to do so in a
way that will benefit consumers, businesses, and communities, enhance the competitiveness of
our industry worldwide, and protect the safety and soundness of our financial institutions.
The stakes here are enormous. The Bureau of Economic Analysis estimates that in 1995,
Americans spent nearly $300 billion on brokerage, insurance, and banking services, Even if
increased competition from financial modernization were to reduce costs to consumers by just I
percent, that would be a savings of $3 billion a year And, as I'll explain a bit later, substantially
greater savings than that may be likely
Today, our nation's financial marketplace is exceptionally strong Unprecedented
numbers of Americans have access to credit We have the most reliable, liquid markets
anywhere Our financial institutions are innovatIve, and function effectively In a highly
competitive global economy
However, Mr. Chairman, in the midst of all this progress, we're still operating under an
outdated legal and regulatory structure The Glass-Steagall law may have been appropriate when
we had a dramatically different financial system But there have been enormous changes since
then.
RR-1721
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The old lines that once separated the insurance, securities, and banking industries have
increasingly blurred as new financial products and services have appeared. And regulatory and
judicial rulings continue to erode many of the barriers that were put in place to restrain
competition among financial services firms.
Our goal now is to create a regulatory and legal environment in which: 1) consumers
benefit from lower costs, increased access, better services and greater convenience; 2) financial
services providers operate on a level playing field; 3) financial institutions can offer products
and services without maneuvering through a maze of archaic laws; and 4) we protect the deposit
insurance funds and safety and soundness.
Mr. Chairman, let me now share with you five key elements in our financial
modernization proposal. Under Secretary Hawke, in his remarks, will spell out our suggested
approach in further detail.
First, we would propose to break down barriers that inhibit or prevent competition
among various providers of financial products and services. So, we would permit banks,
securities firms, and insurance companies to affiliate with one another.
Second, we would give firms the choice to organize their financial activities in the most
efficient way they see fit -- either as a subsidiary of a bank, or as an affiliate of a bank holding
company regulated by the Federal Reserve Board.
Third -- and perhaps the most difficult question in this debate -- is whether to permit
companies that include banks to engage in non-financial activities, the so-called "banking and
commerce" issue.
As we examined this issue, we recognized that people on all sides have strongly held
views about this issue. There are, for example, some who believe that permitting broad
affiliations between banking and commercial firms could have not only economic implications
but also important cultural and social effects. We think the issue needs to be further debated by
Congress before settling on a final approach.
I believe that Treasury can be most helpful by providing two possible alternative
legislative models.
Under the first model, Congress could decide to permit some modest measure of nonfinancial activity for bank holding companies. In such a case, it would be sensible to set a high
threshold to qualify the organization as predominantly financial
Under the second model, Congress may decide not to relax limits on non-financial
activities of firms affiliated with banks, while permitting bank holding companies and bank
subsidiaries to engage in the broad range of financial activities
2
Let me now turn to the fourth item in our approach -- the creation of a new wholesale
financial institution. WFIs would be banks which accept only wholesale uninsured deposits, but
they would not be considered banks for the purpose of holding company regulation.
Lastly, we believe that we should move closer to a system of regulation by function,
whereby specific financial activities would be regulated by the appropriate federal or state
agency, regardless of where these activities are conducted. In this way, consumers would
receive consistent regulatory protections. The Federal Reserve would continue to be responsible
for consolidated supervision of bank holding companies but through streamlined procedures.
And we would propose to create a council that would help improve coordination among the
various financial services regulators.
With all these changes, of course, we must ensure that any and all financial
modernization proposals are safe. In the past eight years, we've made great strides in restoring
safety and soundness' to our financial system. We're mindful of the S&L experience and are
committed to avoiding anything of this sort again.
For financial institutions, our proposal for expanded activities provides greater safety and
soundness protections than current law. For example, banks would have to be well-capitalized -the highest regulatory capital category -- and well-managed to qualify for broader affiliations.
And they would have to meet important prudential safeguards that prevent subsidiaries or
affiliates from weakening the depository institution.
The Treasury approach would also enhance existing consumer safeguards. We would
provide for important disclosures -- in plain, straightforward terms -- so buyers can understand
whether or not the products they purchase from financial services providers are insured.
And finally, this proposal comes with an absolute commitment to safeguard
communities. This Administration will not accept any weakening of the Community
Reinvestment Act in any legislation.
In the past, when we have permitted greater competition in the financial services
industry, consumers of financial products have benefited significantly. Even more dramatic
savings have accrued to consumers after the government has lifted barriers to competition in
other industries
As I mentioned earlier, the Bureau of Economic Analysis estimates that in 1995,
American consumers spent nearly $300 billion on fees and commissions for brokerage,
insurance, and banking services. That figure would more than double, if we were to add the
transaction costs of companies, in addition to consumers. Based on the efficiencies that could be
realized from increased competition, it's not unreasonable to expect ultimate savings to
consumers of 5 percent from increased competition in the securities, banking and insurance
industries -- as much as $15 billion per year. These savings would be substantially greater if you
3
include costs to companies, as well as consumers. The bulk of these savings should come as
financial services firms, driven by increased competition, adopt best-practices.
Consumers would benefit in other ways, as well. A range of financial institutions could
offer consumers, farmers, and small businesses greater choice of products. And our proposal
could improve access for under-served consumers by encouraging new competitors to find
profitable opportunities in overlooked markets.
Mr. Chairman, I share the views of others who feel that the time has come to modernize
the rules of our financial services system. Such a move, if done with due regard for safety and
soundness, will benefit the broad range of users of financial services: consumers, small and
large businesses, communities, and state and local governments. A more rational system, with a
level playing field and appropriate safeguards, is in everyone's interest.
Mr. Chairman, we look forward to working with you and the members of this Committee
in the time ahead.
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D EPA R T 1VI E N T
1REASURY
O.F
THE
T REA SUR Y
NEWS
OFFlCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASmNGTON, D.C .• 20220 • (202) 622-2960
EMBARGOED UNTIL 10: 10 A.M. EDT
Text as Prepared for Delivery
June 3, 1997
Building a Tax System for the 21st Century
Lawrence H. Summers
Deputy Treasury Secretary
American Institute of Certified Public Accountants
Washington, DC
Good morning and thank you for that introduction. It is an honor to be here today among a group
of tax professionals such as yourselves to discuss the vital question of improving the way in which
the IRS collects our nation's taxes.
Over the last year, our country has entered a period of intense discussion of the way we collect
taxes. This discussion is the result, in part, of a political effort to undermine our capacity to enforce
tax law, raise revenue and sustain government institutions. And some attacks on the IRS represent
an effort to drive a wedge into the consensus that underlies our system of progressive taxation.
But that is far from the whole story. Another factor underlying this debate is that taxpayers have
witnessed a significant erosion in the IRS' comparative performance, particularly in customer
service. As the AICP A has observed, the IRS has a long way to go to bring customer service into
line with what Americans have come to expect in the private sector. To address this problem, last
month, Vice President Gore announced the formation of a new task force, as part of the National
Performance Review, to address these problems. Comprised of front line IRS employees, this task
force has a mandate to eliminate waste, improve efficiency and raise productivity to help give the
American people the customer service they deserve.
A third factor behind the intense debate over the IRS is the highly publicized failure of the Tax
Systems Modernization project. During the same period when private firms were improving
customer service using information technology, the IRS proved unable to modernize its systems.
Recognizing the extent to which this program had gone off track, last year, we at Treasury
announced a sharp tum in our approach to modernization. Since then, we have hired a new Chief
Information Officer, eliminated wasteful programs and published a comprehensive plan to
modernize the IRS' information technology system.
RR-1722
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-2This plan calls for a centralized, flexible system that permits easier access to data. Today, for
example, IRS employees may need from five to nine computer terminals to access data. Our new
plan calls for all data to be accessible from a single terminal. Our goal is clear: to build an IRS that
is more responsive to taxpayers, that uses technology more effectively, and that is more efficient.
While we have further to go, this blueprint represents an important milestone in redirecting our
modernization effort.
We are making progress on electronic filing as well. For example, in the most recent filing season:
•
The length of time to receive an electronic refund was cut to 14.3 days from 15.5 days last
year.
•
Telefiling was up 65 percent as of April 15.
•
Standard electronic filing via computer modem increased by 19 percent to 14.2 million
returns.
And while still woefully inadequate, we are improving our ability to answer customers' questions.
This year, the IRS helped nearly 67 million taxpayers who called or walked in asking for help.
We have begun a process of change at the IRS that is yielding results. But we must do more. The
environment today and the possibility of new technology to increase efficiency have created new
opportunities and new expectations. The IRS of the future cannot be the IRS of a decade ago or
even the IRS of today.
Our Five Point Strategy
To effect deeper change in the IRS, a broader framework is needed in which the IRS can operate.
We have developed a framework for reform directed at five key areas:
The first of these is to continue to strengthen and make proactive the oversight role of the Treasury
Department while bringing the expertise of the private sector to bear on IRS management issues.
To institutiomi.lize Treasury's oversight role, Secretary Rubin has announced that we will seek an
Executive Order to create an IRS Oversight Board of government officials. This board will serve
as a board of directors to provide ongoing oversight of all major IRS decisions and will expand the
scope of the board that we created to deal with technical problems.
This Order will also contain the requirement that the Secretary and Deputy Secretary appear twice
yearly before Congress to report on the IRS.
In addition, Secretary Rubin has announced that he will issue an order establishing an IRS Advisory
Board to provide advice from outside government. As this group has observed, the use of private
sector experts has been used successfully by other agencies. Comprised of experts with private
sector or consumer expertise, this board will function much like public trustees and will issue an
annual report to the American people.
-3The second element of our framework is the leadership that is crucial to performance. We will soon
appoint a new Commissioner with experience in organizational change, customer seIVice
improvement, and information technology management.
To ensure the continuity needed to exercise leadership, Secretary Rubin will propose legislation that
would grant the IRS commissioner a fixed five-year term. This model, similar to the one used at
the FBI, will provide for greater continuity of leadership and improve the Commissioner's ability
to focus on ongoing management issues.
Third, in order to maximize the benefits of new leadership, we will give the new Commissioner the
tools needed to make management changes. To do this, we will enhance and strengthen the IRS's
ability to manage its operations by improving management flexibility in personnel and procurement.
Employees of the IRS, as in any well-managed business, will be held accountable for results.
Fourth, we will work with Congress to help the IRS get the stable and predictable funding it needs
to operate more effectively.
Finally, we will continue working to simplify our 9,4S1-page tax code. Last month, the
Administration introduced a revenue-neutral package of more than 60 simplification measures and
we will continue to build on this base. As Secretary Rubin said, these measures will save
individuals and businesses millions of hours now spent filling out tax forms [--which might even cut
into your billable hours.]
These five points provide a framework for continued action. Everyone involved in this process
recognizes that the problems at the IRS have developed over decades and will not be solved
overnight or even over a couple of filing seasons. But we have made progress. Let there be no
doubt that improving the IRS is a responsibility we take seriously.
The Importance of Responsible Oversight
In coming' weeks and months and particularly following the release of the report of the IRS
Commission on Restructuring, chaired by Senator Kerrey and Congressman Portmann, there will
be a lot of discussion and argument about how best to reform the IRS. One proposal under
discussion would remove the IRS from executive branch oversight and place it largely under the
control of a board of private citizens.
I would like to address this idea because, in my view, it is dangerously flawed. Proposals to shift
responsibility for the collection of taxes and enforcement of tax laws raise five serious concerns.
First, separating the IRS from direct executive branch control would undermine accountability. The
ability to collect taxes lies at the heart of the notion of sovereignty and the legitimacy of
government. In our democratic system, accountability rests with the President and his appointees
who are accountable to voters. Our arrangement recognizes and codifies the accountability of the
-4Secretary of the Treasury and his Deputy for IRS performance. It focuses accountability squarely
on two line managers, the Secretary and Deputy Secretary of the Treasury. In contrast, a board
would spread accountability across an unelected committee. Giving unelected citizens who may
earn private s~aries ultimate power over enforcement issues and administration of tax policy would
move the IRS fllrther away from the control of the American people.
Second, separating the IRS from the Treasury would undermine tax policy effectiveness. Tax policy
and administration go hand in hand. Through our supervisory relationship, we reflect tax policy
concerns of the executive branch to the IRS. In turn, we regularly raise questions about the
administrability of proposed tax changes in White House meetings. Policy and administration cannot
be separated.
Third, having a board of private citizens run the IRS will, in my opinion, not work. Certainly there
is value to private sector input and that is reflected in our proposal. But the IRS cannot be run like
a private company. The IRS, unlike a corporation, does not have shareholders or a share price.
Practical difficulties include possible conflicts of interest between board members's governmental
and private interests.
Fourth, board management would present grave law enforcement issues that might lead to
constitutional challenges. The very notion of private citizens charged with enforcing the nation's
laws would undoubtedly be unacceptable to the public.
Finally, these proposals pose an unacceptable risk to our nation's revenue stream. Ninety-five
percent of the government's revenue flows through the IRS. We cannot afford to experiment with
responsibility, nor place it under the jurisd~tion of part-time managers. Moreover, as I suggested
a few minutes a go, a sharp turn is now underway at the IRS. And it is occurring at a time when
collections are up. To conduct a public debate on how the IRS should be governed risks paralysis
at the very moment when we have begun to make progress. The approach that I have outlined can
achieve the principal goals of continuity, outside input and accountability without putting at risk the
progress underway--or the vital functions of government.
Conclusion
In conclusion, the different voices involved in the IRS debate have no differences about ends:
improved customer service, efficiency, cost effectiveness and major change. I am convinced that
the plan we have proposed offers the best prospect for building an IRS that is more responsive to
taxpayers, that uses technology more effectively, and that is more efficient. I look forward to
continuing this dialog and to working with you to develop the best possible system of taxation.
While no one likes to pay taxes, as Justice Oliver Wendell Holmes said in words that are now
inscribed in the IRS building, they are what we pay for civilized society.
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DEPARTl\1ENT
OF
THE
TREASURY
NEWS
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C. • 20220 • (202) 622-2960
EMBARGOED UNTIL lOAM. EDT
Text as Prepared for Delivery
June 3, 1997
TREASURY UNDER SECRETARY FOR DOMESTIC FINANCE
JOHN D. HAWKE, JR
HOUSE BANKING AND FINANCIAL SERVICES
Mr. Chairman and members of the Committee, I am pleased to appear today with
Secretary Rubin to discuss the Treasury Department's draft proposal for financial modernization
The full text of our proposal appears as part of the report that we are submitting to the Congress
pursuant to section 2709 of the Economic Growth and Regulatory Paperwork Reduction Act of
1996.
As Secretary Rubin has testified, we believe that American consumers will benefit
significantly from legislation that brings increased competition to the financial services industry
OUf proposal would achieve that result by eliminating barriers to affiliations between banks and
other financial services firms, and by broadening the ability of banking organizations to offer
financial products and services. Specifically, we recommend that Congress repeal sections 20
and 32 of the 1933 Glass-Steagall Act, which restrict affiliations between commercial banks and
securities firms, as well as section 4 of the Bank Holding Company Act of 1956, which narrowly
limits the permissible activities of bank holding companies
In place of these old restrictions, we propose that Congress adopt a far less restricti\'e
regime for companies that want to own banks. We also propose that the authority of banks to
engage in financial activities through financial subsidiaries be broadened These changes wou Id
allow financial services companies that are, or include, banks the freedom to choose between the
holding company affiliate and the bank subsidiary as the organizational format for expanded
financial activities We have structured the proposal to prOVide similar protections for the bank
and the deposit insurance funds irrespective of the choice of format Let me expand brIen\ on
the rules we would apply
RR-1723
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The "Qualifying Bank Holding Company" ("QBHC")
The proposal sets out three main prerequisites for a company owning a bank to engage in
activities that are not permissible for a national bank to engage in directly:
•
•
•
First, it must be engaged in activities that are "financial in nature."
Second, all of its subsidiary banks must meet -- and remain in compliance with -the highest supervisory standard of capitalization, the "well capitalized" standard,
and they must be, and stay, well managed.
Third, it must execute an undertaking that if any bank subsidiary falls below the
well capitalized level it will restore the bank to that level or divest it under
circumstances in which the divested bank will be well capitalized immediately
following the divestiture.
All bank holding companies would continue to be regulated and supervised by the
Federal Reserve Board, but they would be free to diversify their financial activities within the
limits described in the legislation without further application requirements.
The Financial Subsidiary
Alternatively, national banks (and state banks to the extent permitted by state law) may
elect to conduct financial activities not permissible for national banks themselves through their
own financial subsidiaries. Three conditions would apply if this format were chosen:
•
•
•
First, as in the QBHC setting, the parent bank would be required to be and stay
well capitalized and well managed.
Second, the amount of the bank's equity investment in the subsidiary would be
excluded from the bank's capital for purposes of determining compliance with the
well-capitalized standard. Thus, if the subsidiary were to fail, the bank's
regulatory capital would be unaffected.
Third, after excluding the bank's equity investments in financial subsidiaries, the
limits on affiliate transactions in sections 23 A and 23 B of the Federal Reserve
Act would be applicable to dealings between the bank and the subsidiary Thus
loans and other extensions of credit by the bank to the subsidiary woulq have to
be conducted at arm's length, could not exceed 10 percent of the bank's capital,
and would have to be fully collateralized (In addition, the bank's covered
transactions with all affiliates, including the subsidiary, could not exceed 20
percent of the bank's capital.)
Subsidiaries of national banks would be permitted to engage in the same financial
activities as QBHCs, including insurance underwriting and agency operations, and the full range
-2-
of securities activities, including merchant banking. (The permissible activities of subsidiaries
of state banks would depend on state law and review by the FDIC)
The "Banking and Commerce" Issue
As Secretary Rubin has indicated, a major question that will face the Congress in
considering expanded activities for bank holding companies is the extent to which -- if at all -they should be permitted to engage in nonfinancial activities. Congress has a range of choices in
this regard, and our proposal sets forth two possible models that might be drawn upon as the
Congress debates this issue.
The first is a "basket" concept, similar to that suggested in some pending bills. Under
this approach, a company could only be a QBHC if a predominant percentage of its domestic
gross revenues -- the exact number to be determined by Congress -- were derived from financial
institutions and other financial activities. If this eligibility threshold were met, the remainder of
the QBHC's revenues could derive from nonfinancial activities. However, in order to assure that
the nonfinancial "basket" could not be used to create very large combinations of banking and
commercial or industrial companies, we would prohibit a QBHC from acquiring any
nonfinancial company that had total assets in excess of $750 million -- a number that
approximates the 1,000 largest nonfinancial companies in the United States. We would also
prohibit banks from making loans to, or investing in, their commercial affiliates.
If such a "basket" approach were adopted, it would provide a framework for merging the
bank and thrift charters and bringing unitary thrift holding companies, which presently have no
limits on their nonfinancial activities, under a common regulatory umbrella with banking
organizations. It would also provide a "two-way street" that would make it possible for
securities and insurance companies and other diversified financial services firms that may have
some modest volume of nonfinancial revenue, to own an insured bank.
On the other hand, Congress might choose not to permit any level of nonfinancial
activity for QBHCs. In this event, we believe it would be difficult to merge the bank and thrift
charters and to eliminate the unitary thrift holding company, and, as a practical matter,
ownership of banks may be precluded for many securities, insurance and diversified financial
services firms. Accordingly, if such a "financial-only" alternative were chosen, we believe the
thrift industry should remain unchanged from its present configuration, with the unitary thrift
holding company format available for companies that could not qualify to own an insured bank.
Neither model would permit subsidiaries of banks to engage in commercial activities.
Federal Reserve Regulation of Holding Companies
-3-
The Federal Reserve would continue to approve the formation of, and to supervise and
regulate, all bank holding companies. The Board could require holding companies to make
reports of financial information if the information is not reasonably available from other sources.
Federal Reserve examinations of a bank holding company would be limited, to the fullest
extent possible, to holding company units that could have a materially adverse effect on the
safety and soundness of a bank affiliate. The Board would have access to examination reports
prepared by federal or state regulatory agencies and self-regulatory organizations.
The Federal Reserve would be permitted to set consolidated capital requirements for a
bank holding company if: the holding company and the bank were large enough so as to raise
concerns if problems were to arise; the holding company's insured depository institutions
accounted for a predominant percentage of the holding company's total assets; or an insured
depository institution owned by the holding company were less than well capitalized for more
than 90 days, and the holding company engages in activities not permissible for a national bank
to engage in directly. Bank holding companies not meeting any of these criteria would
presumptively be excluded from consolidated capital requirements, although the Board could
impose such requirements (for an individual holding company or class of companies) if it
determined that it was needed to avert a material risk to the safety and soundness of a subsidiary
bank presented by unusual risk in the holding company's activities, or particular characteristics
of its financial structure. Where the Federal Reserve did impose holding company capital
requirements, it would be required to develop rules for excluding from the holding company's
consolidated assets and capital both the assets and capital of those company components subject
to capital requirements of other regulatory authorities, and the assets and capital of other
company components capitalized in line with norms for firms engaged in the same line of
business.
Wholesale Financial Institutions ("WFIs")
We also propose that Congress authorize wholesale financial institutions, which would be
chartered either as national banks or as state banks that are members of the Federal Reserve
System, but would not be FDIC-insured and could not take deposits of less than $100,000.
WFls would not be considered "banks" for purposes of the Bank Holding Company Act; thus,
like unitary thrift institutions under current law, there would be no activity limits on their
owners. However, WFls would be fully regulated by the OCC and the Federal Reserve; they
would have strong capital requirements, enforceable through the usual prompt corrective action
remedies; the Federal Reserve would have broad authority to impose protective conditions on
WFls in connection with their use of Federal Reserve services, and WFls would be subject to the
Community Reinvestment Act.
-4-
Functional Regulation of Financial Activities
While the Federal Reserve would continue to be the regulator of all bank holding
companies under our proposal, the usual regulators of nonbanking financial activities would
continue to regulate those activities, whether conducted in a holding company affiliate, a
subsidiary of the bank or, with some exceptions, in the bank itself.
All insurance activities, wherever they might be conducted in a banking organization,
would be subject to regulation by state authorities under state insurance laws and regulation -provided that such laws and regulations were truly nondiscriminatory. Where state law had the
purpose or effect of discriminating against financial institutions, or had a disproportionately
restrictive impact on financial institutions compared to other providers of insurance in the same
state, that law would not be applicable to national banks. Similarly, we would retain the
standard announced by the Supreme Court in the Barnett case, so that a state law that prevented
a national bank from engaging in an insurance activity authorized under federal law, or
significantly interfered with or impaired its ability to engage in such an activity, could not be
applied to national banks. State laws relating to the rehabilitation, conservatorship, receivership,
or liquidation of insurance companies would be fully preserved.
Our proposal would narrow the Securities Exchange Act's exemption of banks from
broker and dealer registration to permit SEC regulation of activities other than traditional
banking activities. The SEC's capital requirements generally may not be applied to a bank that
is well-capitalized. Traditional banking products would not be subject to SEC broker-dealer
regulation, and the primary banking regulator and the SEC could jointly exempt new banking
products. We would update and clarify the Investment Company Act's applicability to banking
activities and limit the scope of banks' exemption from the Investment Advisers Act. We would
generally have the SEC, rather than the banking agencies, handle the registration of bank-issued
securities and periodic reporting by banks having securities registered under the Securities
Exchange Act of 1934.
Finally, the principle of national treatment will guide the application of our proposal to
foreign financial institutions operating in the United States
Conversion of Thrift Institutions
Title III of our proposal sets forth a comprehensive program for eliminating the federal
thrift charter, phasing out the separate federal regulation of thrift institutions, and bringing
unitary thrift holding companies under the same regulatory structure as bank holding companies.
As I stated earlier, we believe a charter and regulatory merger makes sense if Congress adopts a
"basket" approach that would accommodate some measure of nonfinancial activity by bank
holding companies.
-5-
Our model would accomplish the "merger" of the thrift industry with the banking
industry over a two-year ,period after enactment. We believe that such a transition period is
needed both to allow thrifts to prepare to become regulated as banks, and to permit an orderly
merger of the Office of Thrift Supervision (OTS) and the Office of the Comptroller of the
Currency (OCC),
At the end of the two-year conversion period a number of things would happen:
•
•
•
•
•
•
All federally chartered thrifts would be converted to national banks, by operation
of law. (They would also have the right to elect an earlier conversion date, and
they would retain the same rights they have today to convert to any other
available charter prior to the end of the two-year period.)
All state-chartered thrifts would be treated as state-chartered banks for all federal
bank regulatory purposes.
Unitary thrift holding companies now in existence would be given a grandfather
exemption from the "basket" limitations, conditioned on their not having a
change of control or acquiring an additional insured bank
OTS and OCC would be merged, pursuant to plans developed by the Secretary of
the Treasury, effective two years after enactment.
Membership in the Federal Home Loan Bank System would become voluntary
for all institutions, (Mandatory membership would continue for federally
chartered thrifts until the end of the two-year conversion period,)
BIF and SAIF would be merged. (The schedule established in last year's
legislation for phasing in sharing of the FICO bond interest payments would not
be changed,)
Several other important provisions are proposed in connection with the conversion of the
thrift industry to bank regulation:
•
•
•
Each banking agency would institute a program to accommodate voluntary
specialization in housing finance and the conversion of thrift institutions to bank
charters.
A mutual national bank charter would be made available to accommodate thrifts
presently operating in mutual form, and mutual holding companies would be
authorized.
With the merger of OTS and OCC, the size of the FDIC board would be restored
to three members, as it was for the 56 years before the creation of OTS
National Council on Financial Services
Our proposal would create a National Council on Financial Services, consisting of the
Secretary of the Treasury, the Chairman of the Federal Reserve, the Chairs of the FDIC, SEC
and CFTC, the Comptroller of the Currency, the Director of OTS, and a final member,
-6-
appointed by the President with the advice and consent of the Senate, having experience in state
insurance regulation.
The Council would have authority to define additional types of financial services
companies' activities to be "financial" for purposes of the QBHC test, and it could also prescribe
additional safeguards to promote safety and soundness. It would also serve in a consultative role
with respect to rulings by the
concerning the applicability of state insurance law to national
banks.
acc
Consumer Protections
The proposal would require regulators to prescribe rules regarding the retail sales of
nondeposit investment products by banks and their affiliates, in order to avoid customer
confusion about the nature and applicability of FDIC and SIPC insurance, and to protect against
conflicts of interest and other abuses. These rules would address such matters as sales practices,
qualifications of sales personnel, incentive compensation and referrals. In addition, they would
require that disclosures be simple and readily understandable. Customers could prevent sharing
of confidential customer information between banks and their nonbank affiliates. The National
Council on Financial Services would be required to review the effectiveness of these regulations,
and could prescribe more stringent rules than those adopted by the agencies.
Effective Dates
Under the "basket" alternative, the expansion of bank activities and affiliations would
take effect two years after the enactment of the legislation -- at the end of the period provided
for conversion of the thrift industry. If the second alternative were adopted, with the thrift
industry remaining as it is today, we would propose that the expansion of powers and affiliations
for banking organizations take effect nine months after the date of enactment.
-30-
IDGHLIGHTS OF THE TREASURY'S
FINANCIAL MODERNIZATION PROPOSAL
OBJECTIVES
•
Protect the federal deposit insurance funds and the safety and soundness of our
financial system.
•
Reduce costs and increase access to financial services for consumers, businesses, and
communities.
•
Promote innovation and enhance the worldwide competitiveness of the U.S. financial
services industry.
KEy ELEMENTS
•
Permit affiliations between banks and companies engaged in thefull range offinancial
activities (e.g., brokering, underwriting, and dealing in securities; merchant banking;
sponsoring mutual funds; selling and underwriting insurance).
•
•
724
Give management a choice among different organizational models -- so that a
company engaged in these financial activities could be the parent of a bank, a
subsidiary of a bank, or a holding-company affiliate of a bank.
Apply strict safeguards designed to keep banks safe and sound.
•
Require banks with nonbanking affiliates or subsidiaries 'to be well-capitalized
(i.e., in the highest regulatory capital category) and well-managed.
•
Require any company that owns the bank: to guarantee that the bank: will remain
well-capitalized.
•
Require that a bank: conduct any loan or guarantee transactions with its affiliates
or nonbanking subsidiaries at aml'S length. Limit loan and guarantee transactions
with anyone affiliate or nonbanking subsidiary to 10 percent of the bank's capital,
and with all affiliates and nonbanking subsidiaries combined to 20 percent of the
bank's capital. Require such transactions to be fully collateralized.
•
If the bank conducts nonbanking activities through a subsidiary, require the bank.
to deduct from its assets and tangible equity capital the entire amount of its
investment in the subsidiary -. so that even the complete-failure of the subsidiary
will not bring the bank's regulatory capital below the well capitalized level.
2
•
Provide two alternative models for dealing with the question of allowing companies
affiliated with banks to engage in any nonfinancial activities (the so-called "banking
and commerce issue").
•
Alternative A (the "basket" approach): Permit a company to own a bank ifit
derives some high percentage of its gross revenues from fmancial activities (thus
permitting the company to derive a certain percentage of its revenues from
nonfmancial activities). But prohibit banks from fonning affiliations with one of
the 1,000 largest nonfinancial U. S. companies. Eliminate the federal thrift charter
two years after enactment, facilitate expedited conversions of thrifts to bank
charters, and grandfather thrift holding companies' current right to engage in
nonfinancial activities.
•
Alternative B (the "financial-only" approach): Do not permit companies that
own banks to engage in any nonfinancial activities. Preserve the thrift charter and
the right of nonfinancial companies to acquire thrifts.
•
Under either approach, permit any company (financial or nonfinancial) to acquire a
Itwh(Jlesale financial institution" that would have access to the :payment system and be
subject to the Community Reinvestment Act, but would have no retail depositors and no
federal deposit insurance.
•
Expand functional regulation, particularly of non-traditional securities activities
performed in banks. In addition, permit states to apply state laws to bank insurance
activities as long as these laws do not impair the operations of national banks.
•
•
Streamline Federal Reserve supervision of holding companies in several areas
including capital, reporting, examinations, and approvals.
Enhance consumer safeguards by requiring/ederai banking agencies and the SEC to
prescribe consumer protection rules for retail sales 0/ nondeposit investment products
offered by any depository.
•
Require these rules to be designed to avoid customer confusion about the nature
and applicability of deposit insurance and SIPC insurance.
BENEFITS OF FINANCIAL MODERNIZATION
By removing barriers to competition in financial services, financial modeniization could:
•
Lower costs for users of financial services. The Bureau of Economic Analysis estimates
that in 1995, consumers spent $293 billion on brokerage charges, investment counseling,
bank service charges, insurance commissions, and pension handling expenses.
3
•
There is room for improvement. Federal Reserve economists have estimated bank
cost inefficiencies to be between 13 and 20 percent of total banking industry costs.
Studies done in 1993 and published in the Journal of Banking and Finance
estimate insurance cost inefficiencies to be between 35 and 50 percent.
•
If deregulation in other industries is. any guide, it is not unreasonable to expect
that consumers could ultimately save $15 billion a year from increased
competition in financial services (5 percent of $293 billion).
Increase convenience and consumer choice by permitting banks, insurance companies,
securities finns, and other financial institutions to offer consumers, fanners, and small
businesses a wider range of products. In addition, the option of one-stop shopping should
save consumers time and money.
Improve access for under-served consumers by encouraging new competitors to find
profitable opportunities in overlooked markets.
CHRONOLOGICAL SUMMARY OF THE
TREASURY'S FINANCIAL MODERNIZATION PROPOSAL
Note: The Treasury's financial modernization proposal provides Congress with two alternative
approaches for considering nonfinancial activities and affiliations between banks and
nonfinancial companies. Effective dates for financial modernization would depend on the
approach Congress takes on this issue.
ALTERNATIVE A ("BASKET" APPROACH)
UPON ENACTMENT
Thrift Charter and Regulation
•
The banking agencies would institute programs to accommodate voluntary
specialization in housing finance and the conversion of thrift institutions to bank
charters.
•
The Secretary of the Treasury would have discretion to combine functions of the
OCCandOTS.
Interagency Council
•
The National Council on Financial Services would be established.
Two MONTHS AFTER ENACTMENT
Thrift Charter and Regulation
•
Thrift institutions could opt to become national banks simply by giving notice to
theOCc.
•
Thrift institutions would have the option of becoming mutual national banks.
NINE MONTHS AFTER ENACTMENT
Thrift Charter and Regulation
•
RR-1725
The Secretary of the Treasury would promulgate a plan for merging the aTS and
the acc within two years of enactment.
2
Functional Regulation
•
Provisions for functional regulation of securities activities would become
effective, including narrowing the exemption of banks from broker and dealer
registration and generally having the SEC, rather than the banking agencies,
handle registration of bank-issued securities.
Two YEARS AFTER ENACTMENT
Activities of Companies Owning Banks
•
Qualifying bank holding companies meeting certain qualifications could -- subject
to appropriate safeguards -- engage in any financial activity, including the full
range of securities activities, insurance activities, investment advisory activities,
mutual fund sponsorship, and merchant banking. Likewise, fmancial companies
could own banks.
•
Bank holding companies could also engage in a modest amount of nonfmancial
activities, subject to the "basket" test for revenues and the prohibition on bank
affiliations with the largest 1,000 nonfinancial companies.
Activities of Banks and Their Subsidiaries
•
National banks (and state banks to the extent permitted by state law) could,
subject to appropriate safeguards, conduct any fmancial ~ctivity through
subsidiaries.
•
National banks could engage in activities that had previously been permissible for
national banks or federally chartered thrifts (except for the power of thrifts to
invest in real estate development).
•
National banks (and state banks to the extent permitted by state law) could
act as general agents for the sale of insurance. .
•
National banks (and state banks to the extent permitted by state law) could
underwrite and deal in municipal revenue bonds in addition to other
securities activities currently permissible in the bank.
Supervision of Companies Owning Banks
•
Federal Reserve oversight of bank holding companies -- including reporting
requirements, scope of examinations, and applicability of consolidated holding
company capital requirements -- would be streamlined.
3
Wholesale Financial Institutions
•
Wholesale fmancial institutions, which would have access to the payment system
but no retail depositors and no FDIC insurance, could begin operating.
Consumer Safeguards
•
Regulators would prescribe rules governing retail sales of nondeposit investment
products by banks and their affiliates. These safeguards would be designed to
avoid customer confusion and protect against conflicts of interest and other
abuses.
Thrift Charter and Regulation
•
All remaining federally chartered thrift institutions would become national banks
by operation of law. All remaining state-chartered thrifts would be treated as
banks for federal bank regulatory purposes.
•
Remaining S&L holding companies would become bank holding companies by
operation of law, with grandfathering of their current authority to form nonbank
affiliations.
•
The OTS and the OCC would be combined.
•
The FDIC Board would be restored to its original three-member size.
•
Federal Home Loan Bank System membership would become voluntary for all
institutions.
Deposit Insurance Funds
•
The Bank Insurance Fund and Savings Association Insurance Fund would be
merged (with the merger occurring no later than January·I, 2000).
ALTERNATIVE B ("FINANCIAL-ONLY" APPROACH)
UPON ENACTMENT
Thrift Charter and Regulation
•
The Secretary of the Treasury would have discretion to combine functions of the
OCCand OTS.
4
Interagency Council
•
The National Council on Financial Services would be established.
NINE MONTHS AFTER ENACTMENT
Activities of Companies Owning Banks
•
Qualifying bank holding companies meeting certain qualifications could -- subject
to appropriate safeguards -- engage in any financial activity, including the full
range of securities activities, insurance activities, investment advisory activities,
mutual fund sponsorship, and merchant banking. Likewise, financial companies
could own banks.
Activities of Banks and Their Subsidiaries
•
National banks (and state banks to the extent permitted by state law) could,
subject to appropriate safeguards, conduct any financial activity through
subsidiaries.
•
National banks (and state banks to the extent permitted by state law) could act as
general agents for the sale of insurance.
•
National banks (and state banks to the extent permitted by state law) could
underwrite and deal in municipal revenue bonds in addition to other securities
activities currently permissible in the bank.
Supervision of Companies Owning Banks
•
Federal Reserve oversight of bank holding companies -- including reporting
requirements, scope of examinations, and applicability of consolidated holding
company capital requirements -- would be streamlined.
Wholesale Financial Institutions
•
Wholesale financial institutions, which would have access to the payment system
but no retail depositors and no FDIC insurance, could begin operating.
Functional Regulation
•
Provisions for functional regulation of securities activities would become
effective, including narrowing the exemption of banks from broker and dealer
5
registration and generally having the SEC, rather than the banking agencies,
handle registration of bank-issued securities.
Consumer Safeguards
•
JANUARY
Regulators would prescribe rules governing retail sales of nondeposit investment
products by banks and their affiliates. These safeguards would be designed to
avoid customer confusion and protect against conflicts of interest and other
abuses.
1, 1999
Deposit Insurance Funds
•
The Bank Insurance Fund and Savings Association Insurance Fund would be
merged.
20009
From: TREASURY PUBLIC AFFAIRS
DEPARTMENT
OF
THE
7-2B-97
4:25pm
p. 28 of 29
TREASURY
NEWS
TREASURY
................I1......II..IIII..II..~D/7859~~..II..II..II..I1....II..IIIIIIIIII..
OmCE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.. 20220· (202) 622-2960
EMBARGOED UNTIL 2:30 P.M.
June 3, 1997
CONTACT:
Office of Financing
202/219-3350
TREASURY'S WmcLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximaeely $14,000 million, eo be issued June 12,
199'. This offering will result in a paydown for the Treasury,of
about $4,000 million, as the maturing public:ly-held weekly bills
are outstanding in the amount of $17,991 million.
In addition to the public: holdings, Federal Reserve Banks for
their own accounts hold $7,229 million of the maturing bills,
which may be refunded at the weighted average discount 'rate of
accepted competitive tenders. Amounts issued to these accounts
will be in addition to the offering amount.
Federal Reserve Banks hold $2,949 million as agents for
foreign and international monetary authorities, which may be
refunded within the' offering amount at the weighted average
discount rate of a~epted competitive tenders. Additional amounts
may be issued for such accounts if the aggregate amount of new
bids exceeds the aggregate amoun~ of maturing bills.
Tenders for ~he bills' will be received at Federal
Reserve Banks and Branches and at the Bureau of the Public:
Deb~, Washington, D. C.
This offering of Treasury s.curi~i.8
is governed by ehe eerms and conditions set forth in en. Uniform
Offering Circular (31 CFR Part 356, as amended) for the sale and
issue by the Treasury to the public of marketable Treasury billa,
notes, and bonds.
Details about each of the new securities are given in the
attached offering highlights.
000
Attachment
RR-1726
HXGlLIGHTS 0' TRBABUR~ OPFER%NOS OF WEEKLY BILLS
TO B8 rSSUBD JUN. 12, 1997
June 3, 1997
Off.riDg Amoynt . . . . . .
pescription of QffeEiugl
Term and type of securLty .
$7,000 million
$7,000 million
91-day bill
CUSIP number
912794. SM 2
June 9, 1997
182-day bill
912794 2X 1
Auction date
Issue date .
Maturity date . . . .
Original issue date .
currently outstanding
Minimum bid amount
June 12, 1997
I
Multiples • • . . • .
September 11, 1997
March 13, 1991
$12,136 million
$10,000
$ 1,000
June 9, 199'
June 12, 1997
December 11, 1997
December 12, 1996
$20,542 million
$10,000
$ 1,000
The following rules .apply to all securities mentioned ab0ye.
SUbmdsstbn 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
Single Yield
Maxlmpm Award . . . . . . . .
Receipt of Tenders~
Noncompetitive tenders . . •
~a
Competitive tenders .
PaYment
~rma
. . . .
35' of public offerin9
35% of.. public offering
Prior to 12:'00 noon Eastern Daylight Saving time
on auction day
Prior to 1:00 p.m. Bastern Daylight Saving time
on auction day
Full payment witb tender or by charge to a funds
account at a Federal Reserve Bank on issue date
D EPA R T ]\1 E N T
0 F
THE
T REA SUR Y
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIllNGTON, D.C. - 20220 - (202) 622-2960
FOR RELEASE UPON DELIVERY
Expected at 2:00 p.m. EDT
June 5, 1997
STATEMENT OF
DONALD C. LUBICK
ACTING ASSISTANT SECRETARY (TAX POLICy)
DEPARTMENT OF THE TREASURY
BEFORE THE
SUBCOMMITTEE ON TAXATION AND IRS OVERSIGHT
COMMITTEE ON FINANCE UNITED STATES SENATE
Mr. Chairman and Members of the Subcommittee:
I am pleased to present the views of the Department of the Treasury on issues in S. 460
and S. 570 relating to the deductibility of health insurance premiums for the self-employed, the
deduction of home office expenses, worker classification, and the Electronic Federal Tax Payment
System (EFTPS), with a focus on their impact on small businesses.
DEDUCTION FOR REALm INSURANCE COSTS OF SELF-EMPLOYED
INDIVIDUALS
Under current law, contributions by employers to accident and health insurance for
employees and their families are deductible and are excluded from employees' income. Selfemployed individuals generally are entitled to a deduction in computing adjusted gross income for
a percentage of the health insurance premiums paid for themselves and their spouse and
dependents.l With the Administration's support, the Health Insurance Portability and
Accountability Act of 1996 (H1PAA) increased this percentage from 30 percent in 1996 to 40
percent in 1997, and the percentage is scheduled to increase in stages to 80 percent in 2006. The
Administration has strongly supported proposals to facilitate health insurance coverage for all
Americans, including the self-employed.
lThe deduction is not available for any month in which the self-employed individual is
eligible for employer-subsidized health coverage of an employer of either the self-employed
individual or his or her spouse.
RR-1727
4
a variety of Federal and State labor and worker protection laws that cover only employees, such as
unemployment insurance, workers' compensation, wage and hour requirements, and family and
medical leave requirements. While different definitions may apply to worker classification under
different laws, because of the distinctly different purposes they serve and the defining case law, the
interpretations under one law may influence, legally or practically, the interpretations under other
laws. For these reasons, it is important that any legislation altering the status of workers be carefully
considered to determine its potential impact on worker protections.
F or purposes of the Internal Revenue Code, most workers are classified as employees or
independent contractors based on the traditional common-law test for determining the employeremployee relationship.3 This test focuses on whether the employer has the right to control not only
the result of the worker's services but also the means by which the worker accomplishes that result.
The common-law control test by its nature depends on the specific facts and circumstances
of each situation. In an effort to administer this facts and circumstances standard better, the Internal
Revenue Service (IRS) derived from the case law a variety of factors that courts considered, with
more or less weight being accorded to particular factors depending on the context. In most cases,
the classification of a worker under the common-law standard is clear. However, because the control
test is inherently a factual determination, there are cases in which the correct status of a worker is less
obvious. 4 The uncertainty in these cases has been perpetuated by the long-standing statutory
moratorium on the issuance of public guidance through regulations or revenue rulings regarding the
proper classification of workers for employment tax purposes.
Current tax law does not consistently favor status as either an employee or an independent
contractor. S However, in particular circumstances, one or the other of the classifications may be
3The Internal Revenue Code (Code) does contain special rules for classifying certain
categories of workers. Briefly, these include mandatory independent contractor classification of
certain licensed real estate agents, direct sellers, and sitting-service placement agents (sections
3506 and 3508 of the Code); and mandatory employee classification of corporate officers and
certain agent-or commission-drivers, life insurance salesmen, home workers, and traveling
salesmen (section 3121(d) of the Code).
4Cases in which there is intentional misclassification of an employee as·an independent
contractor should be distinguished from the classification issue generally. In these cases, there is
no real question as to whether the workers are employees or independent contractors. Rather, the
parties involved may use misclassification as a guise to avoid the costs of Federal and State
mandates designed to protect employees or as a method to avoid full reporting of income and to
evade taxes.
SPrior to 1984, compensation earned by independent contractors was subject to lower
rates for Social Security and Medicare taxes than wage income. This disparity was believed to
create an incentive for misclassification. The differences were actually less significant than they
5
advantageous to a service provider, the service recipient, or both. A company's costs may, for
example, be lower if its workers are classified as independent contractors rather than employees to
the extent the company can pay independent contractors less than the sum of the cash compensation,
the costs of the company's portion of Social Security and Medicare taxes, unemployment insurance,
workers' compensation, other fringe benefits that the company incurs for employees, and the overhead
costs of withholding and recordkeeping. In effect that would require shifting such burdens to the
workers without correspondingly adjusting the worker's compensation.
In addition, the income and employment tax provisions of the Code may favor classification
as an independent contractor where a worker'has significant unreimbursed business expenses. This
is primarily because independent contractors face significantly fewer restrictions on their ability to
deduct trade or business expenses than employees, as noted earlier. 6 Conversely, employee status
may be advantageous for workers with few business expenses who benefit from the tax advantages
accorded to fringe benefits, especially those that cost less, or are only obtainable, through an
employer, such as employer-provided group health insurance, workers' compensation insurance, or
unemployment insurance.
Workers who are classified as independent contractors may also have greater opportunities
than employees to avoid full compliance with the tax laws. Independent contractors may find it easier
to omit some of their income on their tax returns without detection, although underreporting of
income becomes more difficult when an independent contractor's gross income is reported to the IRS
on information returns. Moreover, even independent contractors who report 100 percent of income
have greater opportunities to overstate deductible business expenses. (In addition, independent
contractors can claim their deductible business expenses in full because they are not subject to the
requirements that they itemize deductions and that their business expenses and other miscellaneous
itemized deductions exceed 2 percent of adjusted gross income.) Clearly, some taxpayers have made
use of these opportunities, resulting in noncompliance.
Legislative History
Since the late 1970s, Congress and the Department of the Treasury have considered numerous
proposals aimed at resolving issues associated with the classification of workers as employees or
independent contractors. Recent proposals have focused primarily on reducing uncertainty,
appeared, however. Although tax rates were lower for self-employment income than for wages,
an independent contractor could not deduct self-employment taxes while an employer could
deduct its portion of Social Security and Medicare taxes in computing its taxable income for
income tax purposes.
6Also, the estimated tax system used to collect income, Social Security, and Medicare
taxes from independent contractors largely avoids the overwithholding that can result when an
employee incurs large business expenses, has net income that fluctuates during the year, or is
employed for only part of a year.
6
simplifying the rules, and reducing the potential penalties for misclassmcation. In addition, there have
been proposals that include attempts to change Section 530 of the Revenue Act of 1978, which
includes a moratorium on issuance of administrative guidance. This moratorium has increased
uncertainty, particularly given the changes in the American workplace and development of new
service relationships that are inherent in a dynamic economy.
Section 530. In response to a number oflarge retroactive employment tax assessments in the
1970s, Congress provided certain employers with general statutory relief from IRS reclassification
of workers from independent contractors to employees. Section 530 of the Revenue Act of 1978
prohibits the IRS from correcting erroneous classifications of workers as independent contractors for
employment tax (but not for income tax) purposes, including prospective corrections, as long as the
employer has a reasonable basis for its tr~tment of the workers as independent contractors. A
reasonable basis includes reliance on (1) judicial precedent, published rulings, letter rulings or technical
advice memoranda; (li) a past IRS audit (although prior to changes effective after 1996, not
necessarily an employment tax audit) in which there was no assessment attributable to the
employment tax treatment of the worker or of workers holding substantially similar positions; (iii) a
long-standing recognized practice of a significant segment of the industry in which the worker was
engaged; or (iv) any other reasonable basis for the employer's treatment of the worker.
The relief provided by section 530 is not available unless the employer consistently treats the
worker, and any other worker holding a substantially similar position, as an independent contractor
(sometimes referred to as the "substantive consistency" test) and complies with the statutory
requirements for payments to independent contractors. For example, section 530 relief is not
available if the employer has failed to comply with the information reporting requirements associated
with its treatment of the worker as an independent contractor.
Section 530 applies solely for purposes of the employment tax provisions of the Code. It has
no legal effect on an employer's treatment of a worker as an employee for income tax purposes.
Further, it does not affect the worker's own tax treatment for any purpose. Consequently, section
530 can result in the receipt by the Social Security system of less than the appropriate amount of
employment taxes for some workers. This is because these workers are simultaneously treated as
employees for their own tax purposes, and thus are subject only to the employee share of Social
Security and Medicare taxes, and are treated as independent contractors by their employers, which
pay no employment taxes with respect to these workers. As a result, an amount equal to the
employer portion of Social Security and Medicare taxes is not paid. Section 530 also has no impact
on determinations of employment status for other purposes, such as eligibility for pension and health
benefits and workers' compensation and unemployment insurance.
Section 530 was enacted as a one-year "stopgap" measure until Congress could devise a less
contentious standard for classifying workers. It was extended several times and finally extended
indefinitely in 1982.
Section 3509. In the Tax Equity and Fiscal Responsibility Act of 1982, Congress added
7
section 3509 to the Code in order to mitigate employers' liabilities for retroactive employment tax
assessments where section 530 reliefwas not available. Section 3509 generally limits an employer's
liability for failure to withhold income, Social Security, and Medicare taxes on payments made to an
employee whom it has misclassified as an independent contractor.
Under section 3509, an employer is liable for 1.5 percent of the wages paid to the employee,
in lieu of the income taxes that were not withheld, plus 20 percent of the employee's portion of the
Social Security and Medicare taxes on those wages. If the employer has not complied with the
information reporting requirements associated with the treatment of the worker as an independent
contractor, however, these percentages are doubled to 3.0 and 40 percent, respectively. In addition,
the employer's liability under section 3509 cannot be reduced by any self-employment or income taxes
paid by the misclassified worker. Section 3509 also does not relieve the employer of its liability for
100 percent of the employer portion of Social Security and Medicare taxes. The relief provided by
section 3509 is not available if the employer has intentionally disregarded the withholding
requirements with respect to the employee.
The rules of section 3509 were developed in an attempt to place an employer and the Federal
Government in approximately the same financial position, on average, in which they would have been
if the amount of taxes actually paid by the misclassified employees had been determined and used to
abate the employer's liabilities, without the need actually to determine those amounts. Thus, section
3509 has no effect on an employer's own liability for Federal or State unemployment insurance taxes
or the employer portion of Social Security or Medicare taxes. Also, in return for limiting the
employer's liability for failure to withhold employee taxes, section 3509 prohibits the employer from
reducing its own liability by recovering any tax determined under the section from the employee, and,
as discussed above, gives it no credit for any taxes ultimately paid by the employee. 7
Section 1706. In the mid-1980s, some employers in the technical services industry
complained that the relief granted under section 530 created an unfair advantage for certain of their
competitors. They noted that section 530 affects different taxpayers differently, depending on
whether they satisfy the statutory conditions for relief In particular, employers that have consistently
misclassified their employees as independent contractors are entitled to relief under section 530, while
other employers in the same industry (that, for example, have sometimes taken more conservative
positions on classification issues) are not entitled to relief because they cannot satisfy the consistency
requirements of section 530. The crux of the employers' complaints was that certain taxpayers in the
industry achieved unfair cost savings by having consistently treated and continuing to treat the service
providers as independent contractors.
7Under section 3509, as under prior law, the full amount of the misclassified worker's
gross compensation is subject to tax, even though, if the worker had always been treated as an
employee, the employer would presumably have negotiated to reduce wages to reflect the
employer's liability for its portion of Social Security and Medicare taxes, unemployment
insurance, and any fringe benefits provided by the employer at its option.
8
As a result of these complaints, in section 1706 of the Tax Reform Act of 1986, Congress
excluded from the ambit of section 530 taxpayers that broker the services of engineers, designers,
drafters, computer programmers, systems analysts and "other similarly skilled workers engaged in a
similar line of work," effective for payments made after December 31, 1986. Section 1706 applies
exclusively to multi-party situations, ~, those involving (i) technical services workers, (ii) a business
that uses the workers, and (lii) a firm that supplies the workers to the business. The effect of section
1706 is to deny section 530 relief solely to the firm that supplies the workers. Section 1706 did not
affect the application of section 3509 to such cases.
Small Business Job Protection Act of 1996 - Changes to Section 530. As part of the Small
Business Job Protection Act of 1996 (the Small Business Act), Congress clarified and modified the
application of section 530, enacting provisions that codified certain IRS positions and practices and
changed others. Section 1122 of the Small Business Act provided that: (1) the IRS must provide
notice of the availability of section 530 relief at the beginning of a worker classification audit (the IRS
issued Publication 1976 for use in satisfying this requirement in October 1996, IR-96-44); (2)
beginning for audits commenced after December 31, 1996, the prior audit safe harbor applies only
if the audit included an examination for employment tax purposes regarding worker classification; (3)
a "significant segment" of the taxpayer's industry does not require the practice by more than 25
percent of the industry; (4) an industry practice need not have continued for more than 10 years in
order for the practice to be considered long-standing; (5) a practice will not fail to be treated as longstanding merely because the practice began after 1978; (6) a worker does not have to be otherwise
classified as an employee in order for section 530 to apply; (7) the fact that a taxpayer changes the
treatment of workers from independent contractors to employees for employment tax purposes does
not affect the applicability of section 530 for prior periods (adopting an IRS position stated in Rev.
Proc. 85-18); and (8) the determination as to whether an individual holds a position substantially
similar to a position held by another individual includes consideration of the relationship between the
taxpayer and such individuals.
In addition, the Small Business Act modified the burden of proof in section 530 cases by
providing that if a taJtpayer establishes a prima facie case that it was reasonable not to treat a worker
as an employee, the burden of proof shifts to the IRS with respect to such treatment. In order for the
shift in burden of proof to occur, the taxpayer must fully cooperate with reasonable requests by the
IRS for information relevant to the taxpayer's treatment of the worker. The shift in burden of proof
does not apply for purposes of determining whether the taxpayer had any other reasonable basis for
treating the worker as an independent contractor.
Recent Administrative Initiatives
Last year, the IRS announced several administrative initiatives to improve the current situation
in the worker classification area. . These initiatives respond to concerns expressed by taxpayers,
particularly small businesses.
Trainin& and Trainin~ Material for IRS Examiners. The IRS developed new training materials
9
for IRS examiners. The training materials are intended to ensure that examiners make legally correct
determinations about whether workers are properly classified as employees or independent
contractors under the common-law standard. The materials emphasize to examiners that they must
approach the issue of worker classification in a fair and impartial manner, and remind examiners that
either worker classification -- independent contractor or employee -- can be a valid and appropriate
business choice. These new training materials also demonstrate how the application of the commonlaw standard has evolved to reflect the changing nature of business relationships. Recognizing the
importance of the worker classification issue, and the need to make the training material as clear and
as useful as possible, the Service took the unusual step of requesting public comments on the draft
of the training documents. Between the original proposed draft and the final version, over 60 sets
of comments were received. These comments resulted in significant revisions. The usefulness of the
training materials, not only to. examiners but also to the public, is illustrated by the fact that the Web
site containing these materials has received thousands of "hits" since the materials were finalized in
October of 1996.
The IRS training document also addresses in detail the application of section 530 of the
Revenue Act of 1978. It makes clear to examiners that section 530 should be actively considered
during an examination and that section 530 should be addressed before exploring worker status. In
fact, the materials state that examiners are required to explore the applicability of section 530 even
if not raised by the taxpayer, in order to correctly determine the taxpayer's tax liability.
During 1996, the IRS undertook intensive retraining of its examiners in the area of worker
classification, holding 34 separate classes and investing more than 22,000 person hours in the
endeavor. Over 750 specialists in employment tax and related areas received training in these twOday courses. A follow-up video conference also was conducted. In addition, in November, the IRS
conducted a three-hour video program for general revenue agents on the worker classification issue.
The amount of time devoted to training and the detail in materials provided to employment tax
specialists reflects an IRS commitment to ensure that these specialists correctly and fairly classify
workers and are informed of the availability of Section 530 and the special rules applicable to classes
of statutory employees, statutory non-employees and other special classes of workers, as well as the
appropriate application - in a wide variety of industries and business practices -- of the common-law
standard for determining whether a worker is an employee.
This does not mean that businesses need to analyze and undergo this type of training to
determine whether their workers are employees or independent contractors. Rather it shows a
commitment to provide examiners with the background, training, and experience needed to
understand the law, with all of its exceptions and special procedures, and to understand the variety
of business practices to which the law is applied. A business owner needs to focus only on
application of the law to its business, not on understanding the entire spectrum of business
relationships and statutory categories presented to the employment tax specialist. Moreover, the IRS
and Treasury have provided summary materials for use by small business. For example, a one-page
description of Section 530 is provided to businesses, who can use this to gain a practical
understanding of section 530 requirements, instead of reading the detailed background, legal support,
10
and exercises provided to educate employment tax specialists in this area. The training materials
(including the opportunity provided for taxpayers and all other interested parties to comment on a
draft of the materials) and the IRS training program based on the new materials are intended to
promote both consistency and additional clarity concerning IRS application of the common-law
classification standard.
Classification Settlement Program. Another significant initiative taken by the IRS is a
classification sett1ement program that allows businesses to resolve worker classification cases earlier
in the examination process, reduce taxpayer costs, and ensure the proper application of the provisions
of section 530. The classification settlement program is based on the following key principles:
Reclassification of workers who have correctly been treated as independent contractors must be
avoided. Worker classification issues should be resolved quickly, and as early in the administrative
process as possible. Worker classification issues should be resolved uniformly throughout the
country. Resolution of worker classification issues should take into account a taxpayer's past
compliance with section 530, as well as the common-law standard. The IRS's compliance programs
should encourage correct classification and correct reporting of payments to workers.
Under the classification settlement program, businesses that have misclassified their workers
as independent contractors, have filed Form 1099 information returns, but have failed to meet the
other requirements for relief under section 530, can settle the matter with IRS examiners by
reclassifying their workers prospectively and paying only limited tax assessments. 8 This eliminates
the risk that tax assessments could be applied for mUltiple years.
Participation by businesses in the settlement program is entirely voluntary, and businesses
declining to participate retain all rights that exist under the IRS's current procedures. The program
is intended to approximate the aggregate results that would be obtained under current law if
businesses accepting the offers had instead exercised their right to administrative or judicial appeal.
This program appears to have successfully reduced the burdens involved in resolving worker
classification settlements, as the rate of acceptance of settlement offers during the quarter ending
March 31, 1997 was 81. 86 percent. The program is in the second year of a test period that runs
through March 6, 1998._ At the end of the test period, the program will be evaluated to determine
whether it should be continued on a more permanent basis.
BUnder the program, if the business meets the section 530 reporting consistency
requirement but the business either clearly does not meet the section 530 substantive consistency
requirement or clearly cannot meet the section 530 reasonable basis test, the assessment is limited
to one year of employment tax liability (as limited by Code section 3509). If the reporting
consistency requirement is met and the business has a colorable argument that it meets the
substantive consistency requirement and the reasonable basis test, the assessment is limited to 25
percent of one year's income tax withholding, Social Security and Medicare tax liability for the
year (as limited by Code section 3509), plus the Federal unemployment insurance tax liability for
the year.
11
Early Referral to AJ2J2eals. In addition, in March 1996, the IRS announced procedures for
allowing businesses, at their option, to resolve employment tax issues more quickly by appealing these
issues to the IRS Appeals function even while the development of other issues raised during an
examination is still in progress. In May this appeals procedure was extended for a second year (Ann.
97-52, 1997-21 IRB 22).
These are significant administrative initiatives; they respond to concerns about worker
classification expressed by small businesses and other taxpayers and they materially improve the
climate for decisions on worker classification. These initiatives should be allowed to go forward
without disruption. The Administration has also proposed legislative changes, described below, to
lessen the stakes involved in misclassification by eliminating past employment tax liability in certain
cases where taxpayers have a reasonable argument that they meet the requirements of Section 530
and by providing easier access to an independent detennination by the Tax Court. These proposals
also will materially improve the current situation for taxpayers and the IRS.
Administration's Legislative Proposals Relating to Section 530 and Tax Court Jurisdiction
Perhaps the greatest problem for business in the worker classification area is not the possibility
that an employer treating its employees as independent contractors will be required to reclassify them
as employees for the future, but the risk of substantial employment tax liability and penalties for
previous years, even if the employer had a reasonable argument for its classification decision or the
belief that it was entitled to section 530 protection.
T o address this problem, last year we proposed that Congress pennit businesses that
misclassify workers as independent contractors and fail to meet the requirements of section 530 to
reclassify their workers prospectively with no employment tax liability for prior years, provided that
they satisfy certain conditions. 9 To qualify for this relief, the business would have to meet the section
530 reporting consistency condition and have a reasonable argument that it meets the section 530
substantive consistency and reasonable basis requirements. This proposal is intended to provide relief
to taxpayers who fill just short of meeting those section 530 requirements. Of course, as under
current law, ifworkers are correctly classified as independent contractors, or if the taxpayer meets
section 530, then the business would not be required to reclassify the workers as employees. This
proposal was included in the Administration's Tax Simplification Proposals, presented by Secretary
Rubin on April 14 of this year.
Further, under the proposal, a taxpayer that believes the IRS has erred in its case would be
given an expanded opportunity to obtain an independent review of the IRS decision. United States
Tax Court jurisdiction would be enlarged to cover worker classification detenninations for
employment tax purposes. Of course, the Tax Court would have the authority described above to
determine whether misclassified workers should be reclassified on a prospective basis only.
9This suggested legislative change builds on and codifies the relief provided under the
IRS's Classification Settlement Program, described above.
12
Access to the Tax Court would pennit disputes to be resolved more quickly and at lower cost
than in Federal District Court. Simplified procedures that might be adapted for small business cases
would be available in some circumstances. Tax Court judges have considerable experience in
resolving tax cases involving similar issues, and many small cases are currently resolved without
requiring the business to retain counsel. We believe that the expanded Tax Court jurisdiction would
provide a business with increased access to an independent judicial resolution if the business believed
its determination, rather than the IRS position, was correct.
These legislative proposals - to eliminate past employment tax liability in certain cases where
taxpayers fall just short of meeting section 530, and to increase a small business's access to an
independent, third-party detennination - should further help taxpayers and the IRS to resolve worker
classification problems in a fair and cost-effective manner. We believe that, in combination with the
administrative steps described earlier, they would provide significant relief to small businesses from
the most serious problems relating to worker classification.
In addition, we believe that it may be possible to improve understanding of the common-law
classification standard through revenue rulings or other guidance. The recently revised IRS training
materials take an important step in this direction by emphasizing that the true common-law test for
purposes of the Internal Revenue Code is the right to "direct and control" and that the "20 factors"
that are often referred to in connection with this test are relevant only insofar as they provide
evidence bearing on whether the test is satisfied.
At present, section 530 precludes the issuance of revenue rulings or guidance. We think that
it would be helpful to taxpayers, and ensure uniform national treatment, if relief is provided from this
prohibition. This would permit issuance of guidance that could help taxpayers focus on a few factors
that are most relevant to their particular situations. We would be pleased to explore with Congress
the possibility of amending section 530 at least to the extent necessary to permit publication of such
guidance. Providing such guidance could reduce uncertainty, and move toward greater simplification,
without shifting the historic balance between classification of workers as employees or independent
contractors in a way that threatens worker protections that are based on classification.
The guidance could build on one or more key factors, but it needs to allow flexibility for
interpretation consistent with the differing and evolving factual settings in which the standard would
be applied. For example, administrative guidance could build on the concept that a key factor in
determining whether it is appropriate to classify a worker as an independent contractor is whether the
worker has a real possibility of profit and bears a genuine risk of economic loss.
We would intend that such guidance would first be issued in proposed form in order to
provide an opportunity for public and Congressional comment and review as to the standards
developed. While such guidance could not prescribe a purely mechanical test that would apply in all
circumstances, it could simplify the process and reduce uncertainty, without resulting in the
widespread and possibly unsettling shifting of current worker classifications that would follow
inevitably from some of the legislative proposals that have been introduced in the past.
13
S.460
You have asked for our views on the independent contractor provisions ofS. 460. We are
opposed to these provisions in S. 460 for the reasons stated below. In general, we are concerned that
the safe harbor proposed under S. 460 could result in widespread and disruptive shifting of employees
to independent contractor status, causing loss of important worker protections, including employerprovided pension and health coverage. We also have grave doubts about other aspects of the
proposal, especially whether a purely mechanical standard can ever be devised to deal appropriately
with the wide variety of worker relationships and occupations that characterize the complex and
dynamic American workplace.
In addition, we believe that now is not the time to overlay yet another piecemeal change to
the substantive legislation governing worker classification. Just last year, several changes were made
to section 530. Also, new training of employment tax examiners, new training materials, and a
process permitting early referral to appeals appear to be successfully reducing burdens in this area.
Our procedural legislative proposals relating to section 530 and Tax Court jurisdiction would
appropriately lower the stakes concerning worker classification determinations, without risking
disruptive shifting of employees to independent contractor status. Moreover, permitting us to issue
administrative guidance could also help simplify the process and reduce uncertainty.
.
Eyaluatin~
leiislatiye proposals. Worker classification is a difficult
and long-standing issue
.
that has far-reaching implications. Fundamental legal and business issues, including issues beyond
the collection of income and employment taxes, may be affected by legislative changes altering the
standard for determining whether a worker is an employee or an independent contractor.
Under current law, worker classification in the Internal Revenue Code directly affects income,
Social Security and Medicare taxes. However, it also affects other issues such as the availability of
employer-provided pensions and group health insurance. For example, under current law; taxqualified retirement plans sponsored by a business are permitted to cover only the business's
employees. Legislation that resulted in the conversion of employees into independent contractors for
Federal tax purposes would reduce the number of people eligible to save for retirement in taxqualified employer-provided pension, 401(k), and other retirement plans. These reclassified workers
would be free to establish their own tax-favored retirement plans. However, employer-sponsored
plans have proven to be a particularly effective means of promoting retirement savings for workers,
especially for middle- and lower-income workers who might be less likely to save outside the
workplace, in part because of automatic employer contributions, employee savings through payroll
deduction, employer matching contributions, employer education programs, and economies of scale.
Maintaining and further increasing worker savings are important policy goals for both the
Administration and the Congress. In addition, converting employees into independent contractors
could result in fewer people receiving the benefits of lower-cost group health coverage through their
employers.
In evaluating any proposed legislation, it is also important to consider whether a new statutory
14
standard under Federal tax law would lead, legally or practically, to loss of employee retirement or
health benefits or coverage under other Federal and State laws, such as the laws that provide
unemployment insurance, workers' compensation, minimum wage and maximum hour protections,
workplace health and safety standards, and family and medical leave protections to workers who are
classified as employees. This might occur, for example, if businesses that reclassified workers as
independent contractors under a new Federal employment tax standard also incorrectly treated those
workers as independent contractors for purposes of other laws that are based on employee status.
Broader reclassification under these other statutory provisions could also result from subsequent
efforts, in the interest of simplification, to eliminate inconsistencies between the classification
standards under those State and Federal non-tax laws and a new Federal employment tax
classification standard by conforming them to the new standard. Also, the determination under the
tax laws can be decisive in practice, because of the inability of states. to audit once a determination
is made for tax purposes. These potentially sweeping implications should be explored carefully and
thoroughly before enactment of any new statutory classification standard for Federal tax purposes.
As a general matter, experience suggests that it is difficult to legislate one simple, purely
mechanical definition or safe harbor that applies appropriately to the many varied existing worker
relationships and occupations. All verbal formulations are subject to problems of manipulability or
may be unclear when applied to these differing relationships and occupations. More.over, specific
statutory rules, by contrast to regulations and rulings, are not easily adapted to the changes that are
constantly taking place in an area as complex and dynamic as the American work place. There will
always be people who operate with new forms of employment not envisioned before. Further,
different businesses will choose to structure their relationships with workers in different ways.
EyaJuatini S 460. We have very serious concerns about the safe harbor and burden of proof
provisions of this bill. First, we are concerned that the new safe harbor could, and would over time,
result in widespread and unsettling shifting of employees to independent contractor status, causing
tax and other legal disruptions and loss of important worker protections, including employer provided
pension and health coverage. This concern is heightened because the bill would apply to worker
classification for income tax as well as employment tax purposes.
Second, we are concerned that the addition of this new statutory safe harbor will increase
rather than decrease burdens and complexity for businesses and the IRS. Businesses that have
uncertainties regarding worker status would potentially need to perform as many as ~ analyses:
under the new safe harbor, under Section 530, and under the existing common law rules. Adding new
layers and standards can result in greater administrative burdens on small business administration and
on the system generally.
In addition, we are concerned that further expansion of the kinds of cases in which the burden
of proof is shifted to the IRS could undermine the voluntary compliance system and result in the loss
of worker benefits and protections based on inadequate evidence.
Any changes in the worker classification area must be made with care to ensure that they do
15
not result in wholesale reclassification of great numbers of workers and concomitant loss of important
worker benefits and protections.
We share the sponsors' goal of providing a mechanism for businesses that reasonably believed
their workers were independent contractors, and filed Form 1099s for these workers, to classify their
workers without imposition of employment tax liability for past years, but we have serious concerns
about elements of the prospective reclassification proposal contained in S. 460, particularly its
extension beyond employment taxes to income taxes.
Risk of shifting worker status. In an effort to achieve mechanical simplicity in this area, S.
460 would prescribe "safe harbor" criteria for classification as an independent contractor that could
result in large-scale shifting of workers from employee to independent contractor status.
The proposed safe harbor includes several requirements that must be met for a service
provider to be treated as an independent contractor. These elements of the safe harbor generally are
subject to risk of manipulation or can easily be satisfied by many workers who would historically be
treated as employees under the common law test and under common sense views of appropriate
worker classification. The requirement that an employee have unreimbursed expenses of at least 2
percent of AGI suffers from several inherent problems. Many employees may have unreimbursed
expenses of at least this amount; the appropriate percentage may depend on the circumstances
involved; it is unclear why results should differ based on non-work related adjustments to income
(such as alimony, IRA contributions, or earnings of a spouse); it is unclear how expenses would be
allocated among contracts or work projects; it is unclear how the standard would apply when the 2
percent threshold is determined after the end of a calendar year; the standard is subject to
manipulation by service recipients who can easily require employees to pay expenses and adjust their
compensation to reflect the additional costs incurred; and it is unclear why this standard is necessary,
given that unreimbursed expenses would be taken into account under the profit or loss requirement
discussed below. The requirement that the service provider agree to perform services for a particular
amount of time, or complete a specific result or task, can easily be satisfied by providing a worker
with a contract for a specified period, such as month-to-month or pay-period-to pay-period.
The alternative requirements relating to principal place of business, provision of services, and
use of facilities are also easily satisfied or manipulated. The service provider can use his or her home
as a principal place of business, or can be charged fair market rent for use of the service recipient's
facilities, or can use equipment not supplied by the service recipient but have his or her compensation
increased to reflect these costs. The requirement that the worker not primarily provide the service
at a single service recipient's facilities will be readily satisfied by many repair, maintenance, and
delivery workers who may be employees, or by employees in other occupations that, by their nature,
involve the performance of services at more than one location. The requirement that the worker and
service recipient enter into a written agreement concerning worker classification also would fail to
prevent inappropriate recharacterization of employee status, particularly where workers have less
bargaining power than the business.
16
The legislation also includes a verbally simple requ~rement that the service provider have "the
ability to realize a profit or loss". We agree that the potentiality of suffering a genuine economic loss
would be, in cases where it occurs, a, perhaps the, key element in determining the proper
classification of a worker. In applying this standard, the ability to realize a loss must be a requisite
component of the test. For this potential loss standard to have meaning and not be a sham, the risk
of loss must be real. Moreover, the potential to realize a profit must also have genuine economic
substance; certainly, contingent compensation is not itself an indicator of independent contractor
status.
As indicated above, we believe that administrative guidance could address how this standard
would be applied (if section 530 were amended to permit the issuance of such guidance), and because
of the need to allow for flexibility in interpretation consistent with the different factual settings
involved, administrative guidance would be the appropriate forum in which to address this standard.
We would have serious concerns about use of such an imprecise standard as a statutory safe harbor.
We anticipate that to prescribe this standard by statute rather than to permit it to be addressed
through administrative guidance (where the subtleties and limitations could be addressed) might
encourage employers to treat it as a mechanical standard that could be satisfied in form rather than
in substance. Employers might then attempt to manipulate the requirement by recharacterizing
worker status without altering the underlying relationship between the worker and the employer.
It is not difficult for an employer to structure an artificial arrangement that would superficially
appear to meet a requirement that an individual be able to realize a profit or loss to be considered an
independent contractor, yet would lack economic substance. For example, an employer could require
the employee to purchase or rent certain tools and supplies used in generating the employer's product,
but could protect the employee from loss by directly compensating the employee through a
commensurate pay increase. This could permit an employee to appear to "realize a profit or loss"
without changing the nature of the employer-employee relationship or the tasks that the employee
would undertake. While we would view all these arrangements as insufficient to constitute the ability
to realize a profit or loss, we are concerned that absent clearer limitations or guidance, taxpayers
would take such positions in practice.
Two examples illustrate the basis for these concerns about the safe harbor in S. 460. Assume
that an employer has employees who are janitors and wishes to shift them from the status of
employees to independent contractors, even though the business hired and trained them and provided
detailed rules and directions on how offices should be cleaned. Assume further that the business
attempts to manipulate the profit and loss requirement by stating that it will only pay the worker if
the worker completes the work in accordance with industry standards of cleanliness, but the employer
has no intention of refusing to pay on this basis. The other requirements of S. 460 may easily be
satisfied even if the worker would appear to be an employee of the employer under the common law
standards, and a common sense view. For example, the employer could tell its janitors that in the
future they would be required to provide their own mops, cleaning fluids, sponges, gloves, garbage
bags, and vacuums (and arrange for them to rent the vacuums or larger machinery), when offering
to hire them under the new terms, increasing the rate of compensation to reflect these expenses. For
17
workers with low wages or sufficient adjustments to income (such as alimony), expenses such as
these should be sufficient to constitute at least 2 percent of AGI (only $240 for someone with
$12,000 AGI attributable to the employment). The janitors could be required to work on a month-tomonth basis in order to satisfy the requirement that the worker agree to perfonn services for a
particular amount of time. The janitors would be operating primarily with equipment not supplied
by the service recipient and might well work at a variety of sites. The employer could also require
all janitors to sign a service agreement indicating that the janitor would not be treated as an employee
with respect to janitorial services for Federal income tax purposes. Accordingly, under the safe
harbor these janitors could be treated as independent contractors.
Similar arrangements could be made with the secretaries of the employer. The secretaries
could be charged fair market rent for use of their office space, or rent their desk, computer and phone
(based on rental rates for such equipment), in order to meet the requirements that unreimbursed
expenses equal at least 2 percent of AGI, and that the worker pay a fair market rent for use of the
service recipient's facilities. Employers might attempt to meet the profit or loss requirement by
including in the personnel manual a statement that secretaries are compensated only if their work
meets industry standards, even if the employer has no intention of refusing to pay on this basis. The
employer could also insist that the secretaries execute a contract stating that the secretary would not
be treated as an employee for Federal income tax purposes with respect to provision of secretarial
services. The workers in both of these examples would be classified as employees under the common
law standard and under a common sense definition of employee, but would be treated as independent
contractors under the safe harbor.
S. 460 would also provide an alternative safe harbor for workers to be treated as independent
contractors if services are perfonned pursuant to a written contract that provides the worker will not
be treated as an employee for Federal tax purposes, the worker conducts services as a corporation
or limited liability company, and the worker does not receive from the service recipient or payor
benefits that are provided to employees of the service recipient. We have serious concerns that this
provision could also encourage widespread shifting of employees to independent contractor status.
Increasing complexity by adding safe harbor to two other tiers of determinations. S. 460
would impose a one-way safe harbor on top of the current rules. Any employer that did not meet the
safe harbor would still need to operate under the existing regime. Having a multiplicity of different
tests and standards creates burdens for small businesses. By overlaying a new safe harbor on the
existing laws, the bill would require that employers learn and apply three different regimes: the safe
harbor rules, Section 530, and the common law standards. Instead of overlaying yet another set of
legal standards on top of existing rules, we believe it would be preferable to explore ways to simplify
and focus the current legal standards through the issuance of administrative guidance. For these
reasons, we question the value of legislating the proposed safe harbor.
Partial shifting of burden of proof Under current law, in civil tax litigation, the burden of
proof generally lies with the taxpayer. In Tax Court, the Commissioner's notice of deficiency is
presumed to be correct, and the taxpayer must prove it is incorrect. In the refund context, the
18
challenged assessment is presumed to be correct, and the taxpayer must prove his or her entitlement
to, as well as the amount of, a refund. The Government generally bears the burden of proof in civil
tax cases only where it asserts fraud. The Small Business Act modified the burden of proof in section
530 cases by providing that if a taxpayer "establishes a prima facie case that it was reasonable" not
to treat a worker as an employee, the burden of proof with respect to the determination under Section
530 shifts to the IRS, if the taxpayer "fully cooperates." with "reasonable requests" for information.
S. 460 expands application of the shifted burden of proof to cases involving income taxes as
well as employment taxes, and with respect to the service provider as well as the service recipient.
This change would dramatically increase the scope and number of cases in which burden shifting
could occur. This expansion could seriously undermine tax enforcement and compliance and could
result in the loss of benefits to workers.
Proposals to shift the burden of proof in tax cases have uniformly been condemned by
knowledgeable tax practitioners as a drastic change that could cripple the voluntary compliance
system. Any shift of the burden of proof, even a partial one, could make it more difficult for the IRS
to examine taxpayers adequately and collect the correct amount of tax. It must be remembered that
the taxpayer always has control of the facts and can maintain the documentation necessary to
substantiate tax consequences. Indeed, this is the rationale for placing the burden of proof on
taxpayers in the first place.
S. 460 gives the taxpayer the benefit of the shifted burden if the taxpayer has "fully
cooperated" with "reasonable requests" by the IRS. Whether a taxpayer has "fully cooperated," and
whether an IRS request is "reasonable," are factual questions that are likely to spawn their own
controversies and give rise to anomalous results. For instance, if the taxpayer has failed to maintain
supporting data, or if the data are not technically under the taxpayer's "control" (even if the taxpayer
has the same or better access to it than the IRS), the taxpayer might nevertheless argue that it has
fully cooperated and that the burden of proof shifts to the IRS.
Similarly, tIt! "prima facie case" threshold would result in bifurcating the evidentiary issues
into an initial, "prima facie" case portion and an ultimate finding as to the merits of the dispute. Thus
the proposal could lead to more, not less, litigation, with the attendant costs and delays for taxpayers.
Prospective reclassification without imposition of employment tax liability for prior years.
As discussed in the description of the Administration's legislative proposals relating to section 530,
we propose to permit employers to reclassify workers prospectively with no employment tax liability
for prior years, provided that the business met the section 530 reporting consistency condition, and
had a reasonable argument that it meets the other section 530 requirements. This proposal is intended
to provide relief to taxpayers who falljust short of meeting the section 530 substantive consistency
and reasonable basis requirements. S. 460 also provides for prospective reclassification without
imposition of tax liability for prior years, if the service recipient or payor entered into a Written
contract with the service provider that the service provider would not be treated as an employee for
Federal income tax purposes, and if the service provider demonstrates a reasonable basis for
19
determining that the service provider is not an employee and that this determination was made in
good faith.
We have several concerns with the proposal in S. 460 as drafted. First, the proposal applies
not only to past liability for employment taxes, but with respect to all determinations of worker status
for income tax purposes. We are concerned that employers thereby could be excused from providing
pension and health benefits to employees who would otherwise be covered. Second, our proposal,
consistent with Section 530, requires employers to treat all similarly situated workers the same way.
S. 460 would grant employers the special relief even if they pick and choose among workers, treating
similarly situated workers differently.
Conclusion
Worker classification is a difficult and complex issue that has far-reaching implications.
Legislative changes that would result in the reclassification of workers from employee to independent
contractor status could affect a variety of protections for these workers. Because of these concerns,
we oppose the independent contractor provisions ofS. 460. It is important to explore these potential
consequences thoroughly before enacting any new statutory classification standard for Federal tax
purposes. At the same time, we believe that Congress in the short run should consider proposals to
eliminate retroactive employment tax liabilities in certain cases where an employer has a reasonable
argument that it meets the requirements of section 530, and to permit taxpayers to resolve disputes
with IRS in a simpler and more cost-effective manner.
EFTPS
You have also asked for our views on S. 570, a bill to exempt certain small businesses from
the mandatory electronic fund transfer system. As background to this discussion, we would like to
bring to your attention some recent developments in this area, of which you may already be aware.
On Monday, the IRS announced that it would not impose penalties through December 31,
1997, on businesses that become subject to the Electronic Federal Tax Payment System (EFTPS) on
July 1, 1997, but fail to use EFTPS. These businesses will still be required to make timely deposits,
using either paper coupons or EFTPS.
Under current law, businesses that had more than $50,000 offederal payroll tax deposits in
1995 are required to begin making deposits throughEFTPS on July 1, 1997.10 The six-month waiver
lo-rhe $50,000 threshold was originally scheduled to go into effect on January 1, 1997. In
1996, however, Congress became concerned that many of the businesses scheduled to begin
electronic payments on that date were either not aware of or confused about their obligations. To
address this concern, the Small Business Job Protection Act of 1996 provided that this class of
taxpayers is not required to begin using EFTPS until July 1, 1997. (The IRS had shared this
concern and had announced, before this delay was enacted, that it would not impose penalties on
20
of penalties announced by the IRS will provide additional time for these businesses to convert to the
new electronic payment system. The IRS will use this additional time to continue its outreach efforts
to small businesses. Businesses will be encouraged to get acquainted with EFTPS and to make
payments under the new system. They can use this period to learn more about making electronic
payments and to make the switch to the new system comfortably and confidently. Successful use of
the new system will show businesses that they are correctly enrolled and that their payments can be
processed without error. Businesses that encounter problems will be able to make deposits by paper
coupon, giving them time to get help and make adjustments without facing a penalty.
We want to stress, however, that the IRS and the small business community have already
made substantial progress in converting to the new electronic payment system. Over 1.1 million of
the approximately 1.2 million businesses that are required to begin using EFTPS on July 1 have
already enrolled in the system. Another 400,000 businesses that could have continued to use paper
coupons have enrolled in EFTPS voluntarily. Moreover, approximately 300,000 businesses have
voluntarily begun making electronic payments through the new system in advance of the July 1
effective date. Since EFTPS became operational, the Treasury Department has received over $100
billion of electronic payments through the new system.
Turning to the current statutory and regulatory provisions, businesses are required to withhold
income taxes and FICA taxes from wages paid to their employees. Businesses also are liable for their
portion of FICA taxes, excise taxes, and estimated payments of their corporate income tax liability.
Under section 6302 of the Code, the Treasury Department has generally required that these taxes be
deposited with banks and other financial agents of the United States. Prior to 1994, all of these
depository taxes could be remitted through deposits with a bank or other financial agent using a paper
coupon.
In 1993, section 6302(h) was added to require the Treasury Department to develop and
implement an electronic fund transfer system for the collection of these taxes. The Treasury
Department has developed EFTPS in response to this requirement.
Section 6302(h) requires the Treasury Department to collect specified percentages of the
depository taxes through electronic fund transfer. This requirement was phased in over a six-year
period, beginning with fiscal year 1994. For fiscal year 1997, 58.3 percent of payroll taxes and 60
percent of all other depository taxes are required to be collected through electronic fund transfer.
When fully phased in (in fiscal year 1999), 94 percent of all depository taxes are required to be
collected by electronic fund transfer. The regulations implementing this requirement provide that
taxpayers are required to use EFIPS if their annual payroll tax deposits exceed a specified threshold.
The regulatory requirement is also phased in. For calendar years 1995 and 1996, the thresholds were
$78 million and $47 million, respectively. For calendar years 1997 and 1998, the threshold is
$50,000.
these businesses before July 1, 1997.)
21
Under the regulations the threshold is currently scheduled to fall again, to $20,000, in 1999.
However, because participation in EFTPS has surpassed expectations, we will reach the target
imposed by section 6302(h) for 1999 and subsequent years without the need to further reduce the
threshold. Accordingly, I am pleased to announce that we intend to amend the regulations within the
next month to make the $50,000 threshold permanent. Thus, businesses below the $50,000 threshold
will not be required to use EFTPS in the future.
S.570
S. 570 would modify the phase-in rules of section 6302(h). Instead of requiring the collection
of specified percentages of depository taxes through electronic fund transfer, a business would be
required to use electronic fund transfer for a calendar year only if its depository taxes for the second
preceding calendar year exceeded a specified threshold. This is essentially the same approach as that
of the current regulations, but the thresholds are generally much higher. For calendar year 1997, the
threshold is $47 million.ll The threshold drops to $30 million in 1998, to $20 million in 1999, to $10
million in 2000, and to $5 million in 2001 and subsequent years.
The Treasury Department believes this change is unnecessary. As noted above, the IRS and
the small business community have already made substantial progress toward implementation of a
$50,000 threshold. As of June 2, all but 86,000 of the 1.2 million businesses above the $50,000
threshold have already enrolled in EFTPS. The waiver of penalties through December 31, 1997,
should provide sufficient time to complete the enrollment process. Moreover, we continue to agree
with the views expressed by Congress when it enacted section 6302(h). The report accompanying
the legislation listed the following advantages of an electronic fund transfer system:
Use of an electronic fund transfer system for the collection of tax will promote
accuracy and efficiency in processing, and consequently, is expected to result in
significant cost savings to the Government. Taxpayers will benefit from increased
accuracy, reduction in paperwork burden, and availability of a user-friendly tax
collection system. 12
We also note that 300,000 small businesses have effectively endorsed these views by
voluntarily making electronic payments through EFTPS. These businesses have realized the
advantages of the new system. EFTPS eliminates most of the paperwork in the old paper
llFor the period January 1 through June 30, 1997, this threshold may be lower for certain
taxpayers than the threshold currently in effect. As a result of the delay provided in the Small
Business Job Protection Act of 1996, the regulatory threshold for 1996 remains in effect through
June 30, 1997. Although this threshold is also $47 million, only payroll tax deposits count against
the threshold. Under S. 570, all depository taxes are taken into account in determining whether
the threshold is exceeded.
12S. REp. No. 189, 103d Cong., 1st Sess. 61 (1993).
22
coupon system. With EFTPS, deposits may be made quickly and conveniently by telephone
or personal computer. EFTPS does away with the need to write out a check, fill out a
coupon, and walk or driye to the bank to make the deposit.
While we expect substantial voluntary participation in EFTPS to continue even ifS.
570 is enacted, the increased thresholds of S. 570 will inevitably result in some revenue loss.
We question whether this loss is justified in view of the many other important tax policy
objectives that the Administration and Congress are attempting to accomplish in this year's
budget legislation.
•
•
•
•
•
•
•
•
*
*
*
The Treasury Department appreciates the opportunity to discuss these issues with the
Members of this Subcommittee and we would be pleased to explore these issues further.
Mr. Chairman, this concludes my formal statement. I will be pleased to answer any
questions that you or other Members may wish to ask.
- 30-
NATIONAL CHURCH ARSON TASK FORCE
POBox 65798
WashillglOIl. D. C. 20530
FOR IMMEDIATE RELEASE
June 5, 1997
CONTACT:
Myron Marlin, Justice Dept., (202) 616-2777
Beth Weaver, Treasury Dept., (202) 622-2960
MEDIA ADVISORY
The National Church Arson Task Force will hold a press briefing to release the results of the First
Year Report to the President tomorrow, June 6, at 12:00 p.m. in Room 3327 of the Treasury
building, 1500 Pennsylvania Avenue, N.W. Cameras may set up at 11:30 a.m.
Task Force Co-Chairs James E. Johnson, Assistant Secretary for Enforcement, Department of the
Treasury and Isabelle Katz Pinzler, Acting Assistant Attorney General, Civil Rights Division,
Department of Justice will discuss the Administration's response to the nation's church arson crisis.
Representatives from the Bureau of Alcohol, Tobacco and Firearms, the Federal Bureau of
Investigation and the Federal Emergency Management Administration will also be in attendance.
Media without Treasury, White House, State, Defense or Congressional credentials planning to
attend should contact the Treasury's Office of Public Affairs at (202) 622-2960, with the following
information: name, social security number and date of birth, by 10:00 a.m. tomorrow. This
information may be faxed to (202) 622-1999.
RR-1728
-30-
DEPARTMENT
TREASURY
OF
THE
TREASURY
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622.2960
EMBARGOED UNTIL 11:30 A.M. EDT
Text as Prepared for Delivery
June 5, 1997
Treasury Secretary Robert Rubin
US. China Business Council
Washington, D. C.
I appreciate the opportunity to speak to you today and I would like to thank the US.
China Business Council for inviting me and hosting this event. The U.S. China Business Council
is a strong and forceful voice for deeper ties with China to integrate it into the global economy.
You know better than anyone the critical importance of US. engagement with China to our
future prosperity -- and for progress on improved social conditions in China.
It goes without saying that the United States has a wide range of interests with respect to
China. I'll return to that later, but I would like to start today with our economic strategy. I would
like to speak with you about what is in the best interest of the United States when it comes to our
economic relationship with China and how best to pursue those interests.
Our economic relationship with China should be viewed in the context of an overall
strategy to strengthen economic ties in Asia. As a result of sweeping economic reforms, Asia
today is the fastest growing economic region on earth and home to some of the world's most
dynamic market economies. Developing countries in Asia now represent 24 percent of world
GDP. Their share of world trade rose from 9.6 percent in 1981 to 16.1 percent in 1994. This, in
turn, has resulted in an explosion of trade with the United States. We now export more to Asia
than to Europe. Helping Asia continue on the development path is clearly in the interest of the
United States -- and the key nation in this strat~y is China. And if we turn our back on our
relationship with China it will affect not only that relationship, but relationships throughout the
regIOn.
RR-1729
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
The United States has three primary strategic interests in our economic relationship with
China.
Our first strategic objective is to help promote China's integration into the global
economy. The history of the last half century, a time when nations around the globe have
become increasingly interdependent, clearly has proven that integration reduces conflict and
provides a better foundation for stability and prosperity. This requires integrating China into the
major economic institutions where we can work to address shared approaches to common
problems.
This also involves China opening to the free flow of trade and investment. China
obviously represents enormous economic potential for us, but also poses significant barriers to
trade and investment.
This Administration has worked hard to open markets in China. Our exports to China
have increased at an annual average rate of 16 percent from 1991 to 1996, compared with U. S.
export growth of 11 percent to the rest of Asia and 7 percent to the rest of the world. But China
still has average tariff rates of 23 percent and a range of non-tariff barriers -- there is a great deal
of work yet to do. Negotiations with China on the commercially meaningful market-opening
terms critical to its accession to the World Trade Organization provides a key opportunity to
move forward.
China's openness is increasingly important because it is directly related to what many
feel is an important argument for revoking normal trade relations with China: the trade deficit.
Obviously, in recent years, our trade deficit with China has risen at a rapid rate and has emerged
as a major issue in the debate over most favored nation status. What has been less reported, but
is important to note however, is that our overall trade deficit with Asia has remained roughly the
same in that period. The composition of the trade deficit has shifted to China largely because
companies from other Asian economies are shifting their operations to China.
Trade deficits with a low wage country like China are often seen by Americans as
evidence that the United States cannot compete with low wage nations. It is true that poor
countries -- like China -- are able to produce some low-wage, low-skill items at much lower cost
than U.S. firms, to the benefit of U.S. consumers. But in return they buy American goods such
as airplanes or construction equipment produced by high-wage, high-skill American jobs. As a
highly productive and competitive economy, the United States can -- and does -- trade with low
wage countries, including China, and the benefits of increasing trade with these countries vastly
outweigh the disadvantages.
Our second strategic objective is to support Hong Kong remaining a growing, vital
financial center and economic engine for China and the rest of Asia. As you know, many have
concerns about the continuation of civil liberties in Hong Kong after transition of sovereignty to
2
China. This Administration has made it clear that erosion of democracy and human rights in
Hong Kong after the transition would be of grave concern to us.
We know, too, that the Chinese recognize how important maintaining Hong Kong's open
economy is to their own economic prospects. There is no firewall between economic freedom
and freedom in its many other forms. The unrestricted interchange of information and ideas is
critical to economic growth and prosperity.
Our final objective is to help China succeed in its effort to move to a more market
oriented economy. A successful reform process requires putting in a place the full array of
institutions that represent the foundation of a modern economy. A critical part of this is a sound
legal framework which promotes the rule of law. As you know better than anyone, for business
to prosper, it must know what to expect when investing or attempting to sell goods in another
country, and then to get what it expects. Helping China establish these conditions is certainly in
our interest by improving the prospects for u.s. businesses, but it also brings tangible rewards
for the Chinese people too. Building a just legal system, with enforceable rights and transparent
procedures is critical to economic development -- but as we know so well in this country, it also
is a fundamental part of a more open society.
These are our fundamental economic objectives with China, but as I said a moment ago,
clearly the United States has other strategic interests with China from non-proliferation to
working on problems in the Korean peninsula to the environment to helping to fight infectious
diseases. And we have serious disagreements with China on human rights, religious freedom,
and prison labor. The question is what is the best way to advance our interests and address our
those problems.
Revoking normal trade relations, which some have proposed, would fundamentally
undermine our ability to advance our economic and national security interests. Severing trade
ties with China will not isolate China. It will isolate the United States .
. It will undermine our ability to participate in the economic activity in the region, the
most dynamic in the world, particularly with respect to the ongoing integration of the Asian
economies. More importantly, it will lead other nations in Asia to question our commitment to
the region. Around the world, it will undermine our leadership in the global economy and our
efforts to pursue greater trade liberalization.
Revoking normal trade relations with China would also harm Hong Kong in the name of
supporting it. As a coalition in Hong Kong of human rights leaders, the current government, and
Democracy Party chairman Martin Lee has made clear, it would be exactly the wrong step if our
objective is to preserve an autonomous and free Hong Kong. They argue, rightly, that it would
severely harm the Hong Kong economy, which is critical to maintaining autonomy.
Revoking normal trade relations is a blunt instrument. We need not choose between
3
denying MFN and having no influence. Instead, we can maintain normal trade relations and use
other economic and diplomatic tools when we disagree with the Chinese. When we raised the
issue of rampant piracy of U. S. goods, after tense negotiations, our Administration reached an
agreement with China over intellectual property rights, after the threat of targeted sanctions.
China closed 39 plants that were producing the pirated good and reached agreement on a new
regime to protect intellectual property. Most recently, we instituted sanctions against eight
Chinese firms which we suspect of trafficking in equipment that could be used to produce
chemical weapons. Negotiating, enforcing, and then insisting on the full implementation of
agreements is the best path to progress. This is no easy task as our experience with the prison
labor agreement illustrates. In 1994 we reached an agreement that Customs would be able to
visit factories to determine if products are made with prison labor. Our experience in this
agreement has been mixed. We must be vigilant in insisting on cooperation to fully implement
the agreement.
The debate over our trade relations with China has always been difficult, but this year
there is a confluence of forces at work -- those rightly concerned about human rights, the
transfer of Hong Kong, the trade deficit, and religious persecution -- that make the challenge on
Capital Hill tougher than ever. The voices urging that we revoke normal trade status with China
are louder this year and represent a broader range of the political spectrum. While these views
are legitimate and important, revoking normal trade relations is the wrong way to attempt to
solve those problems.
It is critically important that there be a vigorous involvement on the part of the business
in this debate. Businesses have both the means and the interest to build a shared understanding
. with your employees, among the public at large and, of course, with Congress of the importance
of U.S. engagement and leadership in the global economy. And that leadership depends on issues
such as maintaining normal trade relations with China. I urge you to let your voice be heard.
But involvement in the debate is not enough. I was speaking the other day to one of our
most experienced diplomats, who pointed out to me that 25 years ago our most important
international contacts were government to government. Today, they are business to business.
That has brought tremendous opportunities to businesses around the globe. But it also brings
with it considerable responsibilities -- responsibilities that are in the businesses' own interests to
fulfill.
Businesses today must playa role in advancing non-economic objectives. Business can
and must work with advocates of human rights and labor in China to help promote better human
rights conditions, higher labor standards, and the rule of law. Sponsoring exchange programs
with Chinese citizens so they can learn about our democratic standards here is one step.
Maintaining high standards in your operations and leading by example in China are also critical
steps to take.
John Kamm, who I believe is here today, has been honored at this meeting for his work
4
in this area. His company, Asia Pacific Resources, a consulting firm assisting companies trading
and investing in China, has worked hard to promote human rights and rule of law in China by
working to obtain the release of individuals arrested for exercising their right of free expression,
and for advocating strongly the benefits of human rights to the business community and the
Chinese public. John's conviction that a good environment for human rights is good for
business is an example to us all.
Let me conclude by reiterating what I said earlier. There is a confluence of voices this
year in opposition to maintaining normal trade relations with China. But if we all work together,
I believe we can develop the necessary support to maintain normal trade relations with China.
This is a prerequisite for ensuring stability in Hong Kong, making progress on helping to
establish a more open economy in China, integrating China into the global economy and dealing
with human rights issues in China. I thank you for your time, and I look forward working with
all of you in the weeks ahead on this critical issue.
-30-
5
PUBLIC DEBT NEWS
Department of the Treasury -
Bureau of the Public Debt - Washington, DC 20239
FOR RELEASE AT 3 :00 PM
June 5, 1997
Contact: Peter Hollenbach
(202) 219-3302
PUBLIC DEBT ANNOUNCES ACTIVITY FOR
SECURITIES IN THE STRIPS PROGRAM FOR MAY 1997
Treasury's Bureau of the Public Debt announced activity figures for the month of May 1997, of
securities within the Separate Trading of Registered Interest and Principal of Securities program
(STRIPS).
Dollar Amounts in Thousands
Principal Outstanding
(Eligible Securities)
$971,648,594
Held in Unstripped Form
$744,150,161
Held in Stripped Form
$227,498,433
$8,802,251
Reconstituted in May
The accompanying table gives a breakdownofSTRlPS 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 Monthly Statement a/the Public Debt, entitled "Holdings of Treasury Securities in
Stripped Form."
The STRlPS data along with the new Monthly Statement a/the Public Debt, is available on Public
Debt's Internet homepage at: www.publicdebt.treas.gov.Awide range of information about the
public debt and Treasury securities is also available on the homepage.
000
PA-268
RR-1730
TABLE"· HCLDINGS OF TREASURY SECURITIES IN STRIPPED FORM, MAY J1, 1997
Loan DesCIlptlon
I
I
Corcus
S-:-?,?
PnnClpal Amoun1 Outstanding In ThousandS
Total
Outstanding
C'JSij:l
I
Treasury NOles
CUSIP
Senes Interest Rate I
AK3
8·5/8
B
912827 VE9
AU
8· 7/8
VN9
C
A~9
8·1/8
A
\f\N9
AN7
9
WEB
B
AP2
9·1/4
WN8
C
AOO
8-7/8
WN8
0
AR8
8-7/8
XE7
A
AS6
9-1/8
XN7
B
AT4
8
XWl
C
AU1
7-7/8
0
YE6
AV9
8-1/2
A
YN6
A'Nl
8-718
YW6
B
8-3/4
AX5
lE5
C
AY3
8-112
lN5
0
7-3/4
AlO
A
ZX3
BA4
8
A85
B
7-7/8
BB2
B92
C
BCO
7-1/2
0
025
B08
7-112
F49
A
BE6
6-3/8
B
G55
6-1/4
BF3
J78
A
5-3/4
BGl
L83
B
5-7/8
BH9
N81
A
7-114
BJ5
P89
B
7-1/4
BK2
088
C
7-7/8
BLO
R87
0
7-112
BM8
A
586
6-1/2
BN6
T85
B
6-112
BPl
U83
C
5-7/8
V82
D
B09
5-5/8
W81
A
BR7
6-7/8
X80
B
BS5
7
Y55
C
BT3
6-112
l62
0
BUO
6-1/4
2JO
B
BW6
6-5/8
BX4
2U5
C
Treasury Bonds'
CUSIP
Interest Rate'
912810 DM7
11-5/8
912803 AB9
008
12
ADS
oR6
10-3/4
AG8
9-3/8
OU9
AJ2
oN5
11-3/4
912800 AA7
oPO
11-1/4
912803 AA 1
OS4
10-5/8
AC7
oT2
9-7/8
AE3
DV7
9-1/4
AFO
OW5
7-1/4
AH6
OX3
7-112
AK9
oYl
8-3/4
AL7
ol8
8-7/8
AM5
EA2
9-1/8
AN3
EBO
9
AP8
EC8
8-7/8
A06
E06
8-1/8
AR4
EE4
8-112
AS2
EFl
8-3/4
ATO
EG9
8-3/4
AU7
EH7
7-7/8
AV51
EJ3
8-1/8
AW3
EKO
8-1/8
AXl
EL8
8
AY9
EM6
7-1/4
Al6
EN4
7-5/8
BAO
EP9
7-1/8
BB8
6-1/4
E07
BC6,
ES3
7-1/2
B041
ETl
7-5/8
BE21
I
EV6
6-7/8
BF91
EW4
6
BG7
EX2
6-3/4
BH51
EYO
6-1/2
BJl
EZ7
6-5/8
BK8
Treasury Infiatlon-Indexed Notes
CUSIP
Senes Interest Rate
1
9128272M3
A
3-3/8
9128:0 BV8:
Total
I
Matunty Date
11115/97
02115/98
05115/9B
08115/98
11115/98
02115/99
05/15/99
08/15/99
11115/99
02115/00
05/15/00
08115/00
11115/00
02115/01
05/15/01
08115/01
11115/01
05/15/02
08/15/02
02115/03
08115/03
02115/04
05/15/04
08115/04
11115/04
02115/05
05115/05
08/15/05
11115/05
02115/06
05/15/06
07/15/06
10/15/06
02115/07
05115/07
9,362,836
9,808,329
9,159068
9,165,387
11,342,646
9,902,875
9,719,623
10,047,103
10,163,644
10,773,960
10,673,033
10496,230
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
13,346467
14,373,760
13,834,754
14,739,504
15,002,580
15,209,920
15,513,587
16,015475
22,740,446
22,459,675
13,103,678
13,958,186
11115/04
05/15/05
08115/05
02115/06
11/15/14
02115/15
08/15/15
11/15/15
02115/16
05115/16
11/15/16
05115/17
08115/17
05/15/18
11/15/18
02115/19
08115/19
02115/20
05115/20
08115/20
02115/21
05115/21
08115/21
11/15/21
08115/22
11115/22
02115/23
08/15/23
11/15/24
02115/25
08/15/25
02115/26
08/15/26
11115/26
02115/27
8,301,806
4,260,758
9,269,713
4,755,916
6,005,584
12,667,799
7,149,916
6,899,859
7,266,854
18,823,551
18,864,448
18,194,169
14,016,858
8,708,639
9,032,870
19,250,798
20,213,832
10,228,868
10,158,883
21,418,606
11,113,373
11,958,888
12,163482
32,798,394
10,352,790
10,699,626
18,374,361
22,909,044
11,469,662
11,725,170
12,602,007
12,904,916
10,893,818
11,493,177
10,456,071
08115/97
01/15/07
!
15,912,242
971 648,594
Ponlon Held In
Unstnpped F omn
I
I
I
I
Reconstituted
This Month
63094681
6474,187
8053046
6,320475
7,914,823
6,682,303
7,150,519
7,124,360
8,205433
5,613030
7,440,806
7,354,082
7,949602
8,659,008
8,385,585
21,061,542
9,824,877
22455,815
23,175,651
27,566,228
12,761,477
14433,972
13,295267
14,373,760
13,802594
14,739504
15,002,580
15,208,320
15,509427
16,015,475
22,740,446
22,459,675
13,103,678
13,958,186
3084,800
4,267,200
2,849600
2,691200
3,289,600
3,582400
1,804,800
3,364,800
3,013,125
3,649,600
2467,600
4,883,200
3,639,840
4,165,600
3,363,200
3,739,075
3,953,600
3,164,560
1,889,520
1,403,200
387,040
444,800
193,600
6,400
51,200
0
32,160
0
0
1,600
4,160
0
0
0
0
0
0
68600
21,600
56,000
97,600
80,000
31,150
4,800
69,200
14400
135,360
29,600
27,200
87,600
51,200
203,920
67,600
81,600
83,584
62400
0
0
0
0
0
0
0
0
0
0
0
0
0
0
4,036206
2,101,008
7,090513
4,740,940
2,139,184
8,834,199
5,859,996
4,826,259
6,348,454
18,635,551
18,071,728
9,067,609
7,866458
3,617439
2,919,670
5,380,398
18,719,752
6,038,868
3,866,723
6,206,606
10,022,173
5455,208
5,365,402
5,979,319
8,257,590
3,027,626
14,158,361
20,264,372
3,154,062
5,619,570
12,274,327
12,764,916
10,650,618
11,476,377
10456,071
4,265,600
2,159,750
2,179,200
14,976
3,866,400
3,833,600
1,289,920
2,073,600
918,400
188,000
792,720
9,126,560
6,150400
5,091,200
6,113,200
13,870400
1494,080
4,190,000
6,292,160
15,212,000
1,091,200
6,503,680
6,798,080
26,819,075
2,095,200
7,672,000
4,216,000
2,644,672
8,315,600
6,105,600
327,680
140,000
243,200
16,800
0
387,200
295,650
102400
1,600
250,400
72,000
462,720
203,200
148,800
272,000
143,760
78,880
216,000
158,400
125,000
488,000
538,240
349,600
299,520
485,280
68,800
499,520
411,840
502,475
58,400
25,600
251,200
253,952
69,600
72,000
27,200
0
24,000
0
0
15912,242
744 150 161 I
0
227,498 433
0
8,802,251
6.278 036 ,
I
5541129
I
Pan:on Held In
Stnpped Fomn
Note 2n fr'le 4tn wono.Clay of eacn month Tac!e Vi .,...,,1 ce a,...allaCle after 3 00 p m eastern tJme on the Commerce Department s ::::norptC A "e' 0 .Qo3'4 0:_8, aM og 'be Q.'CA2
"
PuDolC .JeD! s weCSlle at n"C
f'WWIN
puOliCCleCt .reas ;1:J ..
For more Information aDDu! EBB call (202) 482-1966
132,800
52,800
QI the
The balances In '''''V''13Cle are Subject to audit and subsequent adJu"'ents
NATIONAL CHURCH ARSON TASK FORCE
p 0 80\ 65798
Washing/oil, D. C 20530
FOR IM1v1EDIA TE RELEASE
June 6, 1997
CONTACT
Myron Marlin, Justice Dept., (202) 616-2777
Beth Weaver, Treasury Dept., (202) 622-2960
***SCHEDULE CHANGE***SCHEDULE CHANGE***SCHEDULE CHANGE***
MEDIA ADVISORY
The National Church Arson Task Force will hold a press briefing to release the results of the First
Year Report to the President on Sunday, June 8, at 1:00 p.m. in Room 3327 of the Treasury
building, 1500 Pennsylvania Avenue, N.W. Cameras may set up at 1230 p.m
The Task Force will discuss the Administration's response to the nation's church arson crisis.
Representatives from the Departments of the Treasury, Justice, Housing and Urban Development,
Bureau of Alcohol, Tobacco and Firearms, Federal Bureau ofInvestigation and the Federal
Emergency Management Agency will be in attendance.
Media without Treasury, White House, State, Defense or Congressional credentials planning to
attend should contact the Treasury's Office of Public Affairs at (202) 622-2960, with the following
information: name, social security number and date of birth, by close of business today. This
information may be faxed to (202) 622-1999.
RR-1731
-30-
DEPARTMENT
OF
THE
TREASURY
NEWS
TREASURY
~/78~9~. . . . . . . . . . . . . . . . . ..
....................
OFFICE OF PUBUCAFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
June 7, 1997
CONTACT: Beth Weaver
202-622-2960
MEDIA ADVISORY
SECRETARY RUBIN SWEARS IN NEW SECRET SERVICE DIRECTOR
Treasury Secretary Robert E. Rubin will administer the oath of office to the new Director of the
United States Secret Service today at 2:00 p.m. in Room 3311 of the Treasury building.
Cameras may set up at 1:30 p.m.
Media without Treasury, White House, State, Defense or Congressional credentials planning to
attend should contact Treasury's Office of Public Affairs at (202)622-2960, with the following
information: name, social security number and date of birth, by 12:00 p.m. today. This
information may be faxed to (202)622-1999.
RR-1732
-30-
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
DEPARTMENT
OF
THE
TREASURY
NEWS
TREASURY
ornCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.· 20220 • (202) 622-2960
FOR IMMEDIATE RELEASE
June 6, 1997
Contact:
Beth Weaver (202) 622-2960
TREASURY SECRETARY RUBIN SWEARS IN
NEW SECRET SERVICE HEAD
Treasury Secretary Robert E. Rubin administered the fonnal oath of office today to the new
Director of the United States Secret Service, Lewis C. Merletti.
"Today's announcement reflects the belief that Lew Merletti is best suited to meet the challenge
of heading up the Secret Service, a law enforcement bureau with vital responsibilities as diverse as
they are critical," stated Secretary Rubin. "The Service's mandate extends from protecting the
President and other designated officials, to protecting the currency from counterfeiting to
protecting the public through counter terrorism efforts."
Merletti, a career Secret Service agent has served his country in many different capacities for
thirty years. He enlisted in the Army in 1967, served in Vietnam in the Special Forces, received
the Bronze Star, the Combat Medical Badge, among other citations.
"The men and women who serve the Secret Service and other federal law enforcement bureaus
have always been among the finest and bravest in the world. There is no question he is the right
person to lead the Secret Service," continued Rubin.
A graduate of Duquesne University, Merletti began his tenure with the Secret Service in 1974 as a
special agent assigned to the Philadelphia Field Office. He has served as the Special Agent in
Charge in Baltimore, the Special Agent in Charge of the Presidential Protective Division, the
Deputy Assistant Director at the Office ofInspection, and most recently as Assistant Director of
the Office of Training.
Throughout his career, MerIetti has had some of the Service's toughest assignments. In 1996,
MerIetti oversaw security for the President's trip to Egypt for the Summit of the Peacemakers, as
well as the President's visit to Israel after the Summit. That same year, he oversaw the
President's trip to Bosnia. In 1993, he led the team at Treasury investigating the Waco incident.
And in 1990, he oversaw security for President's Bush's trip to visit the troops of Operation
Desert Shield in the gulf
RR-1733
-30-
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
D EPA R T MEN T
0 F
THE
T R· E A SUR Y
NEWS
TREASURY
ornCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.· 20220. (202) 622-2960
Monthly Release of U.S. Reserve Assets
June 6, 1997
The Treasury Department today released U.S. reserve assets data for the month of May
1997.
As indicated in this table, U.S. reserve assets amounted to $68,054 million at the end
of May 1997, up from $65,873 million in April 1997.
Total
Reserve
Assets
End
of
Month
Gold
Stock II
Special
Drawing
Rights
2/3/
Foreign
Currencies
ESF
M
Reserve
Position
in IMF 21
System
l221
April
65,873r
11,051r
9,726
14,139
17,297
13,660
May
68,054p
11 ,051p
10,050
14,988
18,003
13,962
II Valued at $42.2222 per fine troy ounce.
21 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 J ul y 1974.
3/ Includes allocations of SDRs by the IMF plus transactions in SDRs.
41 Includes holdings of Treasury and Federal Reserve System; beginning November 1978,
these are valued at current market exchange rates or, where appropriate, at such other
rates as may be agreed upon by the parties to the transactions.
p
Preliminary
r Revised
RR-1734
·~·
- -
e
-
NATIONAL CHURCH ARSON TASK FORCE
~
P O. Box 65798
Washlngron. D. C 20530
FOR IMMEDIATE RELEASE
June 8, 1997
Contact: Beth Weaver
(202) 622-2960
NATIONAL CHURCH ARSON TASK FORCE RELEASES
REPORT TO PRESIDENT ON ONE YEAR ANNIVERSARY
The National Church Arson Task Force on Sunday released a one-year report to the President
detailing the results of the Administration's three-pronged response to the nation's church arson
cnsls.
"A year ago today, President Clinton pledged to safeguard the religious freedom of all
Americans," James E. Johnson, Treasury Assistant Secretary for Enforcement and co-chair of the
Task Force, said. "As this report makes clear, the men and women of the Task Force are doing
just that."
Johnson said the Task Force has been successful because of increased coordination between
federal, state and local law enforcement officials.
John Dwyer, Acting Associate Attorney General, said: "These fires stirred our national conscience
and threatened our common sense of sanctuary. What matters most is that we responded. We
addressed the fears and apprehensions of affected communities; we have pursued the arsonists;
and we have helped rebuild both the structures and the spirit of the congregations."
The report details results of the Task Force work, including:
•
launching 429 investigations into arsons, bombings or attempted bombings at houses of
worship since January 1, 1995, resulting in the arrest of 199 suspects in connection with
150 of these investigations;
•
a 35 percent arrest rate in Task Force arson cases--more than double the 16 percent arrest
rate for arsons in general;
•
and federal, state and local prosecutors have convicted 110 defendants in connection with
fires at 77 houses of worship since January 1995.
The One Year Report to the President is available through the Public Affairs Offices of the
Department of Justice (202) 616-2777 or the Department of the Treasury at (202) 622-2960 or
via the Internet at www.atf.treas.gov after 7 p.m. EST.
-30RR-1735
DEPARTMENT'OF
THE
TREASURY
NEWS
TREASURY
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C. • 20220. (202) 622-2960
FOR IM1v1EDIATE RELEASE
June 9, 1997
Contact: Paul Elliott
202-622-2960
MEDIA ADVISORY
Deputy Treasury Secretary Lawrence H. Summers will hold a press conference on
inflation-indexed securities at 10:30 a.m., ~, Monday, June 9 in the Secretary's Conference
Room, Room 3327 at the Treasury Department. Cameras may set up at 10 a.m.
Media without Treasury, White House, State, Defense or Congressional credentials
planning to attend should contact Treasury's Office of Public Affairs at (202) 622-2960, with the
following information: name, social security number and date of birth, by 10:00 a.m. This
information may be faxed to (202) 622-1999.
RR--1736
-30-
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
D EPA R T M It N T
0 F
THE
T REA'S U R Y
~j/78~9~. . . . . . . . . . . . . . . . . . . . . .. .
........................
OFFlCE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.. 20220· (202) 622-2960
FOR llvfMEDIATE RELEASE
June 9, 1997
CONTACT: Paul Elliott
(202) 622-2960
TREASURY CALLS FOR LARGE POSITION REPORTS
The Treasury is calling for Large Position Reports from those entities whose reportable position in the
1
6 ,4 % Treasury Notes of February 2007 equals or exceeds $21/2 billion as of close of business Friday, June 6,
1997. This call for Large Position Reports is a test. Entities with reportable positions in this 10-year note
equal to or exceeding this $21/2 billion threshold must report these positions to the Federal Reserve Bank of
New York. Reports, which must include the required position and administrative information, must be received
by the Market Reports Division of the Federal Reserve Bank of New York before noon Eastern time on Friday,
June 13, 1997. Large Position Reports may be filed by facsimile at (212) 720-8028 or delivered to the Bank
at 33 Liberty Street, 4th floor.
Details on Call for Large Position Reports
Security Description:
6 1,4 % Treasury Notes of February 2007, Series B-2007
CUSIP Number:
912827 2J 0
CUSIP Number of STRIPS Principal Component:
912820 BW 6
Maturity Date:
February 15, 2007
Date for Which Information Must Be Reported:
June 6, 1997 as of COB
Large Position Reporting Threshold:
$2112 Billion (Par Value)
Date Report Is Due:
June 13, 1997, before noon Eastern time
This call for large position information is made under Treasury's large position reporting rules (17 CFR
Part 420). The notice calling for Large Position Reports is also being published in the Federal Re£ister. This
press release, and a copy of a sample Large Position Report which appears in Appendix B of the rules at 17
CFR Part 420, can be obtained from Treasury's automated fax system by calling (202) 622-2040 and requesting
document number 1737. These documents are also available at the Bureau of the Public Debt's Internet site
at the following address: http://www.publicdebt.treas.gov.
Questions about Treasury's large position reporting niles should be directed to Public Debt's
Government Securities Regulations Staff at (202) 219-3632. Questions regarding the method of submission of
Large Position Reports may be directed to the Market Reports Division of the Federal Reserve Bank of New
York at (212) 720-8021.
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
Appendix B to Part 420 - Sample Large Position Report.
Formula for Determining a Reportable Position
($ Amounts in Millions at Par Value as of Trade Date)
Security Being Reported:
Date For Which Information is Being Reported:
1.
Net Trading Position
(Total of cashlimmediate net settled positions; net when-issued positions; net forward
positions, including next day settling; net futures contracts that require delivery of
the specific security; and net holdings of STRIPS principal components of the security.)
2.
Gross Financing Position
(Total of securities received through reverse repos (including forward settling reverse
repos), bonds borrowed, collateral for financial derivative transactions and for other
securities transactions which total may be reduced by the optional exclusion described
in § 420.2(c).)
+ $- - - - - -
3.
Net Fails Position
(Fails to receive less fails to deliver. If equal to or less than zero, report 0.)
+ $- - - - - -
4.
TOT AL REPORT ABLE POSITION
=$_-----
$
------
Memorandum: Report one total which includes the gross par amounts of securities delivered through repurchase
agreements, securities loaned, and as collateral for financial derivatives and other securities transactions. Not to be
included in item #2 (Gross Financing Position) as reported above.
$_----
Administrative Information to be Provided in the Report
Name of Reporting Entity:
Address of Principal Place of Business:
Name and Address of the Designated Filing Entity:
Treasury Security Reported on:
CUSIP Number:
Date or Dates for Which Information Is Being Reported:
Date Report Submitted:
Name and Telephone Number of Person to Contact Regarding Information Reported:
Name and Position of Authorized Individual Submitting this Report (Chief Compliance Officer; Chief Legal Officer;
Chief Financial Officer; Chief Operating Officer; Chief Executive Officer; or Managing Partner or Equivalent of the
Designated Filing Entity Authorized to Sign Such Report on Behalf of the Entity):
Statement of Certification: "By signing below, I certify that the information contained in this report with regard to
the designated filing entity is accurate and complete. Further, after reasonable inquiry and to the best of my
knowledge and belief, I certify: (i) that the information contained in this report with regard to any other aggregating
entities is accurate and complete; and (ii) that the reporting entity. including all aggregating entities, is in compliance
with the requirements of 17 CFR Part 420."
Signature of Authorized Person Named Above:
DEPARTMENT OF THE TREASURY
Government Securities: Call for Large Position Reports
AGENCY: Office of the Under Secretary for Domestic Finance, Treasury.
ACTION: Notice.
SUMMARY: The Department of the Treasury ("Department" or "Treasury") called for the
submission of Large Position Reports by those entities whose reportable positions in the 6-114 %
Treasury Notes of February 2007 equaled or exceeded $2-112 billion as of close of business June
6, 1997.
DATES: Large Position Reports must be received before noon Eastern time on June 13, 1997.
ADDRESSES: The reports must be submitted to the Federal Reserve Bank of New York,
Market Reports Division, 4th Floor, 33 Liberty Street, New York, New York 10045; or
facsimile 212-720-8028.
FOR FURTHER INFORMATION CONTACT:
Ken Papaj, Director, or Kerry Lanham,
Government Securities Specialist, Bureau of the Public Debt, Department of the Treasury, at
202-219-3632.
SUPPLEMENTARY INFORMATION:
Pursuant to the Department's large position rules
under the Government Securities Act regulations (17 CFR Part 420), the Treasury, in a press
release issued on June 9, 1997, and in this Federal Register notice, called for Large Position
Reports from those entities whose reportable position in the 6-1/4% Treasury Notes of Febmary
2007, Series B-2007, equaled or exceeded $2-1/2 billion as of the close of business Friday, June
6, 1997. The call for Large Position Reports is a test. Entities whose reportable positions in
this 10-year note equaled or exceeded the $2-112 billion threshold must report these positions
to the Federal Reserve Bank of New York.
Large Position Reports, which must include the
required position and administrative infonllation, must be received by the Market Reports
Division of the Federal Reserve Bank of New York before noon Eastern time on Friday, June
13, 1997. The Reports may be fLIed by facsimile at (212) 720-8028 or delivered to the Bank
at 33 Liberty Street, 4th floor.
The 6-114 % Treasury Notes of Febnlary 2007 have a CUSIP number of 912827 2J 0 ,
a STRIPS principal component CUSIP number of 912820 BW 6, and a maturity date of
February 15, 2007 .
The press release and a copy of this Federal Register notice calling for the Large Position
Reports, and a copy of a sample Large Position Report which appears in Appendix B of the
rules at 17 CFR Part 420 , can be obtained by calling (202) 622-2040 and requesting document
number 1737. These documents are also available at the Bureau of the Public Debt ' s Internet
site at the following address : http ://www .publicdebureas.gov .
Questions about Treasury ' s large position reporting rules should be directed to Public
Debt's Government Securities Regulations Staff at (202) 219-3632 . Questions regarding the
method of submission of Large Position Reports may be directed to the Market Reports Division
of the Federal Reserve Bank of New York at (212) 720-8021.
The collection of large position infonnation has been approved by the Office of
Management and Budget pursuant to the Paperwork Reduction Act under OMB Control Number
1535-0089.
Dated: June 6, 1997
John D. Hawke , Jr.
Under Secretary , Domestic Finance
[Billing Code: 4810-39-W]
DEPARTMENT
OF
TREASURY
THE
TREASURY
NEWS
~~/78~9~. . . . . . . . . . . . . . . .1I.............
..............................
OmCE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.. 20220· (202) 622-2960
FOR IMMEDIATE RELEASE
June 9. 1997
Lawrence H. Summers
Deputy Secretary of the Treasury
Remarks on Inflation Indexed Securities
Good morning. Thank you for coming. I am pleased to report on the progress of Treasury's indexed
securities program and to discuss continued plans for it. In January of this year, following extensive
internal analysis and a long period of consultations with market participants. Treasury introduced
a new form of funding for the government in the fom1 of lI1flation-indexed securities. These
securities offer a return that is indexed to the consumer price index. In introducing these securities
our goals were to provide an instrument that would offer guaranteed future purchasing power to
American savers, to reduce and make more stable government's funding costs and to spur
development of the capital markets. We have been pleased with the market response. In January.
we auctioned $7 billion in securities and in May we sold an additional $8 billion for a total of $15
billion in ten year inflation-indexed notes, maturing in January of 2007. A liquid market has
developed with bid-asked spreads comparable to those of off-the-run Treasury securities. More than
$2 billion of follow-on issuance has taken place by government agencies, corporations and municipal
issuers. At least five mutual fund companies have offered products based on indexed securities. and
there has also been interest from insurance companies and pension funds.
The success of our first issue demonstrates the strong demand for this product. But, as we
announced at the outset, this is a long term project and a long-term commitment that is still in its
opening stages. When we launched this program. we announced that we would introduce new series
with new maturities in the future. And today, I would like to describe the offerings we have planned
for the immediate future.
In July, we will offer our first inflation indexed securities \vith a 11\'e year maturity. They will cOlm:
due in July 2002.
In October.
\VC
expect to re-open this issue and again of leI' Juh 2()02
~ecllritics.
Next January, we expect to offer a new 1O-year indexcdnutc
RR-I73~
Far press releases, speeches, public schedules and official biographies, call our 24.!zour fax line at (202) 622-2040
[
-2Also during next year, we will offer a 30-year inflation indexed bond.
And by the end of next year, we expect to establish a regular schedule for offering inflation-indexed
securities with maturities of five, ten and thirty years.
These new maturities and our commitment to move toward a regular schedule for offering a mix of
maturities are important steps in the development of this program.
A further development is that due to the falling level of the deficit which is expected to drop below
$100 billion this year as well as the growth of the inflation-indexed security program, we will cease
offering conventional ten year notes in the months of July and October, effective immediately.
I would now be happy to answer any questions you may have.
DEPARTMENT
OF
THE
TREASURY
c
NEWS
OffiCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622·2960
FOR IMMEDiATE RELEASE
June 9, 1997
Contact: Rebecca Lowenthal
(202) 622-2960
TREASURY AND FEDERAL RESERVE OFFICIALS TO PREVIEW NEW $50 BILL
Series 1996 note will include low-vision feature
Secretary Rubin will join Federal Reserve Board Chainnan Alan Greenspan and U.S.
Treasurer Mary Ellen Withrow to preview the Series 1996 $50 bill in a ceremony at 9:30 a.m.,
Thursday, June 12 at the Visitors' Center of the Bureau of Engraving and Printing at 14th and C
Streets, S.W., Washington, D.C.
The Series 1996 $50 note is the second in the U.S. currency series to incorporate new and
modified security features. The new $100 note was issued in March 1996, and the new $50 note
will enter circulation this fall. The $50 note will also include a feature that will make the note
more accessible to all Americans, especially the aging population and low-vision community.
Patricia Beattie, First Vice President of the Council of Citizens with Low Vision International,
will also participate in the Thursday morning ceremony.
Following the ceremony, senior Treasury and Federal Reserve officials will hold a
background briefing for the press. A press pool will also be permitted to view the printing of the
new $50 bill, and B-roll will be available.
At 2 p.m. on Thursday, Treasury Under Secretary John D. Hawke, Jr., Treasurer Withrow
and Ernest G. Patrikis, First Vice President of the Federal Reserve Bank of New York, will
preview the new note in New York City at The Lighthouse Inc., III East 59th Street, Manhattan.
The Lighthouse Inc., an international organization providing services and programs for people
with low vision, will host the event; Lighthouse President Dr. Barbara Silverstone will also
participate.
-30RR-1739
For press releases, speeches, public schedules and official biographies, call our 24~our fax line at (202) 622-2040
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington. DC 20239
FOR IMMEDIATE RELEASE
CONTACT: Office of Financing
June 9, 1997
202-2l9-3350
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Tenders for $7,065 million of 13-week bills to be issued
12, 1997 and to mature September 11, 1997 were
accepted today (CCSIP; 9127945M2)
Jun~
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Discount
Low
High
Average
Rate
4.93%
4.95%
4.94%
Investment
Rate
5.06%
5.08%
5.07%
Price
98.754
98.749
98.751
Tenders at the high discount rate were allotted 4%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands)
TOTALS
Received
$47,019,505
Accepted
$ 4 5 I 4 6" 2 I 04 8
l,252,457
$46,7l4,505
$5,507,336
1,252,457
$6,759,793
305,000
$47,019,505
305,000
$7,064,793
$7,064,793
Type
Competitive
Noncompetitive
Subtotal, Public
Foreign Cfficial
Institutions
TOTALS
In addition, $3,334,327 thousand was awarded to che
Federal Reserve Banks for their own accounts.
RR-l\40
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington. DC 20239
FOR IMMEDIATE RELEASE
June 9, 1997
CONTACT: Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
Tenders for $7,052 million of 26-week bills to be issued
June 12, 1997 and to mature December 11: 1997 were
accepted today (CUSIP: 9127942Xl).
RANGE OF ACCEPTED
COMPETITIVE BIDS:
Discount
Low
High
Average
Rate
S.18%'
5.20%
5.20%
Investment
Rate
5.39%
5.41%
5.41%
Price
97.3B1
97.371
97.371
Tenders at the high discount rate were allotted 26%.
The investment rate is the equivalent coupon-issue yield.
TENDERS RECEIVED AND ACCEPTED (in thousands}
Received
TOTALS
$38,005,064
Accepted
$7,051,958
Type
Competitive
Noncompetitive
Subtotal, Public
$35,539,664
$3,458,594
1,127,364:
$4,585,958
2,466,000
$38,005,664
2.466,000
$7,051,958
$34,412,300
1,127,364
Foreign Official
Institutions
TOTP..LS
In addition, $3,895,000 thousand was awarded to the
Federal Reserve Banks for their own accounts.
5.19 - - 97.376
RR-li41
DEPARTMENT
OF
1REASURY
1789
THE
TREASURY
NEWS
OmCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIflNGTON, D.C. - 20220 - (202) 622-2960
EMBARGOED UNTIL 10 A.M. EDT
Text as Prepared for Delivery
June 10, 1997
TREASURY OFFICE OF FOREIGN ASSETS CONTROL DIRECTOR
R. RICHARD NEWCOMB
HOUSE JUDICIARY SUBCOMMITTEE ON CRIME
GENERAL BACKGROUND
The Office of Foreign Assets Control (OF AC) administers economic sanctions and
embargo programs against specific foreign countries or groups to further US. foreign policy and
national security objectives. In administering these programs, OF AC generally relies upon
Presidential authority contained in the Trading With the Enemy Act (TWEA) or the
International Emergency Economic Powers Act (IEEPA), or upon specific legislation, to
prohibit or regulate commercial or financial transactions with specific foreign countries or
groups.
Examples of current TWEA programs include comprehensive asset freezes and trade
embargoes against North Korea and Cuba. Examples of current IEEPA programs include
similarly broad sanctions against Libya, Iraq, the Cali Cartel, and certain foreign terrorist
groups, as well as comprehensive trade sanctions against Iran.
From time to time, sanctions have been imposed by Congress directly through
legislation. Between 1986 and 1991, for example, OF AC administered the trade and investment
prohibitions against South Africa mandated by the Comprehensive Anti-Apartheid Act.
Similarly, OF AC has been delegated administration of Section 321 of the Antiterrorism and
Effective Death Penalty Act of 1996 (the Act), which was signed into law by the President on
April 24, 1996.
SECTION 321
Section 321 of the Act prohibits all financial transactions by United States persons with
the governments of terrorism-supporting nations designated under section 6(j) of the Export
Administration Act, except as provided in regulations issued by the Secretary of Treasury, in
RR-1742
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consultation with the Secretary of State. The Act prohibited all financial transactions by US.
persons with: North Korea, Cuba, Iran, Libya, Iraq, Syria, and Sudan.
All but Syria and Sudan were the subject of existing comprehensive financial and trade
embargoes at the time of enactment. In accordance with foreign policy guidance provided to
Treasury by State, existing sanctions programs against North Korea, Cuba, Iran, Libya, and Iraq
were continued without change. This permitted the specific policies developed over time with
respect to each of these countries to remain in effect, including the exceptions to each embargo
dictated by unique humanitarian, diplomatic, news gathering, intellectual property, and other
concerns.
New regulations, known as the Terrorism List Governments Sanctions Regulations, were
issued August 23, 1996 to impose the prohibitions on financial transactions with respect to Syria
and Sudan. While most transactions are currently authorized, the new regulations, drafted in
consultation with the Department of State, do prohibit financial transactions which involve
transfers from those governments in the form of donations and transfers with respect to which
US. persons know or have reasonable cause to believe that there is a risk of furthering terrorist
acts in the United States.
From a sanctions enforcement perspective, we believe the Act and implementing
regulations are important because they provide OF AC with comprehensive jurisdiction over all
financial transactions between US. persons and the Governments of Syria and Sudan. We now
have authority to act to stop or impede any particular suspicious transfer to or from these
governments by informing US. persons handling the transfer that a reasonable cause exists to
believe that the transaction may pose a risk of furthering terrorist activity in the United States.
We believe the Act's authority provides a significant new tool to prevent funding of terrorist
activities in the U.S.
H.R. 748
H.R. 748 would amend the current law, section 321 of the Antiterrorism Act, to repeal all
Executive flexibility in administering the prohibition on financial transactions against terrorism
supporting governments, permitting only transactions incident to routine diplomatic relations
among countries.
This codification would drastically alter pre-existing sanctions programs against five of
the seven terrorism-supporting governments, and seriously infringe the President's ability to
conduct foreign policy and use sanctions to respond quickly and flexibly to changing situations
in embargoed countries.
OF AC's function is to implement and enforce sanctions programs. For that reassm, my
comments are addressed to sanctions administration, and the vital role that licensing plays in the
successful implementation of our programs. Our sanctions programs on the seven countries
2
designated by the State Department as supporting international terrorism are quite diverse, and
carry different foreign policy guidance. Without the ability -- through general and specific
licenses -- to tailor sanctions programs to the real world and to wholly unforeseeable situations
that arise daily, sanctions' usefulness would be lost as an instrument for the defense of U S.
foreign policy, national security, and economic interests.
In each of our economic sanctions programs on terrorist countries, the scope of the
prohibitions and of OF AC licensing policy and practice responds to specific national security,
foreign policy or economic conditions. In the case of Iran, we have administered a full blocking
of government assets with comprehensive trade sanctions (1979-81), import prohibitions (198795), and comprehensive sanctions on trade in goods and services without the blocking of assets
(May 1995-date). In sanctions on Cuba (1963-date) and North Korea (1950-date), we have
administered comprehensive blocking and trade sanctions applicable both to the governments
and all nationals of these countries. With respect to Libya (1986-date) and Iraq (1990-date),
comprehensive blocking of government assets and trade sanctions are in place. However, unlike
Cuban and North Korean nationals, Libyan and Iraqi nationals' assets are not blocked. Pursuant
to United Nations sanctions, transfers to persons in Iraq are prohibited. There are prohibitions
against travel transactions to Libya, Iraq, and Cuba, but travel transactions are permitted by
general license under the North Korean sanctions, and are exempt by statute for Iran. These
variations are not haphazard, but reflect the specific policy contexts in which each program has
developed.
In each of these programs, general and specific licensing policies have been adopted to
minimize unintended human suffering while accomplishing program goals and to reflect general
interests of the United States.
Examples of the former include licenses permitting expenditures related to travel to visit
sick and dying relatives in Cuba; permitting participation in amateur and nonpolitical
international athletic competitions and people to people exchanges; allowing limited funds to be
transferred to close relatives so that they can emigrate from Cuba; authorizing humanitarian
relief for the people of North Korea and Iran suffering from natural disasters; permitting
husbands, wives, sons and daughters to stay with their immediate families in Tripoli; dispensing
US. vaccines to combat the outbreak of epidemics; bringing home the remains· of Americans
who have died overseas and administering decedents estates in target countries; allowing
payments for boat repairs when a US. vessel has been blown into target country waters during a
storm. The list goes on and on.
Among the authorizations serving US. interests are licenses permitting travel payments
related to journalism; the compensation of successful US. claimants in the Iran-US. Claims
Tribunal in The Hague from Iranian Government funds; reciprocal US. and target country
intellectual property protection; payments when it is necessary to overfly target country airspace
or for emergency landings; the acquisition and sale of publications, information and information
materials; and a wide range of humanitarian donations, remittances, family payments, and travel3
related transactions.
In removing licensing authority over financial transactions by U. S. persons with the
governments of Cuba, Iran, Iraq, Libya, North Korea, Sudan and Syria, HR 748 would not only
adversely affect the President in his Constitutional responsibility to conduct the foreign affairs of
the United States, it would also eliminate OF AC's ability to make rational decisions about very
human and often unforeseen events and cause great suffering for unintended and untargetted
third parties.
Thank you.
-30-
DEPARTMENT
OF
THE
TREASURY
NEWS
TREASURY
~/78~9~. . . . . . . . . . . . . . . . . . . . . . . . . . . .. .
..............................
OFFlCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.. 20220. (202) 622-2960
CONTACT:
EMBARGOED UNTIL 2: 30 P. M.
June 10, 1997
Office of Financing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $14,000 million, to be issued June 19,
1~97.
This offering will result in a paydown 'for the Treasury of
about $4,075 million, as the maturing publicly-held weekly bills
are outstanding in the amount of $18,067 million.
In addition to the public holdings, Federal Reserve Banks for
their own accounts hold $6,704 million of the maturing bills,
which may be refunded at the weighted average discount rate of
accepted competitive tenders. Amounts issued to these accQunts
will be. in addition to the offering amount .
.
Federal Reserve Banks hold $3,163 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, as amended) for the sale and
isaue by the Treasury to the public of marketable Treasury bills l
notes, and bonds.
Decails about each of the
attached offering highlights.
n~w
000
Attachment
RR-1743
securities are given in the
HZGHLIGHTS OV TREASURY OFFERINGS OF WEBKLY
B~LLS
TO BB ISSUBo JUNE 19, 1997
June 10, 1997
Offering Amount . . .
Description of Offeringl
Term and type of security
CUSIP number
Auction date . . .
Issue date
Maturity date
Original issue date .
Currently outstanding
Minimum bid amount
Multiples . . . . . .
$7,OO~
million
91-day bill
912794 2U 7
June 16, 1997
June 19, 1997
September 1B, 1997
September 19, 1996
$31,842 million
$10,000
$ 1,000
$7,000 million
182-day bill
912794 5X B
June 16, 1997
June 19, 1997
December 18, 1997
June 19, 1997
$10,000
$ 1,000
The following rules. apply to all seourities mentioned above.
Submission of Bids:
Noncompetitive bids .
Competitive bids
Maximum Recognized Bid
at a Single Yield
Maximum A'lIard . . . . .
Receipt of Tenders:
Noncompetitive tenders
Competitive tenders
Payment Terms .
Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids
(1) Must be eKpresaed as a discount rate with
two decimals, e.g., 7.10%.
(2) Net long position for each bidder must be
reported.when the sum of the total bid
amount, at all discount rates, and the net
long position is $2 billion or greater.
(3) Net long position must be determined as of
one half-hour prior to the closing time for
receipt of competitive tenders.
35% of public offering
35% of public offering
Prior to 12:00 noon Eastern Daylight Saving time
on auction day
Prior to 1:00 p.m. Eastern Daylight Saving time
on auction day
Full payment with tender or by charge to a funds
account at a Feder~l Reserve Bank on issue date
DEPARTMENT
OF
THE
TREASURY
NEWS
lREASURY
ornCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220 • (202) 622-2960
FOR IMJvfEDIATE RELEASE
June 10, 1997
Contact: Michelle Smith
(202) 622-2960
U.S., BALTIC REPUBLICS INITIAL THREE BILATERAL INCOME TAX TREATIES
The Treasury Department announced on Tuesday that delegations from the United States and
Estonia, Latvia and Lithuania have reached agreement, subject to review, on three bilateral income
tax conventions.
The texts of the three conventions were initialed for the United States by Daniel M.
Berman, Deputy International Tax Counsel of the U.S. Treasury Department. The Estonian
treaty was initialed by ErIe Koomets of the Estonian Ministry of Finance. The Latvian treaty
was initialed by Andrejs Birums, head of the Unit for Tax Treaties in the Latvian Ministry of
Finance. The Lithuanian treaty was initialed by Nora Vitkuniene, head of the International
Treaties Division of the State Tax Inspectorate.
The initialings confirmed the mutual commitment of the four delegations to move
forward as quickly as possible with the required review, followed by signature and ratification of
the three Conventions. Each treaty will enter into force following completion of the ratification
process by both countries.
Donald C. Lubick, Acting Assistant Secretary of the Treasury (Tax Policy) welcomed the
initialing as bringing into the U.S. tax treaty network three countries that have regained their
freedom and are expanding their economic cooperation with the West.
The text of each new Convention will be made public after its signature.
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RR-1744
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
D EPA R T MEN T
TREASURY
0 F
THE
T R E A·S U R Y
NEWS
June 12, 1997
THE SERIES 1996 $50 NOTE
DOCUMENTS A VAILABLE BY FAX
Document #
Document name
1746
Press release U.S. Treasury and Federal Reserve Introduce
New $50 Bill. Redesigned note includes low-vision feature
Remarks by Federal Reserve Board Chairman Alan Greenspan
About the Series 1996 Currency (8 pages)
About the Bureau of Engraving and Printing, US Secret Service
and Counterfeiting, The Federal Reserve System (7 pages)
(includes addresses of local Federal Reserve banks and branches)
Order form for $50 bill posters and brochures (1 page)
The History of Paper Money (3 pages)
Remarks of US Treasurer Mary Ellen Withrow
1754
1755
1756
1757
1758
1759
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For press releases, speeches, public schedules and official biographies, call our 24-hollrJax linc at (202) 622·2(}40
DEPARTMENT
OF
THE
TREASURY
~~J~78~9~. . . . . . . . . . . . . . . . . . . . . . . . . . . .. .
............................
ornCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASmNGTON, D.C. - 20220 - (202) 622-2960
EMBARGOED FOR RELEASE AT 9:30 A.M. EDT
June 12, 1997
Contact: Office of Public Affairs
(202) 622-2960
u.s. TREASURY AND FEDERAL RESERVE INTRODUCE NEW $50 BILL
Redesigned note includes low-vision feature
Treasury Secretary Robert E. Rubin and Federal Reserve Board Chainnan Alan Greenspan
announced today the United States will issue a redesigned $50 note that includes a feature making the
note more accessible to all users of U.S. currency, especially the aging population and low-vision
community. The new note will be issued in the fall of 1997, and is the second in the U.S. currency
series to include new and modified security features to stay ahead of advances in reprographic
technology.
The redesigned $50 note and consequent denominations will include a large dark numeral on a
light background on the back of the note that will make it easier for the more than 3.7 million
Americans with low vision to denominate the note. The feature will also be useful to the 10 million
Americans with milder forms of visual impainnent and other users of U.S. currency in low-light
situations. In a January 1995 study solicited by the Treasury Department's Bureau of Engraving and
Printing, the National Academy of Sciences recommended incorporation of the feature.
Last year's introduction of a new design was a critical and effective step in an ongoing process
to maintain the security of the nation s currency as technologies such as color copiers, scanners and
printers become more sophisticated and accessible. In the new note's first year, the U.S. Secret
Service identified counterfeit Series 1996 $100 notes only 1/18 as often as older series $100s. By the
end of the first year, however, new series notes represented over a third of all $100s in circulation.
I
The addition of a feature for those with low vision to identify readily the note's denomination
is equally significant. All consequent denominations ($20, $10, etc.) will include this low-vision
feature, as will future redesigns of the $100 note. The redesigned -$20 will be issued next year.
"With this redesign, government demonstrates its ability to stay ahead of the technology curve
and meet the needs of all those people around the world who use and trust our currency," Secretary
Rubin said. "At the same time, the new notes retain their basic American look and feel."
The new series $100 bill was issued in March 1996. Like the $100, the new $50 will replace
the older series notes gradually in circulation; as older notes reach the Federal Reserve from
depository institutions, they will be replaced by the newer notes. About $46.5 billion in $50 notes is
currently in circulation. Secretary Rubin and Chairman Greenspan stressed the United States will not
recall or devalue any of the existing currency.
RR-1746
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2
"We expect as smooth an introduction process as we experienced last year, when millions of
users of U.S. currency embraced the new $100 notes," Chairman Greenspan said. "As with the $100
note, older notes will not be recalled or devalued."
In order to make room for the new features, the overall architecture of the note has been
changed somewhat and the borders simplified. Microprinting and security threads, which first
appeared in the 1991 series currency, have been effective deterrents and will appear in the new notes.
The new and modified $SO note features include:
•
A large numeral "SO" on the back of the note.
•
A larger portrait, moved off-center to create more space for a watermark.
•
The watermark to the right of the portrait depicting the same historical figure as the portrait.
The watermark can be seen only when held up to the light.
•
A security thread to the right of the portrait that glows yellow when exposed to ultraviolet light
in a dark environment. "USA FIFTY" and a flag, which itself contains microprinting, are
printed on the thread. (In the $100, the thread is to the left of the portrait and glows red, and
is printed with the words "USA 100.")
•
Color-shifting ink in the numeral on the lower right-hand comer of the bill front that changes
from green to black when viewed from different angles.
•
Microprinting in the border and in Ulysses Grant's shirt collar in the $SO note. (In the $100
note, microprinting is found in the numeral in the note's lower left-hand comer and on
Benjamin Franklin's lapel.)
•
Concentric fine-line printing in the background of the portrait and on the back of the note.
This type of printing is difficult to copy well.
•
Other features for machine authentication and processing of the currency.
In addition to the low-vision feature on the note back, the $SO looks different in several other
ways. The engraving of the Capitol has been enlarged to include more detail, and reflects an accurate
contemporary view of the west front of the Capitol. The security thread images and characters are
also printed in two different heights.
Over $400 billion in U.S. currency is in circulation, two-thirds of it overseas. The U.S.
Information Agency and U.S. consular posts around the world will help educate foreign users of U.S.
currency about the redesign program.
Fact sheets on the new note, the history of U.S. currency and related agencies are available on
Treasury's interactive fax at (202) 622-2040 (for an index, request document # 174S) and on the
Treasury's website: www.ustreas.gov/treas/whatsnew/.
-30-
THE LOW-VISION FEATURE ON THE $50 BILL
There are approximately 3.7 million I Americans with visual disabilities, and as many as 10 million 2
Americans with milder forms of visual impairment. The Series 1996 $50 bill contains an important
new universal design feature that will make United States currency more accessible to all Americans,
especially the aging population and the low-vision community.
The $50 bill has been redesigned to improve its security against counterfeiting and shares the overall
architecture of the Series 1996 $100 bill released in March 1996 -- an off-center portrait, watermark,
security thread and fine-line concentric printing and microprinting. It also incorporates a large dark
numeral "50" on a light background in the lower right hand corner of the back of the note that will
make the note's denomination easier to identify.
The Bureau of Engraving and Printing (BEP), which manufactures the nation's currency, contracted
with the National Academy of Sciences for a study of currency features to assist the visually impaired.
One of the January 1995 report's principal recommendations was to incorporate a larger dark-colored
numeral on a light background to currency designs. A new design task force representing Treasury,
the Bureau of Engraving and Printing, the U.S. Secret Service and the Federal Reserve agreed that a
high-resolution feature would be useful to those with low vision, and could be easily incorporated into
the new series design without compromising the improved security of the new notes. The task force
concluded that other recommended changes, including variations in size and shape, holes and other
tactile features, were not sufficiently durable to be practicable for U.S. currency at this time. Asked
by BEP to assess the feature, the University of Minnesota's Laboratory for Low-Vision Research has
concluded that the substantially larger size and higher contrast of the numeral, as well as the uniformity of
background, will be of substantial functional benefit to people with low vision and to anyone in dim
lighting or other poor-visibility conditions. The nearly uniform stroke width in the new feature is also
easier to read. The numeral is 14 millimeters (a little over one half inch) in height, compared with 7.8
millimeters on older series notes.
The Treasury Department and the numerous groups representing Americans with low vision who
reviewed the feature believe it is an important step in making currency more accessible to everyone.
The feature has been included in the Series 1996 $50 note design at no cost and will appear on
subsequent redesigned notes in the series. The Bureau of Engraving and Printing continues to
evaluate the NAS recommendations to determine whether other changes in currency design could
make the note even more accessible, especially. to blind people.
I
The precise number is subject to definition. This number is from the National Academy of
Sciences.
2
This estimate is from the University of Minnesota's Laboratory for Low-Vision Research.
From: TREASURY PUBLIC
D EPA R T l\1 E N T
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0 F
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THE
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4: 18pm
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T REA S II R Y
NEWS
omCE OFPUBUCAFFAIRS -1500 PENNSYLVANlAAVENUE, N.W. - WASlllNGTON, D.C .• %0220. (202) 622.2960
EMBARGOED UNTIL 8 P.M. MDT
Text as Prepared for Delivery
June 10, 1997
AMERICAN GLOBAL LEADERSHIP: THE DENVER SUMMIT AND BEYOND
DEPUTY TREASURY SECRETARY LAWRENCE H. SUMMERS
WORLD TRADE CONFERENCE
DENVER
Good afternoon. It is a pleasure to be here in Denver on the eve of the Summit. It is symbolic
that this Summit will be held in Denver, for Denver is an example of how trade and economic
integration now touch every part of the world. This evening, I would like to begin by
discussmg the current state of the US and how that relates to the Summit. In turn, I would like
to discuss some of the key issues that I expect this Summit to address. Finally, I would like to
discuss why it is so important that America playa leadership role in the global economy.
L'S Leadership in the Global Economy
The United States today is in an extremely strong position. We are the only military
superpower. It is increasingly clear that we are also the world's only economic superpower.
In an era of globalization, we are the world's most flexible and dynamic economy. And we
are uniquely positioned to interact with the emerging world due to our global reach, the
dlVersity of our people and the flexibility of our institutions.We dominate or lead in virtually
every p05t-industrial industry. Think of Microsoft in software, Federal Express in shipping or
~asdaq in finanCIal services.
We are currently enjoying the strongest US economic perfonnance in a generation. Over the
last four years, we've cut the budget deficit by two thirds so that today we have the lowest
j.eficit among swnrnit participants. That's paid off in the highest level of capital spending in
three decades, higher productivity and over 12 million new jobs which has brought
unemployment to 4.8 %) its lowest level in 24 years.
The Danger of Inaction
The strong position we are in benefits the American people. But it also gives us a new
mthority on the world stage and an opportunity to shape a world of our making. In an era of
RR-1747
~ess
releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-204-0
From: TREASURY PUBLIC
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p. 19 of 29
- 2globalization where national borders no longer define the boundaries of economies, we can use
our position to encourage the free flow of goods, capital, technology and ultimately wealth
across the globe. That will improve standards of living and create new markets for our goods.
At the same time, for the first time in a half century we have no obvious enemy. But, in a
deeper sense, there is still an enemy. And that enemy as the President said in his State of the
Union address is the enemy of inaction.
Peace abroad and prosperity at home provide us with the luxury of looking forward and taking
proactive steps, rather than reacting to immediate concerns. With the end of the Cold War and
globalization of the world economy, we have a historic opportunity to further strengthen the
global system. That is not the work of one Summit meeting but what we do through the
Summit process.
Many issues will be discussed here in Denver at the Summit, but this evening I would like to
focus my comments on the following general challenges where the stakes for the United States
are the greatest.
•
Promoting growth and prosperity
•
Reducing risks in global financial markets
•
Advancing the process of development in the poorest countries; and
•
Integrating Russia into the global economy.
Promoting Economic Growth and Prosperity
Apart from securing our borders, government has no more important task than creating the
conditions for growth and prosperity. Growth reduces crime, moves people from welfare to
work, permits greater investments in education, funds advances in medicine and health care
and increases our level of collective security. Only when people have fulfilled their needs
economically can they begin to reach their full potential as human beings.
The Summit leaders corne to Denver facing shared challenges common to all the major
industrial economies.
In every industrialized country, governments are searching for ways to address the profound
economic and social effects caused by the aging of our societies. This demographic shift is
more acute and comes earlier in some countries in others, but we will all face major challenges
in financing the pensions and health care of our older citizens. The Sununit will provide an
opportunity for the leaders to share experiences and discuss innovative ways of addressing
these challenges.
The Summit leaders also face a common challenge in deciding how best to deal with structural
changes in their economies, such as those caused by technological change and expanding trade.
These are not changes that can be resisted effectively without imposing huge costs oD. society
0009
From: TREASURY PUBLIC
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-3 -
in terms of high unemployment and foregone growth. The only sure way to confront them
effectively is to provide the degree of flexibility necessary for t:Ompanies to adapt, for capital
to seek out new opportunities, and for workers to be able to obtain the education and training
necessary to work in the industries of the future.
The participants in the summit face these challenges from different starting points and different
strengths and weaknesses.
Japan, the world's second largest industrial economy, is just starting to emerge from five years
of economic trauma associated with the collapse of the asset price bubble of the late 19808.
The economic model that proved quite successful in generating decades of high growth
following the war appears much less well suited to the demands of the post-industrial age.
This recognition lies behind a sweeping program of deregulation and refonn launched by the
Prime Minister. The test of this effort will lie in the degree to which it succeeds in removing
regulations that stif1e innovation, in opening Japan's market to more competition from abroad.
in creating a financial system that will channel capital to new industries, all of which will be
important to generate the growth necessary to finance the aging of Japanese society.
While we are waiting for all this to happen, we have a strong interest in seeing the Prime
Minister achieve his stated objective of a strong domestic demand led recovery and avoiding
an increase in Japanese external surplus on a scale that could hurt global growth and fuel
protectionism.
The governments of Continental Europe are also in the midst of a complex economic and
political transition, but with different dimensions from that in Japan. While the headlines
focus on the plumbing of creating monetary union and achieving the convergence criteria
established by the architects of the Maastricht treaty, the most important debate in Europe is
over how to create an economy that is flexible enough to respond to the competitive pressures
produced by technological change and economic integration.
The paradox of monetary union is that creating a single currency will not by itself address any
of these problems and yet the success of the entire endeavor of monetary union will depend on
whether [he governments of Europe can succeed in addressing these deeper structural problems
that lie behind the highest levels of unemployment in more than a generation.
It is heartening to see that the new British government under the leadership of Tony Blair is
focused on meeting the challenges posed by the forces sbaping the global economy.
Employability--the ability of people to secure the skills they need in the economy of the future-is at the top of his agenda. Just as President Clinton has recognized the importance of
investing in people, the new Labor agenda emphasizes education, training and flexible labor
markets as the key to insuring tbat all citizens are able to share in the prosperity of a dynamic
From: TREASURY PUBLIC AFFAIRS
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-4 economy. As a measure of how important these issues arc. the President and the Prime
Minister proposed holding a special summit on the subject of employability next year.
Reducing Risk in Financial Markets
The second challenge that the Summit leaders must address is that of how to cope with the
risks to global financial stability that have accompanied the benefits of financial integration.
In today' s markets, financial crises in one county can threaten stability and prosperity in
countries half way around the world. And the failure of a large global financial institution
could damage many of its counterparts.
The Mexican financial crisis, the collapse of Barings, the market manipulations of a Sumitomo
copper trader and the collapse of banking systems throughout the developing and developed
world have all provided impetus to a broad international effort to strengthen financial
safeguards in the system.
At the Halifax summit two years ago, the Summit leaders endorsed a set of proposals to reduce
the risk of future crises and to improve our capacity to manage those we fail to prevent. The
most significant of these were strong disclosure standards to make it easier for market
participants to asses risks and the new arrangement to borrow which doubles the IMF's
reserve tank. Last year in Lyon, the Summit leaders launched new initiatives to strengthen
emerging market financial systems and to strengthen the regulatory system in the major
financial centers.
In Denver, you' 11 see the fruits of this effort in several areas including:
•
Steps towards the establishment of a multilateral network of supervision appropriate to
today's global markets and global institutions.
•
Progress towards a framework of strong supervisory principles for the major globally
active financial institutions
•
New steps to improve transparency
•
Steps to reduce risk in payment and settlement systems; and
•
Endorsement of a concerted international strategy to assist emerging economies in
strengthening their financial systems, including a new, universally applicable set of
core principles for effective banking supervision.
These initiatives will help reduce the risks and costs of future crises.
The Challenge of Development
The third challenge on the Summit agenda is the challenge of development.
Today, democracy and free market principles are on the march around the world and, where
they have gone, development and prosperity have followed. Increasing openness and
0009
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-5 integration are creating new opportunities for increased prosperity by allowing countries to
specialize III those economic activities which they do best while promoting increased
competition and efficiency.
Never before has there been such dynamism in the developing part of the world. Developing
Asia today buys more of our goods than Europe. In Latin America, every country but one is
now a democracy and, after a lost decade, growth has returned to the region. In the transition
economies of Europe, a new orthodoxy of reform is paving the way for growth. The
integration of over 400 million people in Central Europe and the Former Soviet Union into the
world economy is a development with few parallels in history.
Only one region of the world has been left behind: Africa. Approximately 600 million people
or one tenth of the world's population have yet to fully participate in the global economy and
reap the benefits of integration. Over the past six years, Sub-Saharan Africa received on
average only 2.2 percent of net private capital flows to developing countries.
•
However, having just returned from the region I can say that, in many ways, there are
stronger grounds for optimism in sub-Saharan Africa today than at any time in a
generation.
•
Elections in more than 20 countries show that democracy can take root in Sub-Saharan
Africa. And as war and contlict have receded, growth has taken hold. Uganda grew
by 10 percent in 1995 and Ethiopia by an estimated 12.5 % in the last year.
To further this progress, the Summit leaders will endorse a broad international effort to
strengthen growth and development in Africa. Like our own efforts within the US government
to forge a new Partnership for Economic Growth and Opportunity with Africa, this strategy
will have two important dimensions:
•
First, to further integrate Africa with the global economy, we will endorse efforts to
improve access to markets for African exports.
•
Second, the International Financial Institutions including the World Bank and the IMF
will provide financing in support of reforms that encourage market opening and market
principles as well as debt relief to poor countries that undertake bold reforms.
In addition to initiatives directed at Africa, the Summit leaders will endorse a broad strategy to
fight corruption. I am struck by the fact that if you look under most banking crises, there's
always a degree of fraud and abuse, and there's often a large amount of criminal activity.
Corruption threatens growth and stability in many other ways as well: by discouraging
business, undermining legal notions of property rights and perpetuating vested interests.
The Sunnnit of Eight is urging nations by year's end to participate in an international
convention to criminalize bribery. The Summit leaders have also called on the Institutional
Financial Institutions to help countries reduce incentives and opportunities for corruption.
-6 -
Russia and Nato Enlargement
Finally, Denver marks a watershed in Russia's growing participation in the Summit Process.
This deepening of Russia's engagement in the Summit process reflects Russia's increased
stature on the world stage and its heightened commitment to work in close partnership with the
Seven. Russia has made significant progress in reshaping its economy. Having achieved
macroeconomic stabilization, its task now is to create the conditions for sustainable growth.
While it has far to go, 1997 has witnessed a renewed commitment to reform.
At the Helsinki Swnmit Presidents Clinton and Yeltsin committed to a joint initiative to
stimulate investment and groVv1h in Russia, deepen U.S. - Russian economic ties and accelerate
Russia's integration into the international economic system.
President Yeltsin committed to work toward comprehensive tax reform, promotion of foreign
investment, particularly in the energy sector, anti-crime laws, and ratification of the U.S.Russia Bilateral Investment Treaty.
For our part, we are eager to see Russia take on the responsibilities of membership in
international organizations. At Helsinki, the President pledged our best efforts to see Russia
join the Paris Club in 1997, the World Trade Organization in 1998 and the Organization for
Economic Cooperation and Development at an appropriate point in the future.
In its short existence the new economic team has moved swiftly, submitting both the new Tax
Code and a revised 1997 spending plan to the Duma and issuing decrees on key structural
reforms such as monopolies, housing, alcohol production and sales, and anti-crime measures.
Early signs of success are that the stock market continues to hit new highs while interest rates
on T -bills have sunk to under 2 % per month. In addition, the Central Bank's international
reserves continue to surge. In April and May alone, they have risen by more than $3 billion
and now stand at about $19 billion.
In addition, last month, Russia and Nato took the historic step of establishing relations with
one another. And Nato is currently considering applications by countries in Eastern Europe
for admission. The enlargement of Nato offers the promise, not only of political but of
economic security, and will create the conditions for further integration across the continent.
NATO enlargement will entail some costs which will be borne mainly by the new members
and our European allies. But it will bring major economic benefits for these states, for
Europe, and for American business. An enlarged NATO will strengthen the security
environment in Central Europe, thereby ensuring that the region's robust economic growth can
continue. Already, some $40 billion in foreign direct investment has flowed into Central
Europe--one-quarter of it from the US--and we expect another $40 billion to be invested by the
end of the decade.
-7NATO enlargement will also increase Russia's level of security and strengthen its integration
with the global economy. With Russia's participation in the Summit and the enlargement of
NATO, we are leaving the era of the Cold War even further behind and taking two important
steps into a new era of ever-widening and deepening global integration.
Conclusion
In conclusion, this Summit, more than anything else, will be about promoting integration and
prosperity around the world. That has been the guiding principle of the economic policy of
tllls Administration and it is the guiding principle of the Summit process. But I would further
suggest that it is US leadership that has been uniquely critical to moving this process forward.
The United States is the world's indispensable power. History has shown that whenever US
leadership has ebbed, the momentum to move forward on integration has slowed. But when
US leadership has been strong, the result has been cooperation, growth and prosperity. Our
challenge is to be the world's first non-imperialist, outward looking, continental power.
One area where leadership is particularly important is within the International Financial
Institutions. Surveys show that Americans believe that foreign aid should be held to under
10% of our budget. This reflects the mistaken belief that it is much higher. In fact, foreign
assistance costs about I % of our budget. The International Financial Institutions cost only one
tenth of that but yield far more in greater security and increased trade. By virtue of our
leadership role in these organizations, they are leveraged ways to advance our interests and the
principles of market-oriented reforms. Accordingly, it is vitally important that the US meet its
obligations to these organizations. It is wrong for the wealthiest country in the world to be
nearl y $1 billion in arrears to these institutions.
The great challenge we face today is to maintain broad support for US international1eadership.
It is much harder than during the Cold War because there is no longer a Communist threat to
motivate us and because there is a more populist approach to international economic policy
than there once was; I am confident that no one ever focus-grouped the Marshall plan.
~evertheless, we are making significant progress. And with this Summit here in Denver, I am
confident that we will take the next step toward strengthening our global economy.
I believe that if America can continue to lead, if we can remain a shining example to the rest
of the world and if we can continue to drive this process forward, then it will truly be said
when the history of this period is written, that the world's indispensable nation did what it had
to do to maintain the prosperity and keep the peace .
. - 30 -
DEPARTMENT
OF
THE
TREASURY
NEWS
. . . . . . . ._ _ _ _. .~/78~9~--_ _ _ _. ._ _ _ __
OffiCE OF PUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
EMBARGOED UNTIL 10 A.M. EST
Text as Prepared for Delivery
June 11, 1997
TREASURY EXECUTIVE OFFICE FOR ASSET FORFEITURE
DIRECTOR JAN P. BLANTON
HOUSE JUDICIARY COMMITTEE
Mr. Chairman, and to all the members of the Committee, good morning. My name is
Jan Blanton and I am the Director of the Department of the Treasury's Executive Office for
Asset Forfeiture. I am pleased to appear before you today to offer our views on H.R. 1835
and the changes it would bring about in federal forfeiture. With your permission, I would like
to make a brief opening statement after which I would be glad to answer any questions you or
the other members may have.
When I was last privileged to appear before your committee almost a year ago to speak
to the merits of a bill aimed at reforming civil asset forfeiture, I took as my theme the
reasoned progress that the Congress and law enforcement together have made over the years in
crafting and applying the forfeiture authorities we have today. That cooperative effort has put
federal law enforcement in a position where it can go after the proceeds and instrumentalities
of crime.
It has empowered us to be able to strike at the very core of criminal organizations. It
has become a pivotal element in our overall enforcement strategy. And it has even benefitted
the too often forgotten victims of criminal activity. In FY 1996, our Treasury Forfeiture Fund
alone oversaw the return of over $50 million to the victims of financial fraud. In the current
fiscal year, we likewise expect to return over 30 million taxpayer dollars recovered from a
Medicare fraud scheme. Financial fraud and health care fraud - just two of the areas in which
federal forfeiture helps the victimized.
We are neither unaware of nor insensitive to concerns that forfeiture law can and
should be further refined. The citizens of the United States will be comfortable with federal
forfeiture authorities as long as they have faith in the integrity of the program. That faith is
best secured by the legislature's enactment of needed statutory changes and by the executive's
development of program policies and guidance that reflect America's sense of fair play.
RR-1748
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
We have taken important measures in a number of areas to ensure that we fulfill our
end of this responsibility. In the last five years since the establishment of the Treasury
Forfeiture Fund, we have listened attentively to the criticisms of forfeiture programs. While
some of this has been directed to programs at the state and local level, we have heeded the
valid complaints and we have tightened up our program. We have stressed comprehensive
training for all Treasury forfeiture personnel - from our special agents and their supervisors to
our seized property managers. We have underscored the importance of considered and
responsible seizures and the need for pre-seizure planning that makes these possible. We have
emphasized quality in seized property management so that value, whether it be forfeited or
returned, is never carelessly diminished. And recognizing that justice delayed is often justice
denied, we have directed Treasury law enforcement to keep on top of their forfeiture
caseloads, especially with regard to the adjudication of administrative forfeitures.
We are doing whatever it takes to ensure that Treasury's forfeiture program always
affords due process - that it strives to notify all affected parties, that it invites arguments
against the intention to forfeit, that it accommodates the indigent and that it offers
opportunities to achieve just resolutions short of forfeiture in appropriate cases. In short, we
are striving not for advantage but for fairness.
How best to fulfill the other end of that responsibility for the public's faith in federal
forfeiture authority is what we are here today to consider. Forfeiture law should ensure its
recognition of basic protections afforded property rights. For instance, we share your support
of the concept of a uniform innocent owner provision and of shifting the burden of proof in
certain cases. But we must register our reservations about H.R. 1835.
These reservations center first upon how this bill would amend several sections of the
Tariff Act of 1930, codified in Title 19 USC, by:
•
•
raising the standard of proof from probable cause to clear and convincing evidence; and
by,
eliminating cost bonds to pursue a civil judicial proceeding.
We also have other reservations about how this bill would affect forfeiture authorities
beyond Title 19 by:
•
•
•
providing for appointment of counsel in any and all civil forfeiture actions;
providing for the release of seized property prior to forfeiture if the seizure causes
substantial hardship on a claimant; and
providing for a cause of action to release property pending the completion of the
forfeiture proceeding.
2
With regard to Title 19 civil forfeiture authorities, it is important to keep in mind that
these involve statutes concerning national self-protection. The Customs forfeiture laws served
as a template for much of the expanded criminal forfeiture authorities enacted during the last
two decades. If the application of the Title 19 forfeiture model to other titles of the code has
left some of these more recent forfeiture laws in need of changes, it is not because of
inadequacies in the Title 19 model. Let's reform what needs to be fixed and not weaken the
ability of the Treasury Department to protect the American public and hamstring federal law
enforcement in its fight against drug trafficking, fraud and i11egal arms trafficking at the
border. Amending Title 19 is not the way to implement civil forfeiture reform. We submit
that reform is best accomplished through our cooperative, measured efforts to implement
changes in the appropriate body of statutes.
While we can appreciate the overal1 reform intentions of H.R. 1835 , we fear that its
changes to Title 19 authorities wil1 have a significant adverse impact on Treasury forfeiture
activities. Customs laws codified in Title 19 are designed to prohibit the introduction of
contraband items into the United States, protect intel1ectual property rights along with the
public health and safety, facilitate trade and expedite the co]]ection of import duties. In
addition, at the border, our Customs Service stands in the place of numerous other federal
agencies, enforcing hundreds of provisions of law protecting the we]] being of America's
citizens.
It must be recognized that at the border Customs officers routinely detect goods being
imported or exported in violation of law. Many of these violations make the goods subject to
seizure and forfeiture. In such cases, Customs generally is not aware of all the facts and
circumstances surrounding the importation or exportation, though it does have probable cause
for the seizure and forfeiture. The Customs laws are designed around the fact that in this
border environment owners of the goods are in the best position to come forward with an
explanation of the transaction giving rise to the seizure. Accordingly, these laws require that
in a judicial proceeding the government must establish probable cause for the forfeiture; only
then does the claimant (who, again is in the best position to explain the facts sun:ounding the
importation or exportation) have the burden of proving that the goods are not subject to
forfeiture. Given that the time frame between seizure and forfeiture in these cases is very
short, it is all the more important for the owners to come forward with exculpatory
information as any other rule places the government at a tremendous disadvantage in border
enforcement. The changes proposed by H.R. 1835 would compromise the ability of the
United States Customs Service to fulfi]] its vital responsibilities, many of which include key
support of our foreign policy and national security. Not only will this bi11 make it more
difficult for the United States to deprive criminal violators of their ill-gotten proceeds but it
will also directly diminish the ability of the Customs Service to enforce restrictions and
prohibitions at the border.
3
We believe any bill must retain probable cause as the standard of proof under the
Customs laws when they are applied to traditional Customs cases. Without that standard,
Customs will be unable to accomplish the following seizures:
•
•
•
•
•
•
•
•
•
•
•
rocket fuel from going to Iran
vehicles carrying tungsten stolen from a bonded and sealed freight car from Canada
20,000 pairs of knock-off blue jeans illegally bearing a registered U.S. trademark
dangerous food products
adulterated or unlicensed drugs
images of sexually exploited children
illegal firearms
unsafe consumer products
the products of convict and slave labor
hazardous substances
pirated intellectual properties
All of these items threaten the safety, security and prosperity of the American people.
International trafficking in them undermines the benefits to be realized from an increasingly
open world economy. With free market economies proliferating and free trade agreements
expanding, this is not the time to disarm critical law enforcement authorities at the border.
Should such an unintended consequence of H.R. 1835 be permitted to occur, the green light to
fair and honest progress in international trade would be a green light also to the unscrupulous
and the corrupt.
Needed refinements today should not be allowed to obstruct the longstanding record of
effectiveness in serving the best interests of American citizens. We are available to work with
the Committee to help it strike a well-balanced reform that continues to ensure the faith of
Americans in the fairness of our federal forfeiture program.
Mr. Chairman, this concludes my opening statement. I will be pleased to answer any
questions you or the other members of the committee may have at this time. Thank you.
-30-
DEPARTMENT
OF
IREASURY!
...
1789
THE
TREASURY
NEWS
OmCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• %0220. (202) 622.2960
FOR IMMEDIATE RELEASE
June 3,1997
Robert E. Rubin
Secretary of the Treasury
Remarks to the BEA Awards Reception
June 3, 1997
I'd like to welcome all of you to this reception for the winners of the Bank Enterprise
Awards. These awards are part of an effort by the Clinton Administration to highlight
innovative private sector projects to provide financial services to distressed communities.
I have long thought -- and I know President Clinton shares this belief -- that this
country will never reach its full economic potential, unless we deal with the problems of the
inner city. Just think of the difference it will make in terms of reducing the costs connected
with social problems and increasing productivity if we can bring the residents of the inner
cities into the economic mainstream.
The prerequisites for progress fall into three categories: investment in people, through
education, and training; public safety; and economic development. At Treasury, we are
energetically involved in the last point, by bringing our broad expertise in the capital markets
to bear on these issues. One of the most important components of this is the CDFI Fund. The
Administration has fought hard to gain funding from Congress for the CDFI and I am pleased
to note that in the President's current budget there is $125 million eannarked for this fiscal
year and $1 billion over five years. One of the achievements we had in our budget negotiations
with the Republican leadership is that they have agreed that, no matter what the shape of the
final budget is, that amount for CDFI is a protected investment.
The Fund's aim is to expand access to credit and financial services in poor urban, rural
and Native American communities, areas where one of the biggest obstacles to economic
development is a lack of access to mainstream sources of private sector capital. The private
sector is the critical element in inner city development.
RR--1749
Ffn' press releases, speeches, public schedules and official biographies, call auT 24-hauT fax line at (202) 622-2040
As Robert Kennedy once said, "To ignore the potential contribution of private enterprise is to
fight the war on poverty with a single platoon, while great armies are left to stand aside.
Access to financial institutions is a fundamental tool the residents of these economically
distressed areas need to lift themselves out of poverty.
If
The CDFI Fund has two main programs, a CDFI program for specialized community
development financial institutions and a BEA program for mainstream banks and thrifts. The
BEA program complements the CDFI program by rewarding the financial institutions that are
increasing their lending and providing more financial services in distressed communities. The
BEA awards are given only after the activities have been implemented successfully, to ensure
that only completed activities are recognized and that the Fund's limited dollars are effectively
leveraged with private capital. The 38 banks and thrifts that received awards under the first
round of the BEA program include institutions located in 18 states and the District of
Columbia. These institutions provided nearly $66 million in support for CDPTs and $60
million in direct lending and services in some of the nation's most distressed communities.
This year we have received over 70 applications for the second round, up from 54 last
year -- a clear signal that more banks and thrifts are interested in reaching out to their
communities and CDFIs. Activities by the applicants would result in a total level of $90
million in investment and support for 96 different community-based institutions, as well as $28
million in lending and services provided directly by the banks and thrifts in distressed
communities. The second round of awards will be made in the early fall, after the proposed
activities have been completed.
One of the exciting developments of the BEA program is that many of the awardees are
choosing to reinvest the awards they receive for past efforts back into community development
projects. They are by no means required to do so. In this way, the CDFI Fund is getting
increased private sector leverage for federal dollars.
Citibank, for example, which was awarded $227,250 for providing investments of $1.5
million to 13 organizations serving distressed communities throughout the United States, is
using its award for activities that help build the capacity and skills of CDFIs.
Republic National Bank of New York was awarded a grant for providing loans and
operating grants totaling over $5 million to 21 community development organizations serving
New York City and the nation. I'm pleased to announce that Republic will now use its BEA
grant to leverage an additional $5 million in economic development and small business lending
in low and moderate income communities.
In California, Bank of America's Community Development Bank made nearly $25
million in multi-family housing, commercial real estate and business lending in distressed
neighborhoods across the state. This lending is expected to generate more than 185 units of
affordable housing and 300 jobs.
2
Now, with $1.1 million of its BEA award, I'm pleased to announce that the Bank will launch a
new national program to train professionals in community-based development organizations.
Finally, Key Bank, located in Portland, Maine, for example, was awarded $37,500 for
making a $250,000 investment in Coastal Ventures Limited Partnership, which will create
jobs by providing venture capital to small businesses for start-up and expansion. Key Bank
plans to use its entire award for community development purposes -- part will support a Small
Business Information Center in Lewiston, in partnership with the U.S. Small Business
Administration and part will capitalize an affordable housing loan pool.
Let me conclude by congratulating all the award winners. The examples I cited -- as
well as the those of the other award winners -- show that our efforts are paying off. The
partnerships between the private sector and government that we are creating are fostering a
synergy to promote growth in distressed economic areas. And that is a very good investment in
the long-term economic well being of not only the people who live in those areas, but all of
us. Thank you very much.
3
DEPARTMENT
OF
TREASURY
THE
TREASURY
NEWS
~/7~89~. . . . . . . . . . . ._
. . . . . . . . . . . . . .
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.. 20220. (202) 622·2960
FOR IMMEDIATE RELEASE
June 11, 1997
Contact: Rebecca Lowenthal
(202) 622-2960
MEDIA ADVISORY ON NEW $50 NOTE
FOREIGN PRESS CENTER BRIEFING SCHEDULED
B-ROLL AVAILABLE VIA SATELLITE THURSDAY
Secretary Rubin will join Federal Reserve Board Chairman Alan Greenspan and U.S.
Treasurer Mary Ellen Withrow to preview the Series 1996 $50 bill in a ceremony at 9:30 a.m.,
Thursday, June 12 at the Visitors' Center of the Bureau of Engraving and Printing at 14th and C
Streets, SW., Washington, D.C.
Press planning to attend this event must call the Office of Public Affairs at (202) 622-2960
by 6 p.m. today, Wednesday, June 11 with the following information: name of your press
organization, number of people attending and type of equipment.
Treasury Deputy Assistant Secretary (Federal Finance) Roger Anderson and William
Stone, First Vice President of the Federal Reserve Bank of Philadelphia, will hold a briefing for
foreign-based media at 12:30 p.m. Thursday at the Foreign Press Center, 14th & F Streets,
Washington, D. C.
Specimen notes will be available for photographs at both events.
A satellite feed that will include portions of the morning ceremony as well as B-roll of the
new notes in production will be transmitted via MEDIALINK satellite as follows:
SLUG:
FIRST DISTRIBUTION:
FEED TIME:
FEED COORDINATES:
(Technical assistance contact:
New $50 Bill
Thursday, June 12, 1997
2:15-2:45 pm EDT
C-Band Galaxy 9rrransponder 2
Mark Angelini, CONUS Communications at 202-467-5600)
SECOND DISTRIBUTION:
FEED TIME:
FEED COORDINATES:
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C-Band Galaxy 4rrransponder 14
Carolanne Holder 1-800-843-0677)
RR-l'T50
For press releases, speeches, public schedules and official biographies, call our 24.1zour fax line at (202) 622·2040
DEPARTMENT OF THE TREASURY
WASHINGTON, D.C.
June 11, 1997
ECRETARY OF THE TREASURY
The Honorable Bill Archer
Chairman, Committee on Ways and Means
U.S. House of Representatives
Washington, DC 20515-4005
Dear Bill:
I have reviewed the Chairman's Mark you released earlier this week, providing the details of the
tax portion of the bipartisan budget agreement. The President is eager to sign legislation
implementing the agreement into law, but in its present form, the proposal you have put forth
does not meet the test of fairness to working families and has other serious problems. I have
included preliminary Treasury distribution tables for your package after this letter. Our major
concerns are listed below.
Your bill will reduce the value of the $500 child credit for millions oflow income families by
requiring a family to take the child credit only after the earned income tax credit is taken against
their tax liability. A family with two children and $25,000 of income, for example, would
receive no tax relief from the child credit under your proposal. Under the President's plan, this
family would get $1,000, the same as a family that earned twice as much. We would favor a
refundable child credit that better targets low and middle income working families. The credit
should be indexed for inflation. We would also permit taxpayers to place their child credit into a
tax-favored savings account to finance their children's college education. In combination with
our tuition deduction, this proposal would allow families to save and pay for college tax-free.
The proposed legislation singles out six million families who pay for child care and gives them a
smaller tax cut. Beginning in 2002, families who receive a tax credit for their child care
expenses would lose 50 cents for each dollar of their child credit. This provision unfairly
reduces tax relief for working parents who are struggling to maintain a decent standard of living
and to pay for child care. For example, a family with two working parents making $45,000 who
pay for child care for their two children would seemingly be eligible for a $1,000 child tax
credit. But under the proposed legislation, they would also lose $480 of their child tax credit,
beginning in 2002.
The education package falls nearly $13 billion short of the agreed goal of $35 billion in tax cuts
for education, which are consistent with the HOPE scholarship and tuition deduction proposals in
the President's FY98 Budget. Furthermore, as compared to the President's proposals, it directs
more benefits toward upper-income families while reducing the benefits to lower-income families.
It introduces serious administrative complications and is less effectIve at easing the burden of
college attendance for working families.
RR-1751
• The HOPE credit would be cut to 50 percent of tuition expenses, halving the value of
education benefits for millions of students attending community colleges and other lowcost institutions.
• Unlike the broadly available tuition deduction in the President's package, the tuition
deduction in your proposal would be available only if education expenses are paid from
certain education savings plans. Hence, no help is given beyond the first two years of
higher education to low-income students and students who must borrow to pay tuition. In
addition, your proposal does much less to encourage lifelong learning, one of the central
objectives of the President's package.
• Tax-free savings offered through new education investment accounts and the opportuOlties
for tax-deferred saving through private prepaid tuition plans are overly generous to upper
income families, since they have neither income limits nor contribution limits. This would
give high-income taxpayers an incentive to use these vehicles to save tax-free, even if they
never intend to use the savings for education expenses. In the early years, the benefits for
education will only be available to those who already have large reserves of cash to deposit
in these accounts, not to others who can contribute only modest amounts each year.
The American Dream IRAs are not sufficiently targeted. Contributions could be made to these
back-loaded IRAs without any income limits, which would surely result in a substantial shifting of
existing savings into tax-preferred investment vehicles by high-income taxpayers, rather than
creating new savings.
The proposal to index certain capital assets and lower the rate of tax on capital gains provides a
double benefit to taxpayers, substantially overcompensating them for the effects of inflation. The
package would disproportionately benefit the wealthy over lower- and middle-income wage
earners. The package also has an explosive revenue cost in years after 2007, possibly jeopardizing
all our important work to balance the budget. In addition, the indexing proposal is enormously
complex and difficult to administer. To quote the New York State Bar Association, indexing is
"fundamentally flawed" and would create problems that would "overwhelm taxpayers and the
IRS."
In addition, we are concerned about the proposal to reduce the corporate capital gains tax rate. We
would propose expanding the existing exclusion for long-term equity investments in smaller
businesses. The expansion of the capital gains incentive for small businesses will help more startups get off the ground, and ensure that America continues to lead the world in high technology.
At a time when business conditions are strong and profits are at their highest share of GDP in two
decades, you have proposed to spend $34 billion over 10 years to eliminate the corporate
alternative minimum tax. This provision would return us to the days when some large and
profitable corporations could pay little or no tax.
Your plan contains other provisions that raise serious concerns The safe-harbor for independent
contractor status would permit employers to avoid essential worker protections. At a time when
we are trying to expand health and pension coverage, this proposal could lead to widespread
shifting of employees to independent contractor status, resulting in loss of worker protections such
as pension and health coverage, and consequently wage and hour protections, unemployment
insurance benefits and compensation for work-related injuries
Under your proposal, Indian tribes would be subject to the unrelated business income tax on all
income earned from commercial activities. Contrary to long-established U.S. policy, this tax fails
to respect the sovereignty of Indian tribes and their special status as domestic dependent nations.
This lack of respect for sovereignty is particularly apparent in the difference the proposal would
create between tribes and States. In addition, the proposal would be extremely difficult to
administer.
We are very disappointed that your proposal excluded a number of important inItiatives for the
President's FY 1998 Budget that were included in the budget agreement For example, the
Nation's mayors and urban and rural communities have been extremely supportive of the
President's brownfields provision, which provides a tax incentive for environmental cleanup and
encourages economic development in formerly contaminated areas. Your proposal excludes this
provision. And while tax relief is provided for the District of Columbia, no additional
Empowerment Zones or Enterprise Communities for the rest of the country are provided.
In addition, no provision is included to stimulate investments in Community Development
Financial Institutions to revitalize distressed neighborhoods around the country. No provision is
included for equitable tolling, which protects a taxpayer's rights when he or she is incapacitated, or
for restructuring our Nation's affordable housing portfolio.
Your bill also includes a provision to raise the debt ceiling. We believe that it should be included
in the other reconciliation bill.
In summary, we think this package disproportionately benefits the most well off in society at the
expense of working families. Given the tough choices that need to be made within this tax
package, we think it is unwise, for example, to eliminate the corporate AMT, while at the same
time denying tax relief provided by the child credit to millions of hard-working taxpayers with
children who receive the earned income tax credit Moreover, the provisions in the package that
drive up costs beyond the ten year budget window, are those that most advantage high-income
taxpayers.
We look forward to working with the Congress to design a tax package that helps working
families pay for education, buy and sell homes, and raise their children. We are committed to
achieving a tax package that is fair to all Americans.
\
0')
Robert E. Rubm
Enclosures
Very Preliminary
Major Tax Cut Provisions in the Ways and Means Chainnan's Mark (1)
(19!?~ 1"COn18
Levels)
Tax Change
Total Tax Change
Number
as a Percent at
Current
Family
Economic
of
Average
Percent
Federal
Family Economic
Families
Tax Change
Amount (3)
Distribution
Taxes (4)
Income
Income Quintile (2)
(millions)
(S)
lSM)
(%)
(%)
(%)
Highest
21.6
22.2
22.3
22.3
22.3
-17
-76
-295
-623
-2172
-357
-1691
-6574
-13856
-48354
0.5
2.4
9.2
19.5
67.9
-2.84
-2.75
-4.17
-4.49
-5.31
-0.17
-0.31
-0.69
-0.86
-1.17
Total (5)
111.3
-640
-71191
100.0
-4.90
-0.96
Top 10%
11.1
5.6
1.1
-3089
-4577
-12247
-34406
-25517
-13741
48.3
35.8
-5.20
-5.22
-5.29
-118
-1.21
-1.30
Lowest (5)
Second
Third
Fourth
Top 5%
Top 1%
19.3
June 11, 1997
Department of the Treasury
Office of Tax Analysis
(1) This table distributes the estimated change in tax burdens due to the major tax cut proposals in the Ways and Means Chairman's
Mark which include the following: i) child and dependent care tax credits, ii) a modified HOPE scholarship tax credrt, iii) a deduction
for education expenses paid through State-sponsored prepaid tuition programs; iv) education investment accounts and pnvate prepaid
tuition programs; v) American Dream IRAs; vi) Capital gains provisions (lower individual and corporate rates, indeXing of Individual
gains, and $500,000 exclusion for gains on a principal residence); v) individual AMT change and corporate AMT repeal; vi) District of
Columbia tax incentives; and vii) safe harbor for independent contractors.
(2)
Family Economic Income (FEI) is a broad-based income concept. FEI is constructed by adding to AGI unreported and underreported income; IRA and Keogh deductions; nontaxable transfer payments such as Social Security and AFOC; employerprovided fringe benefits; inside build-up on pensions, IRAs, Keoghs, and life insurance; tax-exempt interest; and imputed rent
on owner-occupied housing. Capital gains are computed on an accrual basis, adjusted for inflation to the extent that reliable
data allow. Inflationary losses of lenders are subtracted and gains of borrowers are added. There is also an adjustment for
accelerated depreciation of noncorporate businesses. FEI is shown on a family rather than a tax-retum i;)asis. The economic
incomes of all members of a family unit are added to arrive at the family's economic income used in the distnbutions
(3)
The change in Federal taxes is estimated at 1998 income levelS but assuming fully phased in (2007) taw and behaVior For the
American Dream and education accounts, the change is measured as the present value of the tax savings from one year's
contributions. The effect of the capital gains provision is based on the level of capital gains realizations under current law
(4) 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 individual income tax
IS
assumed to be borne by payors, the corporate
income tax by capital income generally, payroll taxes (employer and employee shares) by labor (wages and self-employment
income), excises on purchases by indrviduals by the purchaser, and excises on purchases by buSlOeSS In proportion to total
consumption expenditures. Federal taxes are estimated at
1998 income levels but assuming 2007 law and, therefore, exclude
prOVIsions that expire prior to the end of the Budget period and are adjusted for the effects of unindexed parameters
(5)
Families with negat~e incomes are excluded from the lowest quintile but included in the total ~ne.
NOTE: Quintiles begin at FEI of: Second $16,950; Third $32,563; Fourth $54,758; Highest $93,222; Top 10% $127,373:
Top S·'" $170,103; Top ,.'" $408,551.
Very Preliminary
Major Tax Cut Provisions in the Ways and Means Chairman's Mark (1)
(1998lnoome Levels)
Total Tax Change
Tax Change as a Percent of:
Number
Current
Family
Family Economic
of
Average
Percent
Federal
Economic
Income Class (2)
Families
Tax Change
Amount (3)
Distribution
Taxes (4)
Income
(000)
(millions)
($)
($M)
(GA.)
(GA.)
0-15
18.5
-14
-268
!
0.4
-2.87
...Q 17
...Q.28
15- 30
21.8
-62
-1363
1.9
-2.72
30-40
12.1
-167
-2014
2.8
-3.24
...Q48
40-50
9.7
-333
-3234
4.5
-4.43
...Q.74
...Q.83
50-60
7.9
-453
-3567
5.0
-4.54
60 -75
9.4
-548
-5159
7.2
-4.30
...Q.82
75 -100
11.7
-837
-9794
13.8
-4.88
...Q.97
100 - 200
200 & over
15.6
-1492
-23269
32.7
-5.37
-1.13
3.9
-5663
-22164
31.1
-5.24
-1.23
111.3
-640
-71191
100.0
-4.90
...Q.96
Total (5)
Department of the Treasury
June 11, 1997
Office of Tax Analysis
(1) This table distributes the estimated change in tax burdens due to the major tax cut proposals in the Ways and Means Chairman's
Mark which include the following: i) child and dependent care tax credits, ii) a modified HOPE scholarship tax credit, iii) a deduction
for education expenses paid through State-sponsored prepaid tuition programs; iv) education investment accounts and private prepaid
tuition programs; v) American Dream IRAs; vi) Capital gains provisions (lower individual and corporate rates, indeXing of Individual
gains, and $500,000 exclusion for gains on a principal residence); v) individual AMT change and corporate AMT repeal; vi) District of
Columbia tax incentives; and vii) safe harbor for independent contractors.
(2)
Family Economic Income (FEI) is a broad-based income concept. FEI is constructed by adding to AGI unreported and underreported income; IRA and Keogh deductions; nontaxable transfer payments such as Social Security and AFDC; employerprovided fringe benefits; inside build-up on pensions, IRAs, Keoghs, and life insurance; tax-exempt interest; and imputed rent
on owner-occupied housing. Capital gains are computed on an accrual basis, adjusted for inflation to the extent that reliable
data allow. Inflationary Io66es of lenders are subtracted and gains of borrowers are added. There is also an adjustment for
accelerated depreciation of noncorporate busines5e$. FEI is shown on a family rather than a tax-retum basis. The economic
incomes of all members of a family unit are added to arrille at the family's economic income used in the distributions.
(3)
(0Al)
The change in Federal taxes is estimated at 1998 income IeYefs but assuming fully phased in (2007) taw and behavior. For the
American Dream and education accounts, the change is measured as the present value of the tax savings from one year's
contributions. The effect of the capital gains provision is based on the level of capital gains realizations under current law
(4) 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 individual income tax IS assumed to be borne by payors, the corporate
income tax by capital income generally, payroll taxes (employer and employee shares) by labor (wages and self-employment
Income), excises on purchases by individuals by the purchaser, and excises on purchases by bUSiness In proportion to total
consumption expenditures. Federal taxes are estimated
at 1998 income levels but assuming 2007 law and, therefore,
provisions that expire prior to the end of the Budget period and are adjusted for the effects of unindexed parameters.
'5) Families with negative incomes are included in the total line but not shown separately.
exclude
,
i
:
I
DEPARTMENT
OF
THE
TREASURY
~~/78~9~. . . . . . . . . . . . . . . . . . . . . . . . . .. .
............................
OFFICE OF PUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASlDNGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
June 11, 1997
STATEMENT BY TREASURY SECRETARY ROBERT E. RUBIN
"The Administration continues to support the ethanol credits as evidenced by the proposed
extension of the excise credit for ethanol in the our ISTEA reauthorization proposal earlier this
year.'·
-30-
RR-I752
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
Remarks by
Alan Greenspan
Chairman
Board of Governors of the Federal Reserve System
Washington, D.C.
Announcement of
New Currency Design
Bureau of Engraving and Printing
Washington, D.C.
June 12, 1997
RR-1754
Thank you, very much, Mr. Secretary.
I needn't tell
you that the Federal Reserve is quite pleased to be part of this
event.
As many of you know, the Federal Reserve has the
responsibility of putting currency into circulation through the
banking system.
We are most gratified with the successful introduction
of the new $100 Note.
To date, more than one third of all $100
bills in circulation are Series 1996 notes.
These newly designed $50 Notes will be handled in the
same way as the old $50 Notes.
Banks obtain the currency they need for their customers
from their district Federal Reserve Banks, and they dispose of
surplus currency by returning it to their Reserve Banks.
In this process the Reserve Banks also determine
whether each Note is in good enough condition to be recirculated
and to verify each Note for genuineness.
Approximately two thirds of all Notes received by the
Reserve Banks in incoming deposits are fit enough to be
recirculated.
The remaining third -- which are worn out or soiled -are destroyed and replaced by new Notes obtained from the Bureau
of Engraving and Printing.
On average only nine Notes in every million are found
to be counterfeit.
(more)
-2-
The introduction of the new $50 currency will work the
same way as the introduction of the new $100 Notes.
The new $50s -- the second in the series -- will be
ready for circulation this fall.
As banks deposit Notes in the regular course of
business, the Reserve Banks will replace any older design Notes
with Notes of the new design.
The Reserve Banks and their branches around the country
provide currency to banks and other depositories in their
territories as these institutions need it.
Consequently, not all bank customers will be seeing the
new $50 Notes immediately.
I want to assure you that old Notes will not be
recalled or devalued.
All existing notes will continue to be
legal tender.
The United States has always honored its currency at
its full face value, no matter how old.
Our currency is trusted and accepted by people
throughout the world.
Because of this special status, the
protection of our currency from counterfeiting has long been a
priority .
... So, rest assured that the Department of the
Treasury and the Federal Reserve System remain firmly committed
to that goal.
(more)
- 3 -
And now, Mr. Secretary, I believe we are ready to
introduce the redesigned currency.
-0-
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NEW DESIGNS FOR YOUR MONEY
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Introduction of the Series 1996 Currency
There will be no recall or devaluation of u.s. currency already in circulation. The United States
always honors its currency at full face value, no matter how old. The new Series 1996 $100 notes
were introduced in March of 1996. The Series 1996 $50 notes, the next in the series, will be introduced in the fall of 1997. Lower denominations will be issued in order of decreasing value. The
new Federal Reserve notes will be phased into circulation, replacing older ones as they reach the
banking system. This multi-year introduction of the new series is necessary because of the timeintensive process and because it is important that sufficient inventory be produced to ensure worldwide availability of the new notes.
In conjunction with the Federal Reserve, the Treasury Department began in 1996 a worldwide public
education campaign with two primary objectives: (1) to communicate to the general public that there
will be no recall or devaluation; and (2) to provide information that will enable the public, law
enforcement personnel, central banks, depository financial institutions and other cash handlers to
authenticate the new series notes.
History of the New Series
Until the late 1920s, U.S. currency was redesigned frequently. There also were several types of notes
in circulation: United States Notes, National Bank Notes and Silver Certificates. Since the introduction of the Series 1928 Federal Reserve Notes, changes in the design, including the use of
microprinting and a security thread in Series 1990, have not affected the overall architecture of U.S.
currency.
The counterfeit-deterrent features added in Series 1990 were the first step in responding to advances
in reprographic technologies. Although these features have proved effective and will be retained,
additional measures are necessary to protect against future threats posed by continued improvements
in copy machines, scanners and printing. The new design, beginning with Series 1996, is the culmination of a five-year study aimed at staying ahead of the counterfeiting threat and is part of a continuing process to protect U.S. currency. At the same time, the redesign process has provided an
opportunity to incorporate features that will make U.S. currency more readily usable, especially by
the low-vision community.
The process began with the New Currency Design Task Force, which comprised representatives of
the U.S. Treasury Department, Federal Reserve System, U.S. Secret Service and the Bureau of
Engraving and Printing (BEP). The Task Force made its recommendations to the Advanced Cur-
RR-1755
rency Deterrence Steering Committee, also composed of representatives of the Treasury Department,
Federal Reserve, Secret Service and BEP. Based on a comprehensive study by the National Academy of Sciences, the Steering Committee then made recommendations for the new design and
security features to the Secretary of the Treasury, who has statutory authority to approve such
changes.
More than 120 security features were examined and tested, including those submitted in response to
a BEP solicitation, those used in other currencies, and those suggested by the NAS. Evaluation
criteria included impact on security, proven reliability, ability to be manufactured in large quantities,
and durability over time. Among the features evaluated were holograms, color shifting films, thread
variations, color patterns, and machine-readable enhancements. The strategy of the Design Task
Force was to incorporate as many features as are justifiable. The security features ultimately selected have proved successful in other countries as well as in test environments at BEP and the
Federal Reserve.
In its second report, the NAS evaluated features to help those with low vision differentiate between
currency denominations. These included variations in size and shape, holes and other tactile features
that the Task Force deemed were not sufficiently durable to be practicable for U.S. currency at this
time. The Task Force agreed that a high-contrast feature, such as a large numeral on a light background, would be useful to the approximately 3.7 million Americans with low vision, and could be
easily incorporated into the new series design without compromising the improved security of the
new notes or adding cost.
The Design Task Force will continue to seek and test new features to make U.S. currency even more
secure and more readily usable as technology further evolves.
The New Design
The new currency is the same size, color and feel as the old notes, with the same historical figures
and national symbols. "In God We Trust" and the legal tender wording also will remain on the new
bills. This continuity facilitates public education and universal recognition of the design as genuine
U.S. currency-an important consideration since there will be dual circulation of the old and new
currencies around the world.
The $50 bill includes several important security features. These features also appear in the $100,
with some variations:
•
A larger, slightly off-center portrait is the most noticeable visual change. The larger portrait
incorporates more detail, making it easier to recognize and more difficult to counterfeit. Moving
the portrait away from the center, the area of highest wear, will reduce wear on the portrait. The
$50 bill features a portrait of General Ulysses S. Grant.
•
Shifting the portrait off center provides room for a watermark, which is created during the papermaking process and makes it harder for counterfeiters to print. The watermark depicts the same
historical figure as the engraved portrait.
u.s. Capitol as viewed from the
•
The reverse of the new $SO note features a new engraving of the
west front.
•
Serial numbers on the new currency will differ slightly from old currency. The new serial numbers will consist of two prefix letters, eight numerals, and a one-letter suffix. The first letter of
the prefix will designate the series (for example, Series 1996 will be designated by the letter A).
The second letter of the prefix will designate the Federal Reserve Bank to which the note was
issued. In addition, a universal Federal Reserve seal will be used, rather than individual seals for
each Reserve Bank.
•
The use of a unique thread position for each denomination will guard against counterfeiting. In
the $SO bill, the thread is to the right of the portrait and glows yellow when held under ultraviolet
light; in the $100 bill, it is found to the left and glows red.
•
Color shifting ink changes from green to black when viewed from different angles. This feature
is used in the numeral in the lower right-hand comer of the bill front.
•
The side borders and the portrait incorporate microprinting, a printing technique using lettering
that can be read with a low-powered magnifier. Extremely small print ("USA SO" and a flag on
the $SO bill) appears as a thin line to the naked eye and yields a blurred image when copied. On
the $SO bill, microprinting can also be found in the side borders and in the portrait. On the $100
bill, similar microprinting is also used on Benjamin Franklin's coat.
•
The background of the portrait incorporates the technique of concentric fine-line printing, as will
the background of the picture on the reverse side. This type of fine line printing is difficult to
resolve properly on scanning equipment and to replicate accurately by other means of printing.
Although all denominations of currency will have security features, the number of features will vary
according to denomination. While the $SO and $100 notes have a full package of features, smaller
notes will have fewer and less sophisticated features. The basic appearance of all denominations will
not vary.
.u .... ·u.,,·
NEW DESIGNS FOR YOUR MONEY
u.
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•
US
"·
Technical Background
Security Features
The Department of the Treasury's Bureau of Engraving and Printing (BEP) is responsible for producing the new series currency. The Federal Reserve System is responsible for placing the new
series of currency into circulation. After extensive testing and evaluation of approximately 120 bank
note security devices, BEP selected several features, including: an enlarged off-center portrait,
watermark, concentric fine-line patterns and color-shifting ink.
Other pre-existing security features such as the security thread and microprinting are included in the
new notes and have changed only slightly.
Evaluation Criteria
Effectiveness
Counterfeit deterrent effectiveness was tested by reprographic
equipment manufacturers and government scientists. They also
considered the ease of public and cash handler recognition.
Durability
Durability was tested rigorously. Tests included crumpling,
folding, laundering, soiling and soaking in a variety of solvents
such as gasoline, acids and laundry products.
Developmental
The total cost was $765,000: $265,376 to fund National Academy of Sciences studies, and approximately $500,000 to purchase test quantities of features and carry out internal BEP
evaluations.
Production Costs
Research and production expenses will increase the cost of each
note by a fraction of a cent. The Federal Reserve is funding the
development and introduction of the new currency through
earnings the Federal Reserve receives primarily from interest on
its holdings of U.S. government securities.
Appearance
The currency still looks very American. The size of the notes,
basic colors, historical figures and national symbols are not
changing. New features were evaluated for their compatibility
with the traditional design of United States currency.
The New Security Features
Watermark
The watennark is fonned by varying paper density in a small
area during the papennaking process. The image is visible as
darker and lighter areas when held up to the light. The watermark does not copy on color copiers, thereby making it an easy
way to verify the note and making it harder to use lower denomination paper to print counterfeit higher denominations. It depicts the same historical figure as the engraved portrait.
Color-Shifting Inks
These inks used in the numeral on the lower right corner of the
face of the note, change color when the note is viewed from
different angles. The ink appears green when viewed directly
and changes to black when the note is tilted.
Concentric Fine-Line
Patterns
This type of line structure appears normal to the human eye but
is difficult for current scanning equipment to resolve properly.
The lines are found around the portrait on the front. and around
the historic building on the back.
Enlarged OfT-Center
Portrait
A larger portrait can incorporate more detail, making it easier to
recognize and more difficult to counterfeit. It also provides an
easy way for the public to distinguish the new design from the
old. The portrait is shifted off center to provide room for a
watermark and unique "lanes" for the security thread in each
denomination. The slight relocation also reduces wear on most
of the portrait by removing it from the center, which is frequently folded. The increased size is a help to people with low
VISIon.
Low-Vision Feature
Beginning with the Series 1996 $50 Federal Reserve Note, U.S.
currency will have a large dark numeral on the light background
on the lower right corner of the back. The numeral, which is
easier to read, represents the denomination and helps people
with low vision, senior citizens and everyone else in low-light
circumstances.
Pre-Existing Security Features
Security Thread
A security thread is a thin thread or ribbon running through a
bank note substrate. The thread in U.S. currency has printing
and on the new $50 note, micro-printing and graphics. The
thread in the new notes glows when held under an ultraviolet
light. In the $100 note it glows red, and in the new $50 note it
glows yellow. In addition, it is visible in transmitted light, but
not in reflected light. This characteristic makes it difficult to
copy with a color copier. Using a unique thread position for
each denomination starting with the new $100 note guards
against certain counterfeit techniques, such as bleaching ink off
a lower denomination and using the paper to "reprint" the bill as
a higher value note.
Microprinting
This print appears as a thin line to the naked eye, but the lettering easily can be read using a low-power magnifier. The resolution of most current copiers is not sufficient to copy such fine
print. On the $100 notes, microprinting appears in the lower left
corner and on Benjamin Franklin's coat. On the newly designed
$50 notes, microprinting appears on the side borders and in the
portrait.
S".U'''.
NEW DESIGNS FOR YOUR MONEY
~
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~
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.uS".US".
Advanced Copier and Printer Technology
Advanced reprographic technology improved dramatically during the 1990s. The technology is
expected to continue to improve into the next century. Some types of equipment are capable of
accurately reproducing the colors and fine-line detail of security documents and are seen as a threat
to currency.
Market surveys indicate that as quality, affordability, and availability increase, advanced equipment
will become the standard in offices, copy centers and printing facilities. The color copier/printer of
the '90s has been compared with the color television of the '70s. when color became the standard.
rather than the exception.
Of the new technologies, advanced copiers, printers, electronic digital scanners, color workstations
and computer software can present threats to currency. During the early '90s, the new technologies
used in advanced copiers and printers merged and interfaced with each other. This equipment does
not require extensive expertise to operate and is becoming widely accessible through copy centers,
corporate offices and even home use.
Advanced Full-Color Copiers
Advanced full-color copiers have evolved into a digital electrophotographic process utilizing digital
scanners and computer technology to produce high quality plain paper copies. Some of these copiers
interface with personal computers. The scanner portion of the copier can be used to scan an image
into the computer or as the computer's output device. In time. the high-end digital copiers may well
be able to reproduce much of the fine detail of currency.
Digital Scanners
Scanner equipment electronically scans an image or text from an original document and digitizes it
into a computer-readable form. Through the use of computer graphics software, the image may be
displayed on a screen and changed or combined with other images. The edited image then can be
stored in an electronic format, printed on a color output device or used to make offset or gravure
printing plates.
Scanner equipment is no longer confined to large printing, graphic design or advertising firms. Low
and medium-quality scanners are readily available to the individual. High-quality scanners are
readily available in copy centers and corporate offices. The scanners incorporated in some advanced
color copiers can interface with personal computers and graphics programs.
Advanced color copiers and printing equipment using this technology can be a security threat because of the flexible editing capabilities and fine-detail reproductions. As the price of this technology continues to drop. the availability of high quality scanners will increase.
Color Ink Jet Copiers and Printers
Color ink jet copiers utilize scanner technology to digitize an image, which is then reproduced using
ink jet printer technology. These machines, which are capable of producing good quality reproductions on plain paper. are widely available and inexpensive. Some of these ink jet copier machines
can interface with personal computers and graphics software. The machines then can be used to scan
an image into the computer or to output an image.
Personal Computers and Graphics Software
Personal computers and graphics software combine the latest personal computer, graphics software,
printer/copier, video and scanner technologies. The images can be stored indefinitely, copied electronically or transmitted to another location for printing. Output quality depends on the scanner and
printer dpi resolution capabilities. Printer resolution is of greater importance because scanner input
can be edited to enhance image quality. As the price of personal computer technology continues to
drop, the availability and use of this technology to counterfeit currency and other security documents
has increased.
*u.,,*u
.....
NEW DESIGNS FOR YOUR MONEY
a
17 ,
•
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*
·Department of the Treasury
Bureau of Engraving and Printing:
The U.S. Government's Security Printer
•
Since October 1, 1877, all United States currency has been printed by the Bureau of Engraving
and Printing, which began as a six-person operation using steam-powered presses in the Department of the Treasury's basement.
•
Now 2,200 Bureau employees occupy 25 acres of floor space in two Washington, D.C. buildings
flanking 14th Street. Currency and stamps are designed, engraved, and printed 24 hours a day on
30 high-speed presses. An additional 550 Bureau employees are at the Western Currency Facility
in Fort Worth, Texas, where currency is printed 24 hours a day, 5 days a week on 12 high-speed
presses.
•
In 1996, at a cost of 4 cents each, over 9.4 billion notes worth approximately $195 billion were
produced for circulation by the Federal Reserve System. Ninety-five percent will replace unfit
notes and five percent will support economic growth. At anyone time, $200 million in notes
may be in production.
•
Of total production, notes currently produced are the $1 (46 percent of production time), $2 (1
percent), $5 and $10 (10 percent each), $20 (20 percent), $50 (6 percent), and $100 (7 percent).
•
The Bureau also prints White House invitations and some 500 engraved items, such as visa
counterfoils, naturalization documents, commissions, and certificates for almost 75 federal
departments and agencies.
Tours
•
The Bureau of Engraving and Printing is one of the most popular tourist stops in Washington.
Almost 500,000 people visit the printing facility each year.
•
Free 20-minute guided tours are offered Monday through Friday, 9 a.m. - 2 p.m., except for
federal holidays and the week between Christmas and New Year's. Tours start on Raoul
Wallenberg Place (formerly 15th Street). During the summer months (June-August), afternoon
tours are given from 5 p.m. - 7:30 p.m.
•
Visitors can see press runs of 32-note currency sheets, examiners overseeing production to ensure
high-quality notes, the application of Federal Reserve and Treasury seals, and 4,000 note
"bricks" being readied for distribution to Federal Reserve Banks.
RR-1756
Visitors Center
•
At the Visitors Center, history, production, and counterfeit exhibits showcase interesting information about United States currency.
•
Many unique items can be purchased at the sales counter. Items include uncut currency sheets of
32, 16, or 4 $1 and $2 notes; $150 worth of shredded currency in plastic bags that are sold for $1:
engraved collectors' prints; souvenir cards; and Department of the Interior Duck Stamps.
Mail Order Sales
•
Persons wishing to receive notice of new Bureau products or to order by mail can write:
Mail Order Sales
Bureau of Engraving and Printing
14th and C Streets, S.W., Room 513-M
Washington, D.C. 20228
Credit card purchases of Bureau products are available by calling:
(202) 874-3316
Monday through Friday, 8 a.m. - 3:30 p.m.
NEW DESIGNS FOR YOUR MONEY
_USA-U.'"
The U.S. Secret Service and Counterfeiting
•
The United States issued its first national currency notes in 1861.
•
By the end of the Civil War, one-third of all U.S. paper currency in circulation was counterfeit.
•
On July 5, 1865, the Secret Service was created within the U.S. Departrrent of the Treasury with the sole
mission of suppressing counterfeit currency. In less than a decade, counterfeiting was sharply reduced.
•
To stem counterfeiting, the Secret Service works in conjunction with local, state, federal and
foreign law enforcement agencies.
•
The Secret Service also maintains close working relationships with the Federal Reserve Banks
and domestic as well as international commercial banking institutions.
•
During fiscal year 19%, a total of $205220,179 in counterfeit U.S. currency was seized or passed worldwide. Of this amount, 82%, or $169,288,300, was seized prior to circulation with no loss to the public.
•
From March 25, 1996 through March 15, 1997, there has appeared, worldwide, $14,524,800 in
counterfeit Series 1996 $100 Federal Reserve Notes. Of this amount, $14,023.500 was seized
prior to circulation with no loss to the public. This high seizure ratio is attributed to the new
security features present in the new notes.
In the U.S., the most counterfeited denomination is the $20 note, followed by the $100 note, the
$10 note, the $50 note, the $1 note, and the $5 note. The $100 note is the most common foreign
produced counterfeit note.
•
To aid in counterfeit investigations, agents use the Service's modem, well-equipped Forensic Services
Laboratory that includes: A complete library of specimen notes dating back to 1865; The largest
watermark file in existence; The largest ink library in existence; Equipment to examine and analyze
notes counterfeited by various types of printing methods as well as by office machine copiers.
•
During fiscal year 1996, the Secret Service had a 98.6 percent conviction rate for violations
investigated by the agency.
For further information, please contact:
United States Secret Service
Office of Government Liaison and Public Affairs
1800 G Street, NW, Room 805
Washington, D.C. 20223
Phone (202)435-5708
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The Federal Reserve:
Central Bank of the United States
Federal Reserve System
The Federal Reserve System was created by the Federal Reserve
Act, which was passed by Congress in 1913, to provide a safer
and more flexible banking and monetary system. For approximately 100 years before the creation of the Federal Reserve,
periodic financial panics had led to failures of a large number of
banks, with associated business bankruptcies and general economic contractions. Following the studies of the National Monetary Commission, established by Congress a year after the particularly severe panic of 1907, several proposals were put forward
for the creation of an institution designed to counter such financial
disruptions. Following considerable debate, the Federal Reserve
System was established. Its original purposes were to give the
country an elastic currency, provide facilities for discounting
commercial credits, and improve the supervision of the banking
system.
Economic Stability
and Growth
From the inception of the Federal Reserve System, it was clear
that these original purposes were aspects of broader national
economic and financial objectives. Over the years, stability and
growth of the economy, a high level of employment, stability in
the purchasing power of the dollar, and a reasonable balance in
transactions with foreign countries have come to be recognized as
primary objectives of governmental economic policy.
Currency Circulation
An important function of the Federal Reserve System is to ensure
that the economy has enough currency and coin to meet the
public's demand. Currency and coin are put into or retired from
circulation by the Federal Reserve Banks, which use depository
institutions as the channel of distribution. When banks and other
depository institutions need to replenish their supply of currency
and coin-for example, when the public's need for cash increases
around holiday shopping periods-depository institutions order the
cash from the Federal Reserve Bank or Branch in their area, and
the face value of that cash is charged to their accounts at the
Federal Reserve. When the public's need for currency and coin
declines, depository institutions return excess cash to a Federal
Reserve Bank, which in tum credits their accounts.
Unfit and Counterfeit
Noles
Federal Reserve
Noles
Cash Transfers
The Federal Reserve Banks and the U.S. Department of the Treasury
share responsibility for maintaining the physical quality of United
States paper currency in circulation. Each day, millions of dollars of
deposits to Reserve Banks by depository institutions are carefully
scrutinized. The Reserve Banks are responsible for receiving, verifying, authenticating, and storing currency and shipping it as needed.
Currency in good condition is stored for later distribution. Worn or
mutilated notes are removed from circulation and destroyed. Counterfeit notes are forwarded to the U.S. Secret Service, an agency of the
Treasury Department.
Virtually all currency in circulation is in the form of Federal Reserve
Notes, which are printed by the Bureau of Engraving and Printing of
the U.S. Treasury. The Reserve Banks are currently authorized to
issue notes in denominations of $1, $2, $5, $10, $20, $50, and $100.
Coins are produced by the Treasury's United States Mint.
Currency and coin are used primarily for small transactions. [n the
aggregate, such transactions probably account for only a small proportion of the value of all transfers of funds.
List of Federal Reserve System Locations
Board of Governors of the Federal Reserve System, Washington, D.C. 20551
Federal Reserve
Bank
Telephone
Number
BOSTON*
617-973-3000
NEWYORK*
212-720-5000
District
Address
600 Atlantic Avenue, Boston, Massachusetts 02106
2
33 Liberty Street (Federal Reserve P.O. Station), New York. New
York 10045
Buffalo Branch
716-849-5000
PHILADELPHIA
215-574-6000
3
Ten Independence Mall. Philadelphia, Pennsylvania 19106 (P.O.
Box 66, Philadelphia, Pennsyl vania 19105)
CLEVELAND*
216-579-2000
4
1455 East Sixth Street, Cleveland, Ohio 44114 (P.O. Box 6387,
Cleveland, Ohio 44101 )
160 Delaware Avenue, Buffalo, New York 14202 (P.O. Box 961,
Buffalo, New York 14240-0961)
Cincinnati Branch
513-721-4787
150 East Fourth Street, Cincinnati, Ohio 45202 (P.O. Box 999,
Cincinnati, Ohio 45201-0999)
Pittsburgh Branch
412-261-7800
717 Grant Street, Pittsburgh, Pennsylvania 15219 (P.O. Box 867,
Pittsburgh, Pennsylvania 15230)
RICHMOND*
804-697 -8000
5
701 East Byrd Street, Richmond, Virginia 23219 (P.O. Box 27622,
Richmond, Virginia 23261)
Baltimore Branch
410-576-3300
502 South Sharp Street, Baltimore, Maryland 21201 (P.O. Box
1378, Baltimore, Maryland 21203)
Charlotte Branch
704-358-2100
530 Trade Street, Charlotte, North Carolina 28202 (P.O. Box
30248, Charlotte, North Carolina 28230)
ATLANTA
404-521-8500
6
104 Marietta Street, N.W., Atlanta, Georgia 30303-2713
Birmingham Branch
205-731-8500
1801 Fifth Avenue, North, Birmingham, Alabama 35203 (P.O.
Box 830447, Birmingham, Alabama
35283-0447)
Jacksonville Branch
904-632-1000
800 Water Street, Jacksonville, Florida 32204 (P.O. Box 929,
Jacksonville, Florida 32231-0044)
Miami Branch
305-591-2065
9100 Northwest 36th Street, Miami, Florida 33178 (P.O. Box
520847, Miami, Florida 33152-0847)
Nashville Branch
615-251-7100
301 Eighth Avenue, North, Nashville, Tennessee 37203 (P.O. Box
4407, Nashville, Tennessee 37203-4407)
New Orleans Branch
504-593-3200
525 St. Charles Avenue, New Orleans, Louisiana 70130 (P.O. Box
61630, New Orleans. Louisiana 70161-1630)
CHICAGO*
Detroit Branch
ST. LOUIS
312-322-5322
7
160 West Fort Street, Detroit, Michigan 48226 (P.O. Box 1059,
Detroit, Michigan 48231)
313-961-6880
3 14-444-8444
230 South LaSalle Street, Chicago. Illinois 60604 (P.O. Box 834,
Chicago, Illinois 60690-0834)
8
~II
Locust Street, St. Louis, Missouri 63102 (P.O. Box 442, St.
Louis, Missouri 63166)
Little Rock Branch
501-324-8300
325 West Capitol Avenue, Little Rock, Arkansas 72201 (P.O. Box
1261, Little Rock, Arkansas 72203-1261 )
Louisville Branch
502-568-9200
410 South Fifth Street, Louisville, Kentucky 40202 (P.O Box 327
10, Louisville, Kentucky 40232-2710)
Memphis Branch
901-523-7171
200 North Main Street, Memphis, Tennessee 38103 (P.O. Box
407, Memphis, Tennessee 38101-0407)
MINNEAPOLIS
612-340-2345
Helena Branch
406-447-3800
KANSAS CITY
250 Marquette Avenue. Minneapolis. Minnesota 55401-2171 (P.O.
Box 291. Minneapolis, Minnesota 55480-0291)
100 Neill Avenue, Helena, Montana 59601
10
925 Grand Boulevard. Kansas City, Missouri 64198
Denver Branch
303-572-2300
1020 16th Street, Denver, Colorado 80202 (Terminal Annex-P.O.
Box 5228, Denver, Colorado 80217)
Oklahoma City Branch
405-270-8400
226 Dean A. McGee Avenue (P.O. Box 25129) Oklahoma City,
Oklahoma 73125
Omaha Branch
402-221-5500
2201 Farnam Street. Omaha, Nebraska 68102 (P.O. Box 3958
Omaha, Nebraska 68103)
DALLAS
214-922-6000
II
2200 North Pearl Street, Dallas, Texas 75222 (P.O. Box 655906,
Dallas. TX 75265-5906)
EI Paso Branch
915-544-4730
301 East Main Street, EI Paso, Texas 79901 (P.O. Box 100, EI
Paso, Texas 79999)
Houston Branch
713-659-4433
1701 San Jacinto Street, Houston, Texas 77002 (p.O. Box 2578,
Houston. Texas 77252)
San Antonio Branch
512-224-2141
126 East Nueva Street, San Antonio, Texas 78204 (P.O. Box 1471.
San Antonio, Texas 78295)
SAN FRANCISCO
*
816-881-2000
9
415-974-2000
12
101 Market Street, San Francisco, California 94105 (P.O. Box
7702, San Francisco, California 94120)
Los Angeles Branch
213-683-2300
950 South Grand Avenue, Los Angeles, California 90015 (Terminal Annex-P.O. Box 2077, Los Angeles, California 9005 I)
Portland Branch
503-221-5900
915 Southwest Stark Street, Portland, Oregon 97025 (p.O. Box
3436, Portland Oregon 97208)
Salt Lake City Branch
801-322-7900
120 South State Street, Salt Lake City, Utah 841 1 84111 (P.O.
Box 30780, Salt Lake City, Utah 84125)
Seattle Branch
206-343-3600
1015 Second Avenue; Seattle, Washington 98104 (p.O. Box 3567,
Seattle. Washington 98124)
Additional offices of these Banks are located at Lewiston, Maine 04240; Windsor Locks, Connecticut 06096; Jericho, New York 11753; East Rutherford, NJ 07073; Utica Oriskany, New York
13424; Columbus, Ohio 43216; Columbia, South Carolina 29210; Charleston, West Virginia
25328; Des Moines, Iowa 50306; Peoria, Illinois 61607; Indianapolis, Indiana 46206; and Milwaukee, Wisconsin 5320 I.
(9/95)
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NEW DESIGNS FOR YOUR MONEY
. Printed Materials
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Additional copies of the brochure, YOUR MONEY MATTERS, the 17" x 22" full-color folded
poster. and the 8-1/2" x I I" black and white flat poster are available for training, educational, and
consumer information purposes in reasonable quantities at no charge.
Brochures:
Posters:
Available in packets of 100. (For quantities of less than 100, please
contact your local Federal Reserve Bank.)
17" x 22" full-color folded. Available in packets of 10.
8 - il2 .. x I I" black & white flat. Available in packets of 10.
To order your materials, please fill out all of the information below and mail or fax to:
YOUR MONEY MATTERS
Federal Reserve Bank of Kansas City - Omaha Branch
PO. Box 3958
Omaha, NE 68103-0958
Fax Number: (816) 881-6850, (402) 221-5508
Contact Name _ _ _ _ _ _ _ _ _ _ _ _ _ Title _ _ _ _ _ _ _ _ _ _ _ _ _ __
Institution _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __
Asset Size (if applicable) _ _ _ _ _ __
Number of Offices (if applicable) _ _ _ _ __
Phone (__ ) _ _ _ _ _ _ _ _ _ _ _ _ _ Fax (__ ) _______________
Please send the following:
packets of 100 brochures, for a total of __ brochures.
packets of 10 folded 17" x 22" full-color posters, for a total of ___ posters.
packets of 10 flat 8-1/2" x II" full-color posters, for a total of ___ posters.
SHIPPING LABEL
Please type or print.
Name _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __
Institution _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __
Mailing Address _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __
City _ _ _ _ _ _ _ _ _ __
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State _______________ ZIP
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The History of Paper Money
In the early days of this nation, before and just after the American Revolution, Americans used
English, Spanish, and French currencies.
Colonial Notes
1690
Continental Currency
1775
Nation's First Bank
1781
The Dollar
1785
First U.S. Bank
1791
Monetary System
1792
Second U.S. Bank
1816
State Bank Notes
1836
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The Massachusetts Bay Colony issued the first paper money in
the colonies which would later form the United States.
American colonists issued paper currency for the Continental
Congress to finance the Revolutionary War. The notes were
backed by the "anticipation" of tax revenues. Without solid
backing and easily counterfeited, the notes quickly became
devalued, giving rise to the phrase "not worth a Continental."
The Continental Congress chartered the Bank of North America
in Philadelphia as the nation's first "real" bank to give further
support to the Revolutionary War.
The Continental Congress adopted the dollar as the unit for
national currency. At that time, private bank note companies
printed a variety of notes.
After adoption of the Constitution in 1789, Congress chartered
the First Bank of the United States until 1881 and authorized it to
issue paper bank notes to eliminate confusion and simplify trade.
The bank served as the U.S. Treasury's fiscal agent, thus performing the first central bank functions.
The federal monetary system was established with the creation of
the U.S. Mint in Philadelphia. The first American coins were
struck in 1793.
The Second Bank of the United States was chartered for 20 years
until 1836.
With minimum regulation, a proliferation of 1,600 state chartered, private banks issued paper money. State bank notes, with
over 30,000 varieties of color and design, were easily counterfeited. That, along with bank failures, caused confusion and
circulation problems.
Civil War
1861
Greenbacks
1862
The Design
1863
Gold Certificates
1865
Secret Service
1865
National Bank Notes
1866
Bureau of Engraving
and Printing
On the brink of bankruptcy and pressed to finance the Civil War,
Congress authorized the United States Treasury to issue paper
money for the first time in the form of non-interest bearing
Treasury Notes called Demand Notes.
Demand Notes were replaced by United States Notes. Commonly called "greenbacks," they were last issued in 1971. The
Secretary of the Treasury was empowered by Congress to have
notes engraved and printed by private bank note companies. The
notes were signed and affixed with seals by six Treasury Department employees.
The design of U.S. currency incorporated a Treasury seal, the
fine-line engraving necessary for the difficult-to-counterfeit
intaglio printing, intricate geometric lathe work patterns, and
distinctive cotton and linen paper with embedded red and blue
fibers.
Gold Certificates were issued by the Department of the Treasury
against gold coin and bullion deposits and were circulated until
1933.
The Department of the Treasury established the United States
Secret Service to control counterfeiting. At that time, counterfeits were estimated to be one-third of all circulating currency.
National Bank Notes, backed by U.S. government securities,
became predominant. By this time, 75 percent of bank deposits
were held by nationally chartered banks. As State Bank Notes
were replaced, the value of currency stabilized for a time.
The Department of the Treasury's Bureau of Engraving and
Printing started printing all U. S. currency.
1877
Silver Certificates
1878
Federal Reserve Act
1913
The Department of the Treasury was authorized to issue Silver
Certificates in exchange for silver dollars. The last issue was in
the Series 1957.
After the 1893 and 1907 financial panics, the Federal Reserve
Act of 1913 was passed. It created the Federal Reserve System
as the nation's central bank to regulate the flow of money and
credit for economic stability and growth. The System was
authorized to issue Federal Reserve Notes. now the only U.S.
currency produced and representing 99 percent of all currency in
circulation.
Standardized Design
1929
In God We Trust
1957
Security Thread and
Microprinting
1990
Currency Redesign
1994
Currency was reduced in size by 25 percent and with unifonn
portraits on the front and emblems and monuments on the back.
Paper currency was first issued with "In God We Trust" in 1957.
The inscription appears on all currency Series 1963 and later.
A security thread and microprinting were introduced to deter
counterfeiting by advanced copiers and printers. The features
first appeared in Series 1990 $100 and $50 notes. By Series
1993, the features appeared in all denominations except $1 notes.
The Secretary of the Treasury announced that U.S. currency
would be redesigned to incorporate a new series of counterfeit
deterrents. The $100 notes were issued in 1996. And the new
$50 notes, which for the first time incorporate a low-vision
feature, will be issued in 1997.
D EPA R TI\,l E N T
0 F
THE
T REA SUR Y
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANlAAVENUE, N.W. - WASIDNGTON, D.C. - 20220 - (202) 622-2960
EMBARGOED FOR RELEASE AT 9:30 AM EDT
June 12, 1997
REMARKS OF U.S. TREASURER MARY ELLEN WITHROW
PREVIEW OF THE NEW $50 BILL
Welcome to the Treasury Department's Bureau of Engraving and Printing, and thank you
for talcing part in this significant event. I am delighted that Secretary Rubin and Chairman
Greenspan could be here with us to preview the second note of our new Series 1996 currency. I
also am pleased that joining us are Governor Edward Kelley of the Federal Reserve, our new
director of the Secret Service, Lewis Merletti, the director of the Bureau of Engraving and
Printing, Larry Rolufs, and Patricia Beattie--whose work in important positions with not one, but
three, organizations representing the visually impaired--have earned her widespread respect. Let
me also recognize Governor Suzanne Phillips of the Federal Reserve and Treasury Under
Secretary John Hawke, who are seated in the audience along with our invited guests from the
aging and low-vision communities.
I am especially delighted to be participating in this event at this place -- the Bureau of
Engraving and Printing, where so many people have labored long and hard to undertake the first
major change in our currency in almost seven decades. Many of those who have participated in
the development of this new generation of currency are in the audience today, and I would like to
extend my personal thanks to them for making the new notes -- and my signature on them -- look
so good.
Since the $100 bill was issued a little over a year ago and even in the months before, I
have spoken to countless people around the country and around the world about the changes to
our currency. I have met with schoolchildren -- who, not surprisingly, are fascinated with
everything about money -- as well as with chambers of commerce. I have met with rotary clubs,
bank officials, travel agents, and members of the news media. I can tell you it has been a labor of
love. Indeed, helping to oversee this introduction process has been one of the most satisfying
aspects of my job as United States Treasurer.
Our public education campaign has informed millions and millions of people about our
redesigned currency. Pamphlets and posters are being distributed across the globe. We are
RR-1759
Fur press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
-2-
reaching out to the news media of the world to carry to the word about the changes in United
States currency. Yes, we have worked hard to ensure that the people who use our currency,
depend on our currency, trust our currency, know about the new series of notes and know how to
verify their authenticity.
At the end of this short program, we will unveil the new $50 bill -- and the striking new
universal design feature that is meant to aid virtually everyone who uses the currency. But first,
we would like to remind you why the new series is essential and what changes lie ahead. Of
course, change usually takes time to accept, but I think you will be pleased with the results of our
work.
And now, it is my distinct honor to introduce the Secretary of the Treasury, Robert Rubin.
DEPARTMENT
TREASURY
OF
THE
TREASURY
NEWS
.......................................:DI78~9:.......................................
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C .• 20220. (202) 622-2960
EMBARGOED UNTIL 12:45 P.M. EDT
Text as Prepared for Delivery
June 12, 1997
Contact: Kelly Crawford
202-622-2960
PROMOTING GLOBAL FINANCIAL STABILITY: THE G-7 AGENDA
DEPUTY SECRETARY OF THE TREASURY LAWRENCE H. SUMMERS
INSTITUTE FOR INTERNATIONAL ECONOMICS
WASHINGTON, DC
Injust over a week, the G-7 Heads of State and Government, together with Russia's President
Yeltsin, will meet in Denver for the Summit of the Eight. There, the leaders will discuss an
important array of challenges facing the global community in shaping arrangements to promote
lasting peace, broaden prosperity and address global concerns.
The Denver economic agenda is part of a multi-year effort to work with other nations to build
a global economic system ready for the 21 st century --a system in which trade, investment, capital,
information and know-how can flow freely to where they can be used most effectively in creating
wealth. And a system in which all countries can participate. Growing integration of the global
economy will also create the basis for sustained prosperity at home, by providing vast new
opportunities for cutting-edge U.S. firms in the global marketplace.
A crucial aspect of building the global economic system is ensuring that international
financial markets remain strong, stable and resilient. In Denver the Heads of State will endorse a
set of important initiatives to strengthen financial stability. I would like to focus my remarks today
on this part of the Summit agenda, but I would be happy to answer any questions you have following
my remarks on the broader economic issues we face in Denver.
The Summit financial agenda is important because strong financial systems are critical to
economic prosperity. One need only look back at history --to the Great Depression --to understand
the havoc that widespread failures of financial institutions and collapse of markets can cause. More
recently, people have literally died in the streets of Albania due to the failure of financial regulation.
Over the course of this century, the United States has developed step-by-step the institutions and
laws needed to effectively supervise the domestic monetary and banking system and to regulate
securities markets, establishing the Federal Reserve System, deposit insurance, and the entire
framework of securities and banking law now in place.
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For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
We are now in the process of trying to replicate at a global leyel the types of safeguards
against risk that have been so important to gro\\th in the United States. The United States has taken
a leadership role in the last several years through the G-7 and international fora of financial
regulators on a range of initiatives to promote further international cooperation to reduce risks in
global financial markets. The Denver Summit will mark an important step along this path.
Before describing these initiatives in some detaiL let me try to place recent developments in
the evolution of financial markets into perspective.
Growth of International Financial Markets
In the last 15 years we have seen truly breathtaking developments in the growth of
international financial markets. Financial liberalization and integration, innovation in information
and communication technologies, and the development of new financial products have combined
to create a global financial market where cross-border capital flows exceed a trillion dollars a day.
The speed of capital flows and transmission of price movements have increased dramatically as
markets have become more integrated and complex. Products such as financial futures and options,
and interest rate and currency swaps, have mushroomed in importance, creating tighter links across
markets. Large financial firms from major financial markets operate on a global basis, and the
distinctions between banks and securities firms have become blurred. It is clear now that we now
have one global financial market, where investors. borrowers and financial firms from a growing
range of countries are participating.
Some of the most dramatic developments have been in emerging economies. Consider the
following:
•
Last year over $250 billion in private capitaL in the form of direct investment,
portfolio flows and bank loans flowed to emerging markets, compared to $25 billion
in 1986. It was not too long ago when official flows exceeded private flows to these
economIes.
•
There has been a dramatic increase in the number of countries with access to
international capital markets. Just in the last two years, 31 countries have tapped
global financial markets for the first time, bringing the total number with access to
56. Across the emerging markets public enterprises,.-private companies, and even
sub-national governments have been able to access global capital markets.
The dramatic growth and innovations in the international financial system growth
have brought tremendous benefits to the global economy by increasing access to capital for
businesses, speeding development in emerging economies. enabling investors to seek higher
returns and greater diversification of risk. and allowing business and financial firms to better
manage their balance sheets.
2
At the national level, financial sector development and integration promotes a
virtuous circle of economic progress by creating the conditions for further economic reforms,
increasing access to capital and improving the efficiency by which savings are mobilized and
invested, which can lead to further capital market development.
The United States has been at the forefront of efforts to build a truly global capital
market by supporting efforts aimed at liberalizing capital flows, developing domestic
financial markets and promoting greater access by foreign financial firms to domestic
markets. This is an integral part of our strategy to build a global economy and to spread
prosperity.
However, this new financial environment is not without its risks. As Robert Merton
has said, it's a bit like the impact of the interstate highway system --people get places faster
and new opportunities are created, but accidents can be much worse. This new financial
environment poses some new challenges:
•
The IMF reports that two-thirds of its member countries have had significant banking
problems over the last fifteen years. The fiscal costs have claimed a significant share
of domestic resources, ranging from about 3% of GDP for the S&L crisis in the U. S.
to 30% of GDP for Chile in the 1980s.
•
Mexico's 1994 financial crisis reverberated throughout the international financial
system.
•
"Rogue traders" have brought a number of financial institutions to their knees.
The main concern of the monetary authority is systemic risk --the possibility that the
failure of a major financial firm, or a disruption in one financial market or country, could
have contagion effects on other firms and markets, with serious adverse economic
consequences. This is important because the consequences of financial crises are not just
economic, but can affect political stability and the conditions necessary for maintaining a
democratic society.
Promoting Global Financial Stability: The G-7 Agenda
In response to these risks, the G-7 has undertaken a variety of initiatives to ensure
that the international architecture --the IMF, the various cooperative fora of the major
monetary authorities, and the international regulatory bodies --stays abreast of the frontier
of developments in the major financial markets. President Clinton started this process with
his proposal at the Naples Economic Summit in 1994 to undertake a broad set of reforms to
help make the international financial architecture better able to meet new challenges in the
world economy.
3
The financial part of this initiative has been directed. as Secretary Rubin has said, at
making our institutional framework for dealing with systemic risks as modem as the markets.
Just as war is too important to be left to the generals and economic policy is too important
to be left to the economists, financial regulation is too important to be left only to the
regulators. We want to ensure that the benefits of the global financial market are fully
realized, while the risks are reduced.
Managing Sovereign Financial Crises
The first phase was directed at efforts to strengthen the international monetary system
as a whole. The first series of proposals was intended to reduce the risk of and to better
manage future sovereign financial crises. These initiatives included:
•
Early warning and prevention of financial crises, through strengthened IMF
surveillance procedures and adoption by the IMF of data disclosure standards for
countries seeking to borrow in the global capital markets. It is hard to
over-emphasize how important a factor transparency is in bringing problems to the
light of day before they become serious. The development of the U.S. Generally
Accepted Accounting Standards (GAAP) and the disclosure requirements in the
securities laws were critically important to the development of U.S. securities
markets. The IMF data disclosure standards are a significant step toward greater
transparency.
•
Enhancing international financing arrangements for crises, through the IMF's
emergency financing mechanism; and the agreement to establish the New
Arrangements to Borrow (NAB), in which the G-IO and 13 non-G-IO countries plus
Hong Kong agreed to expand the financial resources available to the IMF in financial
cnses.
•
And new proposals for market-based responses to sovereign liquidity crises .
We managed the Mexico crisis successfully, but we did so in an ad hoc fashion. With
the new proposals, we believe that the international community will be better able to help
forestall a future sovereign financial crisis, and to manage the impact if one does occur.
Strengthening Financial Systems in Emerging Economies
The second phase of this effort was directed at the micro level, at strengthening
prudential safeguards in the emerging markets and in the major financial centers.
In April a Working Party established following the Lyon Summit outlined a broad
strategy for strengthening financial systems in emerging markets.
4
The major elements of the strategy include:
•
A consensus on the key features of sound financial systems, reflected in sound
principles and practices developed by international financial regulatory groups such
as the Basle Committee and IOSCO through a consultative process.
•
A concerted effort by the international financial institutions to assist countries in
adopting these standards.
•
Reliance on market discipline as an incentive for national supervisors and private
firms to adopt sound supervisory practices and for firms to improve corporate
governance and disclosure.
I think it is fair to say that observers have been surprised at the extent of progress
that has been achieved over the last year --we've come further. faster than most would have
imagined. We have embraced many of the elements of Morris Goldstein's proposal for an
International Banking Standard, and where we took a different approach we are convinced
we made the right choice. In addressing complex international concerns of this type, you
can't get anywhere without first reaching a shared understanding on what should be done and
who should do it. That we have accomplished. There is a danger in trying to seek agreement
on standards at any cost, and we recognized that sometimes floors can become ceilings.
While strengthening financial systems will take longer in some countries than in
others, we believe that the momentum generated by the efforts now underway will help
tremendously in speeding progress toward that goal.
Strengthening International Cooperation in Financial Market Supervision
In addition to the focus on emerging markets. the 0-7 also has tried to give new
impetus to international cooperative efforts to strengthen prudential safeguards in the major
financial centers. These initiatives, which will be endorsed at the Denver Summit, include:
•
Steps to develop a global network that will enhance the ability of the regulatory
community to supervise internationally active firms. These arrangements are
intended to close gaps in the system, reduce opportunities for regulatory arbitrage,
remove barriers to the exchange of information and facilitate effective responses in
the event of emergencies.
•
Progress toward agreement on a framework of superViSOry principles for
globally-active financial institutions.
5
•
Improve transparency, particularly reporting and disclosure of derivatives exposures;
and development of supervisory tools to better understand and guide risk
management processes at internationally-active firms.
•
Efforts to reduce settlement risk in foreign exchange markets and to work with
securities regulators to implement a disclosure framework for securities settlement
systems.
The development and implementation of these proposals is being undertaken by the
competent groups of supervisory and regulatory authorities --the Basle Committee, IOSCO,
the BIS Committee on Payments and Settlements Systems, the International Association of
Insurance Supervisors, and the Joint Forum (of banking, securities and insurance regulators).
The role of the Heads of State and Finance Ministers has been to provide encouragement and
some political momentum, rather than to impose a specific design on the regulatory
community.
It is critical for the private and public sector to engage in a constructive dialogue as
the supervisory framework for global firms evolves. I would like to acknowledge the recent
contributions of the Institute oflnternational Finance and the Group of Thirty in this area.
There are a number of elements in their studies that are consistent with and supportive of the
approach of the regulatory community, including the emphasis on the need to strengthen
supervision of globally-active financial institutions, including through a comprehensive
assessment of risk; and to improve information sharing between supervisors. The private
sector has taken a responsible approach by embarking on these initiatives, which we hope
will support the efforts of the regulators in a productive fashion.
The Summit leaders will also endorse an important report of the international
implications of electronic money developments. This report by a G-lO working party,
comprised of finance ministries, central banks, bank supervisors and law enforcement
authorities, outlines a set of key considerations to help guide national approaches to
electronic money systems. We succeeded in getting the major markets to appreciate the
importance of a balanced approach to this issue that would promote innovation, avoid
premature or excessively rigid regulation, and keep the field open for both bank and
non-bank potential issuers. Keeping the supervisory system abreast of innovation without
constraining innovation will continue to be an important priority.
Looking Fonvard
These initiatives have a lot of promise. They are designed to help make the system
more safe, not to eliminate risk, not to insulate investors or governments or firms from risk
or the consequences of bad decisions, and not to extend the supervisory net beyond where
it should be extended. They cannot make up for failures of macroeconomic policy. And
they cannot substitute for the political will necessary for action by governments.
6
The test of the success of these initiatives will be easy to measure. It will be evident
in how quickly the gap closes between the quality of disclosure by financial institutions in
New York and those in Japan and Continental Europe. It will be evident in how accurately
the market prices different risks across sovereign issuers and financial institutions. It will
be evident in whether supervisory authorities are in fact able to obtain from their counterparts
in other countries the information necessary to assess risks to the firm on a comprehensive
basis. And it will be evident in how resilient the system proves to be in the face of future
shocks that affect markets and countries.
There is some risk that recent events in South East Asia and other countries could
lead to a reassessment of the merits of capital account liberalization. The right lesson is that
integration of domestic capital markets with global financial markets brings important
benefits, but it must be accompanied by sound macroeconomic policies, improved financial
market supervision and deeper structural reforms to the domestic economy in order to avoid
imbalances that can lead to macroeconomic instability.
As the global economy and global financial markets evolve, official arrangements
will have to keep pace to ensure that their benefits are realized and the system stays resilient.
We need to focus on making the financial highways safe and fixing the potholes, not
imposing limits on innovation or restrictions on integration.
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7
DEPARTMENT
OF
TREASURY
THE
TREASURY
NEWS
~~178~9~. . . . . . . . . . . . . . . . . . . . . . . . . . . .. .
............................
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE. N.W.• WASlDNGTON. D.C .• 20220. (202) 622-2960
Text as Prepared for Delivery
June 12, 1997
Treasury Secretary Robert E. Rubin
Council for Electronic Revenue Communcation Advancement
Washington, D.C.
I appreciate the opportunity to appear before you today. Cerca plays an important role
in discussions about the IRS by focusing on electronic filing, which is an extremely important
aspect of the future of the IRS. And although your particular interest may be in electronic tax
administration, I know that you have a strong interest in working toward a well functioning
IRS for years to come.
Just as Cerca is looking toward the future with respect to the IRS, so is the Treasury
Department. We are keenly aware that the IRS has significant problems, and is in need of
repair. But I also believe that there is a right way and a wrong way to reform the IRS. The
wrong way is to proceed with reform injudiciously, which could undermine the credibility of
the tax system, and risk funding critical functions of government. Today, I would like to
speak with you about what I consider to be a central issue of IRS reform; that is the question
of who should run the IRS.
It goes without saying that no one likes to pay taxes. Yet, all too frequently we forget
the vital role the IRS plays in the functioning of government. Roughly 95 percent of all federal
funds comes from the collection of the IRS. The revenue that the IRS collects funds
everything from fighter jets to Medicare checks to grants for college education. The basis for
any reform of the IRS must be that we do not interfere with the collection of that revenue, and
thus, put at risk these vital functions of government.
Since coming to the Treasury Department, I have devoted an enormous amount of time
working towards solutions of the problems of the IRS. We have one objective with respect to
the IRS, and that is to make sure the IRS is effective at fulfilling its mission for the American
people. The problems of the IRS have developed over decades and we will not be able to solve
them overnight, but we are committed to fixing these problems and changing the IRS
responsibly. We believe we are well on the way toward important changes and improvements.
We must not be put off course now.
RR-1761
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
In some areas, we have made real progress. The IRS just completed a very successful
filing season and we have already issued over 65 million refunds. Electronic filing was up 19
percent to over 14 million electronic returns and telefiling was up 65 percent to over four
million returns. There were more than 140 million hits on the IRS WEB site. While these
numbers are certainly impressive, with your help, I believe we can do better. Increased -- and
better use -- of technology increases efficiency, lowers costs, and is more convenient for
taxpayers.
We have made real changes in other areas. As you all know, computer systems have
been the source of much-publicized difficulty at the IRS. A little over a year ago, the IRS and
Treasury pledged to make a sharp turn in this area. We hired a new Chief Information Officer
with a strong record on tax systems, who has won high regard by those who monitor the
activities of the IRS. Under his guidance, the IRS has reduced 26 separate projects to nine.
The IRS has now released for public comment its long-term Modernization Blueprint to guide
the overhaul of the IRS technology systems. The plan, devised after months of extensive
consultations with private and public sector experts, replaces today's patchwork with a
coherent system and breaks dramatically with the past by establishing a strategic partnership
with the private sector. So far this blueprint has been favorably received.
These steps were taken under the direction of a new Modernization Management
Board, which includes representatives from Treasury, the Office of Management of the
Budget, and the National Performance Review and which is chaired by Deputy Secretary Larry
Summers.
Last month we also announced our plan for enhanced oversight of the IRS. Our plan
combines permanent, intense and ongoing oversight of the IRS by Treasury with a new
Advisory Board of private citizens empowered to advise us and report annually to the
taxpayers and the Congress. Our approach achieves the critical objectives of continuity,
through a five year term for the Commissioner, outside input through the Advisory Board, and
accountability, through frequent reporting to Congress, without putting at risk the progress we
have made to date, or the critical functions of government.
Our plan not only provides for substantial oversight, but it also continues the synergies
that exist between IRS and Treasury. After months of studying the IRS, we have reached the
conclusion that the best way to reform the IRS, serve the American taxpayers and protect
revenue flows is by establishing strong public accountability informed by private sector
expertise.
As many of you know, last week, the National Commission on Restructuring the
Internal Revenue Service, under the leadership of Senator Kerrey and Congressman Portman,
announced their proposal for changing the IRS. Their proposal is an important contribution to
the debate on the future of the IRS and they offered a number of constructive suggestions,
many of which I agree with.
2
However, there is one area of their proposal with which I disagree with strongly. The
Commission has proposed that the Internal Revenue Service be governed by an outside board
of private citizens who serve on a part-time basis. Let me share with you a few of the reasons
why I believe this proposal is fundamentally flawed and would threaten some of our most
important government functions.
First, running the IRS is not a part-time job. We cannot afford to experiment by
placing such an important function like the IRS under the jurisdiction of sporadic part-time
management. Meeting only every month or so, there is a real possibility that the management
would not be able to provide energetic, robust, ongoing oversight of an enormous agency with
103,000 employees. Under the Treasury plan, the Deputy Secretary chairs the oversight board
and, of course, the Secretary is involved in a meaningful way as well. Having the IRS under
the supervision of full time Treasury senior officials who are there when they are needed is
absolutely critical.
Second, we cannot impose private sector solutions on the public sector. I believe that
the Commission's position is based on an overly simplistic interpretation of private sector
practices. Outside boards of directors can work well in the private sector. No one, least of all
I, would challenge the value of private sector input. But if there is one thing that I have
learned after 26 years in the private sector and four and one-half years in government, it is that
there are important differences between the two. For example, the private sector is accustomed
to considering efficiency and profitability. Obviously there are important but broader concerns
in government such as privacy, law enforcement, and fairness. We agree there is a need for
private sector input, but that input should be used properly, and without compromising other
objectives. I believe our proposal for the Advisory Board strikes the right balance.
Third, there will be real and apparent conflicts of interest. Having the private sector set
the budget, make personnel decisions, or implement policy will inevitably open a Pandora's
Box of conflicts of interest, both real and apparent, which could paralyze the Board's
activities. This, in turn, would undermine the credibility of the tax system, which is very
dangerous for our society.
There are also a range of constitutional issues, which in itself creates an element of
uncertainty. There are, in short, real risks with this proposal, both in the short term while we
debate this proposal, and then if the proposal is adopted, there is a long term risk it simply will
not work. We cannot afford that kind of risk with the agency responsible for funding so many
of the functions of government that are critical to our society. We need to continue our efforts
to get the IRS on track, but do it the right way. We believe that our plan does that, without
unnecessary risks.
There are many issues that I have to deal with as Secretary of Treasury, and that Larry
Summers has to deal with as Deputy -- from the budget and other economic issues to a wide
range of law enforcement issues. The easiest thing to do would involve relinquishing the
3
responsibility of governing the IRS, but, in our view, that would be an abdication of our
responsibility. Making the IRS the kind of institution we envision requires the Secretary and
the Deputy Secretary to be in a position of leadership and, more importantly, accountability.
Our plan provides for that kind of accountability by institutionalizing a structure that
will hold the Secretary accountable by requiring reports to Congress every six months. With a
five year term for the Commissioner, our plan provides for continuity and non-partisanship. In
short, our plan provides for effective, proactive, ongoing oversight. The elements of our plan
that have already been implemented are working -- we should not be delayed or impeded as we
continue this progress.
As a final point, I do think that some people proposing new risky governance ideas
really do so because they think these are in the best interest of the IRS and American
taxpayers. But I think there are other people who may very well be motivated by other
agendas. Some would really like to see the IRS, and more broadly our government diminished,
and our tax system replaced. I believe we should simplify the tax system, but not by replacing
our progressive system of taxation. We must not allow that kind of back-door policy making.
We are at a crossroads with respect to the IRS. It is important for the American people
to consider the question of how best to manage the IRS, which, after all, affects everyone of
us. Our plan provides a good framework for the future for the IRS. The Commission's
proposal imperils the IRS.
There are no perfect or easy answers to getting the IRS back on track. But what we
must not do is enact an experiment whose risks far outweigh any benefits. I believe our plan
offers the best opportunity for putting the IRS on the road to improved customer service, more
efficient operations and increased ability to further compliance with the nation's tax laws.
-30-
4
DEPARTMENT
OF
THE
TREASURY
NEWS
omCE OF PUBlJC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
EMBARGOED UNTIL 2;30 P.M.
June 13, 1997
CONTACT:
Office of Financing
202/219-3350
TREASURY'S 52-WEEK BILL OFFERING
The Treasury will auction approximately $13,000 million
of 52-week Treasury bills to refund $14,221 million of publiclyheld 52-week bills maturing June 26, 1997. This offering will
result in a paydown for the Treasury of about $1,225 million. In
addition to the maturing 52-week billa, there are $18,485 million
of maturing publicly-held 13-week and 26-week bills.
In addition to the public holdings, Federal Reserve Banks
for their own accounts hold $11,649 million of the three maturing
bills. These accounts are considered to hold $5,375 million of
the maturing 52-week issue, which may be refunded at the weighted
average discount rate of accepted competitive tenders. Amounts
issued to these accounts will be in addition to the offering
amount.
Federal Reserve Banks hold $8,068 million of the 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 $1,693 million of the maturing 52-week issue.
Tende~s 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 ~reasury Becuri~ies
is governed by the terms and conditions set forth in the Uniform
Offering Circular (31 CFR Part 356, as amended) 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.
RR- 1762
000
At t.achment
c:
•• :':'_1-~~::-:"'.~ ... .:l
:~.=AS~'"RY
...;FFERING 0F
:2-f.iE~.i<
E~.i... .. ~
TO BE ISSUED JUNE 26, 1997
June 2.3, 1997
$13,000 million
Offering Amount . . . . .
Description of Offering:
364-day bill
Term and type of , security
CUSIP number
Auction date
Issue date
Maturity date.
...
Original issue date .
Maturing amount . . .
Minimum bid amount
Multiples . . . . .
912794 4W 1
June 19, 1997
June 26, 1997
June 25, 1998
June 26, 1997
$19,596 million
$10,000
$1,000
Submission of 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
a~ of one half-hour prior to the
closing time for receipt of
competitive tenders.
Noncompetitive bids
Competitive bids
Maximum Recognized Bid
at a single Yielg
35% of public offering
Maximum
35% of public offering
Awa~
. .
.
. .
Receipt of Tendersl
Noncompetitive tenders
Prior to 12:00 noon Eastern Daylight
Saving time on auction day
Prior to 1:00 p.m. Eastern Daylight
Saving time on auction day
Competitive tenders
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
NEWS
~jI78~9~. . . . . . . . . . . . . . . . . . . . . . . . . . . .. .
..............................
OFFlCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIllNGTON, D.C. - 20220 - (202) 622-2960
EMBARGOES UNTIL 2:30 P.M. EDT
Text as Prepared for Delivery
June 16, 1997
TREASURY SECRETARY ROBERT E. RUBIN
BRETTON WOODS/OVERSEAS DEVELOPMENT COUNCIL
WASHINGTON, D.C.
It is a pleasure to speak to you today. The first public speech I gave after President
Clinton appointed me as Treasury Secretary two and a half years ago was before the Bretton
Woods Committee. At the time, I spoke about how the economic well being of the United
States is integrally linked to the rest of the world; and how U. S. leadership with respect to
issues in the global economy is increasingly important. Every experience I've had since then
has only reinforced the importance these principles. My experience has also given me great
concern of how little that view is understood among the American people with all the
implications that has for public policy.
With millions of Americans benefiting in their jobs directly or indirectly from trade,
and all Americans benefiting as consumqs, our economic success is a function of a healthy
global economy. But our integration with the rest of the world goes beyond economics. We are
affected by and must respond to an array of other problems that cross borders such as regional
political instability, environmental degradation or even the spread of infectious diseases in
distant parts of the globe. That is why President Clinton has pursued a coordinated strategy to
advance U.S. economic and national security interests by promoting global economic growth,
and maintaining U. S. leadership in the world.
Today, I would like to speak to you about two key methods we have to advance this
strategy. The first is through the work we pursue in the Group of Seven industrialized nations.
The second is through our work to promote economic reform and growth in the developing
nations through the Bretton Woods institutions -- the World Bank, the International Monetary
Fund, and the regional development banks -- which, as you are well aware, are vital to our
economic prospects.
Let me start with the G-7. Next weekend, the major industrialized nations -- with
Russia playing a more important role than ever before, furthering the integration of Russia into
the international community -- will meet in Denver for their annual summit.
RR-1763
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
The United States is hosting this Summit at Denver from a position of enviable
strength. At summits in the late 1980s and early 1990s, the other industrialized nations lined
up to criticize the United States about its need to get its economic house in order. After years
of large budget deficits, and with slippage in the competitiveness of our private sector in many
industries, we were viewed by many as yesterday's economy.
Today the United States is once again the most respected economy in the world; a
country that has put its economic house in order. In the public sector, in large measure do to
the deficit reduction program of 1993, and the economic growth that that program generated,
the deficit has fallen from close to five percent of GOP to an estimate of roughly one percent
of GDP for 1997. That deficit reduction was key to reducing interest rates and increasing
confidence, which, in turn, drove our recovery. Today, unemployment is at 4.8 percent,
inflation is low, and the economy has generated over 12 million new jobs. The private sector,
for its part, has regained its footing, and has become competitive again across a broad array of
industries. These are the best sustained economic conditions in this country in many decades,
and the best in the industrialized world. At the same time, there has been a fundamental
change in economic views. I remember when I was majoring in Economics in college there
was a real debate about the relative merits of central planning versus market based economics.
Today, the debate is largely over and there is almost universal consensus in the developed and
the developing world around sound macroeconomic policy, the centrality of private sector
activity, free markets and trade liberalization, as the model for economic growth for the rest of
the world. Now when we go to meetings of the G-7 we speak from a position of credibility
about the keys to growth, job creation and competitiveness.
But we should not let the progress that we have made mask the significant economic
challenges that we still face. A key question in the G-7 is how to harness the opportunities of
the global economy to benefit the least skilled in our own countries, and the least well off in
the global economy. In the United States, for example, there are still areas in this country,
such as many inner cities, that have not fully benefited from our recent economic progress. We
must work to bring people into the economic mainstream and improve education to better
prepare our nation for the future. The G-7 meetings play an important role in addressing
questions of how to make economic growth benefit all, both in industrialized countries and the
developing world.
The United States is pursuing three major economic objectives at the Denver Summit:
one promoting growth in the G-7; two promoting global financial stability; and finally,
promoting growth and reform in developing and transitional economies. I would like to briefly
discuss each of these.
Our first objective is to promote growth in the G-7. While the economic performance
of in the United States, as I said, has been strong, and there is solid growth in many emerging
markets, for other countries the prospects are not as strong. Japan is just now starting to
emerge from five years of sluggish economic performance associated with the collapse of the
2
asset price bubble of the late 1980s, and it faces the challenge of dealing with fundamental
structural problems. Japan and the rest of the world have a strong stake in seeing Prime
Minister Hashimoto achieve his objective of a strong domestic demand led recovery and
avoiding an increase in Japanese external surplus on a scale that could hurt global growth and
fuel protectionism. And we have a major stake in seeing Japan achieve a successful
deregulation program that will open Japan's markets further and promote financial
liberalization.
The G-7 will discuss prospects for European growth and the challenges they face
strengthening growth, reducing fiscal deficits, implementing structural reforms to reduce
unemployment, and dealing with the issues surrounding a single currency. The Administration
believes the key question throughout Europe is how to balance social needs with the economic
flexibility necessary to compete globally and generate more jobs.
We will also engage our G-7 partners in a discussion about the economic and fiscal
impact of aging populations, an issue that will become increasingly important to all of us. In
1995, in the United States, for example, there were 5.2 workers for every retiree. In 2030,
there will be only 2.7. There are similar figures throughout the G-7. In Japan, there were 4.9
workers for every retiree in 1995; in 2030, there will be 2.2. In Germany, 4.5 in 1995; 2.0 in
2030.
Our second objective at Denver with our G-7 partners is to promote global financial
stability. As the Mexican peso crisis clearly showed, while global integration creates new
opportunities, it also creates new risks.
We will advance our plan to reduce risks in global financial markets, a process
President Clinton began at the Halifax Summit in 1995. At this summit, we will focus on
increased regulatory cooperation with respect to international global financial institutions, and
establishing and implementing sound supervision for emerging market financial systems.
Our final objective is to promote growth and economic reform in developing and
transitional countries. Developing countries account for 42 percent of U.S. exports and those
exports are increasing at twice the rate of exports to developed countries.
At Denver, we will work toward bringing into the global economy a region that stands
in stark contrast to global trends of economic integration and rising standards of living: SubSaharan Africa. An Africa successful in a commitment to democracy, economic reform, and
sustainable development will provide higher standards of living for its people and be more
stable politically and socially. , in turn, will benefit businesses and workers in all countries and
our own national security. Tomorrow, President Clinton will announce the Administration's
proposals for promoting growth in Sub-Saharan Africa. These are in response to the changes
that have begun in a growing number of countries in the region. While there is no doubt that
there are serious problems in many countries in Africa, there are also many countries making
3
real progress. Uganda, for example, has emerged from years of dictatorship, begun to institute
free market reforms, and for several years has been growing eight to ten percent a year. Our
initiative will help countries that are helping themselves by moving from the post-colonial
relationship based primarily on bilateral aid to a partnership based on open trade, solid
macroeconomic conditions, and other economic reforms designed to establish conditions for
foreign investment and private sector growth.
At Denver, we will also urge our G-7 partners to take an important step forward on an
issue that is critical to the process of promoting economic reform and greater global
integration; and that is to work to limit corruption. Our basic view is that all G-7 countries
should implement the OECD's proposals to eliminate the tax deductibility of bribes of foreign
officials and to criminalize such bribery. The IMF and the Multilateral Development Banks
should also expand the scope of their anti-corruption activities.
Much of what we have been discussing today will be accomplished by the Bretton
Woods Institutions. They playa crucial role in complementing the objectives we are pursuing
through the G-7.
For the last fifty years, these institutions have helped developing countries and
transitional economies lay the foundation for market-based economies and open markets,
promoting growth and integration into the global economy. They have been instrumental in
the economic renewal of Asia, Latin America, and central and eastern Europe, helping foster
economic reform and democracy which has turned these regions into dynamic emerging
markets. More specifically, the IMF has played a critical role in stabilizing economies around
the world, while the World Bank and the Multilateral Development Banks have helped
countries restructure their economies, privatize their industries, produce a stable and reliable
legal system, and invest in education, health, and basic infrastructure -- all key to attracting
the flow of private capital in today's global capital markets, which, in turn, is critical to global
growth.
The IFls have also clearly benefited U.S. businesses and workers. U.S. firms exported
more than $25 billion worth of goods and services to the 79 very poor countries eligible for
International Development Agency funds in 1995 and roughly $60 billion worth to IDA
graduates. Of course, the MDBs also benefit American businesses and workers directly
through the projects they finance.
These institutions are our most cost-effective tool to affect economic growth in
developing countries. For an annual commitment of $1.2 billion, in addition to our arrears,
they lend $46 billion, over which we have enormous influence, and thus the opportunity to
shape global growth and economic reform. I only wish that every member of the US Congress
could see what our money buys and how much leverage we gain. Yet, as you know, we are
now behind in our payments to them by nearly one billion dollars. We are the world's largest
and richest economy yet we account for the lion's share of arrears to the multilateral
4
development banks. There are problems in these institutions, as there are in all institutions. But
we have made progress in reforming them. By not paying what we owe, we risk losing our
leverage in promoting further reforms, as well as our leverage in how these institutions invest
their money.
We helped create these institutions, they have served us well for fifty years and now we
threaten their health. Where once we led, now we lag behind. , in turn, threatens our ability to
shape these institutions so that they advance our interests. I urge members of both parties to
work together to obtain the necessary funding to support these critical institutions.
To move forward successfully on all of the issues I have discussed today -- fostering
growth in the G-7, enhancing financial stability, promoting growth and economic reform in
developing and transitional economies -- will require that we be successful in the objective I
mentioned at the start. We must build a shared understanding among the public and our leaders
of the importance to our economic well-being and national security of U. S. international
engagement and the policies that flow from that engagement. Recently, the nation
commemorated the fiftieth anniversary of the introduction of the Marshall Plan. The initial
skepticism that met the Marshall Plan is not often remembered today. It took a concerted
public education campaign by George Marshall, President Truman, Senator Arthur
Vandenberg and members of both parties to educate the public about the plan and build
support for it. Eventually, the plan passed by a wide majority. We need a similar campaign
today.
You certainly understand this. You have put together a coalition to increase awareness
of the importance of the Bretton Woods Institutions to our economy. It is precisely the type of
effort that is necessary to build support for funding these institutions. With Congress about to
make its decision on funding for these organizations, all of us -- the Administration, the
business community, the labor community and others who understand their importance -should be energized around building a better understanding of their contribution and greater
support for their funding. They are critical to our leadership in a changing and dynamic world.
We have too much at stake to sit on the sidelines and allow the Bretton Woods
Institutions to falter -- or allow our leadership in the world to diminish. Instead, let us fully
fund these institutions, and shape them for the next fifty years. , in turn, will help promote
future global growth, and foster greater prosperity here at home. Thank you very much.
-30-
5
UBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE
June 16, 1997
CONTACT:
Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 13-WEEK BILLS
Term:
Issue Date:
Maturity Date:
CUSIP Number:
91-Day Bill
June 19, 1997
September 18, 1997
9127942U7
RANGE OF ACCEPTED COMPETITIVE BIDS:
Low
High
Average
Discount
Rate
Investment
Rate 1/
------
----------
4.87 %
4.89 %
4.88 %
Price
5.00 %
5.02 %
5.01 %
98.769
98.764
98.766
Tenders at the high discount rate were allotted
7%.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Tender Type
Competitive
Noncompetitive
$
Accepted
39,724,718
1,352,762
$
5,409,0l3
1,352,762
PUBLIC SUBTOTAL
41,077,<;80
6,761,775
Federal Reserve
Foreign Official Inst.
Refunded Maturing
Additional Amounts
3,704,310
3,704,310
273,300
273,300
o
o
TOTAL
.j
Tendered
Equivalent coupon- issue yield.
RR-1764
$
45,055,090
$
10,739,385
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt. Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE
June 16, 1997
CONTACT:
Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
182-Day Bill
June 19, 1997
December 18, 1997
9127945X8
Term:
Issue Date:
Maturity Date:
CUSIP Number:
RANGE OF ACCEPTED COMPETITIVE BIDS:
Discount
Rate
------
Low
High
Average
5.09 %
5.10 %
5.10 %-
Investment
Rate 1/
---------5.30 %
5.31 !!5.31 %-
Price
------
97.427
97.422
97.422
Q
Tenders at the high discount rate were allotted
25%.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Tendered
Tender Type
Competitive
Noncompetitive
$
PUBLIC SUBTOTAL
Federal Reserve
Foreign Official Inst.
Refunded Maturing
Additional Amounts
TOTAL
1/
Equivalent coupon-issue yield.
RR-1765
$
Accepted
30,333,040
1,113,160
$
3,229,838
1,113,160
31,446,200
4,342,998
3,000,000
3,000,000
2,691,000
2,691,000
o
o
37,137,200
$
10,033,998
PUBLIC DEBT NEWS
Department of the Treasury •
Bureau of the Public Debt • Washington, DC 20239
FOR IMMEDIATE RELEASE
Contact: Office of Financing
June 17. 1997
(202) 219-3350
TREASURY'S INFLATION-INDEXED NOTES
JULY REFERENCE CPI NUMBERS AND DAlLY INDEX R...o\TIOS
Public Debt announced today the reference Consumer Price Index (CPI) numbers and the
daily index ratios for the month of July for the 10-Year Treasury inflation-indexed notes of
Series A-2007. This information is based on the non-seasonally adjusted U.S. City Average All
Items Consumer Price Index for All Urban Consumers (CPI-U) published by the Bureau of Labor
Statistics of the U.S. Department of Labor.
In addition to the publication of the reference CPIs (Ref CPI) and index ratios, this release provides
the non-seasonally adjusted CPI-U for the prior three-month period. Public Debt intends to
announce the reference CPI numbers and the related index ratio monthly for at least one year.
This information is available through the Treasury's Office of Public Affairs automated fax system
by calling 202-622-2040 and requesting document number 1766. The infonnation is also available
on the Internet at Public Debt's home page: (http://www.publicdebt.treas.gov).
The infonnation for August is expected to be released on July 16, 1997.
000
PA-269
RR-1766
Contact: Office of Financing
TREASURY 10-YEAR INFLATION-INDEXED NOTES
SERIES:
A-2007
CUSIP:
9128272M3
DATED DATE:
January 15. 1997
ORIGINAL ISSUE DATE:
February 6,1997
ADDITIONAL ISSUE DATE:
April 15. 1997
MATURITY DATE:
January 15.2007
Ref CPI on DATED DATE:
158.43548
TABLE FOR MONTH OF:
July 1997
31
NUMBER OF DAYS IN MONTH:
160.0
160.2
160.1
CPI-U (NSA) Mar. '97
CPI-U (NSA) Apr. '97
CPI-U (NSA) May '97
Ref CPI and Index Ratios for July 1997:
Calendar day
July
July
July
July
July
July
July
July
July
July
July
July
July
,July
JUIY
July
July
July
July
July
July
July
July
July
July
I
iJuly
IJuly
July
July
July
July
i
Refe?1
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
1997 160.20000
1997 160.19677
1997 160.19355
1997 160.1"9032
1997 160.18710
1997 160.18387
1997 160.18065
1997 160.17742
1997 160.17419
1997 160.17097
1997 160.16774
1997 160.16452
1997 160.16129
1997 160.15806
1997 160.15484
1997 160.15161
1997 160.14839
1997 160.14516
1997 160.14194
1997 160.13871
1997 160.13548
1997 '160.13226
1997 160.12903
1997 160.12581
1997 160.12258
1997 160.11935
1997 160.11613
1997 160.11290
1997 160.10968
1997 160.10645
1997 160.10323
Index Ratio
1.01114
1.01112
1.01110
1.01108
1.01106
1.01104
1.01102
1.01099
1.01097
1.01095
1.01093
1.01091
1.01089
1.01087
1.01085
1.01083
1.01081
1.01079
1.010n
1.01075
1.01073
1.01071
1.01069
1.01067
1.01065
1.01063
1.01061
1.01059
1.01057
1.01055
1.01053
D EPA R T 1\'1 E N T
0 F
THE
T REA SUR Y
NEWS
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W•• WASInNGTON, D.C•• 20220. (202) 622.2960
EMBARGOED UNTIL 2: 30 P. M.
June l7, lS97
CONTACT:
Office of Financing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling "approximately $14,000 million to refund $18,485 million
of publicly-held 13-week and 26-week bills maturing June 26,
1997. This offering will result in a paydown for the Treasury of
about $4,475 million. In addition to the maturing 13-week and
26-week bills, there are $14,221 million of maturing publicly·
held 52-week bills.
In addition to the public holdings, Federal Reserve Banks
for their own accounts hold $11,649 million of the three maturing
bills. These accounts are considered to hold $6,274 million of
the maturing I3-week and 26-week issues, which may be refunded at
the weighted average discount rate of accepted competitive
tenders. Amounts issued to these accounts will be in addition to
the offering amount.
Federal Reserve Banks hold $8,068 million of the three
maturing issues as agents for foreign and international monetary
authorities. Up to $3,000 million of these securities may be
refunded within the offering amount in each of the auctions of
13-week bills and 26-week bills at the weighted average discount
rate of accepted competitive tenders. Additional amounts may be
issued in each auction for such accounts to the extent that the
amount o! new bids exceeds $3,000 million.
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 eFR Part 356, as amended) 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
lUt-1767
H%OHLrGHTS or TRBASURY OPPBRXNGS OP •••ELY B%LLS
TO BB %SSUED JUNE 26, 1997
June 17,1997
Offering Amount . . . . .
Description of Offering:
Term and type of security
CUSIP number
I
Auction date
Issue date
Maturity date .
Original issue date
Currently outstanding . . . .
'4i nimum bid amount
. . .
Hul t iples,. . . . . .
The following rules apply to all
Submission of Bids:
Noncompetitive bids
Competitive bids
Maximum Recognized Bid
at a Single Yield
Maximum Award .
Receipt of Tenders:
Noncompetitive tenders
Compet.itive tenders
Payment Terms .
$7,000 million
$1,000 million
91·day bill
183-day bill
912194 5Y 6
June 23, 1997
June 26, 1997
912794 5N 0
June 23, 1997
June 26, 1997
September 25, 1997
March 27, 1997
$11,546 million
$10,000
$ 1,000
$10,000
$ 1,000
securit~es
December 26, 1997
June 26, 1997
mentioned above:
Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive bids
(1) Must be expressed as a discount rate with
two decimals, e.g., 7.10%.
(2) Net long position for each bidder must be
reported when the sum of the total bid
amount, at all discount rates, and the net
long position is $2 billion or greater.
(3) Net long position must be determined as of
one half-hour prior to the closing time for
'receipt of competitive tenders.
35% of public offering
35% of public offering
Prior to 12:00 noon Eastern Daylight Saving time
on allction day
Prior to 1:00 p.m. Bastern Daylight Saving time
on auction day
Full payment with tender or by charge to a funds
account at a Federal Reserve Bank on issue date
Very Preliminary
Major Tax Cut Provisions in the Senate Finance Committee Chainnan's Mark (1)
TcrtaI Tax Change
Tax Change as a Percent of:
N\Inber
d
A~
Family Economic
Families
Income Ouintile (2)
(millions)
Tax Change
(S)
21.6
22.2
22.3
22.3
Amount (3)
.tSM)
Cumnt
FMlify
P.-cent
Federal
Economic
Distribution
('Mal
TUIIS (4)
Income
(%)
(~)
-12
-26:4
0.4
-&C
·'428
.6Q95
-2. 10
-2.32
-3.86
-0.13
-0.26
-XTI,
2.3
10.0
~
21.3
65.5
".20
".38
-0.81
-0.97
100.0
-4.19
-0.82
-3.93
-3.58
-0.89
-0.83
-0.75
22.3
·1789
-12964
-39837
TCJtIl (5)
111.3
-547
~
Top 10%
11.1
42.8
5.6
-2338
-3'37
-26036
T~5%
-17489
T0CI1 %
1.1
-7081
-7945
28.7
13.1
-3.06
~.64
June 16, 1997
Department of the Tr.asury
Office at Tax Ar.atysIS
(1) ThIs ~ drsb'O.aft a. etlllNte<l cI\ange in tal bur6erA due 10 tN INfO' tal QA pn:I9O&Ils in the Senate F'lMnce Committee Chairman
Iotatlt wPIoel'l sncJuOe \he loI\<MW'Ig I) I d'IiId Cf'IdIt; i) a modified HOPE IdIOIIrIhip tal cte<l1t; iii) • deductiOn for ctudenlloan interest; iii)
deductIOn lor e<luc:atJon e~ paid ttvough StatMpoNOfed PfeClaid tuition programs; iv) permanent extension of Section 127;
v) education il'Nfttment '~I Ind private prepaid tlJition programs; VI) ~nded fronl-loaded and MW back~ded IRAs;
viiI caj)rtal gall'll prCM&lClnS (~lndlYldual ratea. eJ1ension of S. 1202, and
and
(2)
VlU) cnal'lgeS WlItoe
SSOO,ooo exeiusion for pains on. principal reaidence;
J'ldMdual AMT.
Family Economc Income (FEI) iii a ~ income ~
FEI. conatrvcted by adding 10 AGI unreported and under·
n!pOrted r.come. IRA and I<eogh deductionI: nontu:abie transler payments such .. Social Seariy and -'FCC;~·
beneril; r'IIIde ~ an pensicnI, IRAt, t(eogtw, and ~e i'lsurance; taI~empt Interest; and imputed rent
~ po. ere com~ed on WI 8QC1Ua/ basil, .cIjusted for inflation to the &dent that reliable
am allow. Inllllborwy ~ of lendeR arelUlXrac:ted and gaiN of bOITowera.e added. Then II alloo an edjUlfment for
KCBIerated deC!' 1CII'tIOI. 01 i d ~ businn.IeI. FEI II ahoWn on. family rather than • tax-ft!tum baaia. The economic:
n::ono.a of .. ~ of • fanWt r i . . added 10 arrMt It the familYl ....,.1OlTIic: .~ used in ltle distributions.
prOVIded frvooge
an
-.J1C':C! IP"ed ~
(3) The cNnoe ., Federall:&xa II ..umzed III 1;sa ncame ~ ~ 8&&II1'Iing fully pIlaNd in (2007) I3w and behavior. For the
year'.
1M effect of the capital oalnI prIMaion • based on the ....., of capbI pi,. ,.uza\ionl ~ c.un"ef1t t.w.
IRA pI'OVSIor'IIlInd edueetiCIn KCCU1b, the chIInge • nwaur1Id .. the pra.ent value of the tax Nvinga from one
~.
'4)
The tans n:Juded .... individual and c:ctpcnt.e Inc:ame, ~ (SccaI s.a.ty and ~), and em.ea. ~e and
gift Iates and
a.carrc d1.Ibea _ ezduded.
The ~ income ta Is auumed 10 be borne by pa~, the COfl)OfIte
CIIPitaI ft:xIme generally. ~ taus (elioPayer and ~ 1hareI) by labor (wages and _f-employment
r.ccme), IXciIes on ~ by ind~ by the ~, and adM& on purd1aseI by
proprion 10 teal
InCOme tal by
buIinea.,
Federal tDeI are atimNd It 1998 ncorne IIwts but auumng 2007 aw IncI, theBf~, exclude
IInNiIions !hat a;n prior toO the end 01 the Budvet peIiDd and we adjulted for ttw .tfeda of uninde.zed parameteR.
~~.
Ott: Ounilea
beg".
FEI of: Second $16,950: Third S32.563; Fourth $504,758; Highest 183,222: T0910% S127.373;
T~5%S'7Q1C'Qil",,,,,o'iIi1,
RR-1768
Very Preliminary
Major Tax Cut Provisions in the Senate Finance Committee Chainnan's Marl< (1)
(1998 Income t....Is)
Total Ta Change
Tax Change as a Percent of:
CI.nwrt
FImiy
N~
FanWy Ecanamic
of
A....-age
PetCent
Federal
ECDIIDIilic:
Income Clas.s (2)
Families
Tax Change
Amount (3)
Distribution
Tax.s (4)
(COO)
(millions)
($)
(SM)
(")
C")
Income
(%0)
18.5
21.8
12.1
9.7
7.9
0-15
15 - 30
30-40
<4O-SO
SO-50
60·75
Total (5)
~26
39
", .3
-547
11.7
15.6
0.3
-2.08
1.8
-2.2~
3.0
5.0
.... 14
5.5
7.7
.... 26
-3.92
.... 69
-22~
15.S
36.9
-,~
23.8
-3.43
-0.12
-0.23
-0.44
-0.69
-0.78
-0.74
-0.93
-US
-0.81
~
100.0
-4.19
-0.82
-194
-1125
-1828
-3022
-3350
-152
-311
-499
-804
-1440
-3706
9.4
75 - 100
100·200
200'\ over
-10
~
-4703
-9400
-2.94
·5.18
Oe9artment of the Tr.uury
Office of Tax Analysjs
(1)
Jun. 16, 1997
nv. t&tioIe O~" the fttJmateod ct'Iange .., tu bunSeN due to the m.;or tax at propoul. in the Senate F'nance Committee CNinnat\'.
Mar'll wtw:tI ~ the f~ I) a chid ~ i) • modified HOPE Id'IoIar'lhip tax cndit; Iii) a deduction
OecIucbon fO( educabon
CJ;IenIeI paid
tot studenlloan rIIerest; Iii) •
through Stale-cponaored preplid tuition programs; iv) permanent utension
or Section 127;
v) eod~ rweGI'leI"Ir ec:counta and ptMte pC'epaid tuition~; vi) ex;anOed·front-load1ld and neIN blick~ded IRA&;
vii)
Cap/taISP....
~ (Iowef
and viii) changes .., the lndMdual
(2)
ndMdual ral", utenaoon of S. 1202, and SSOO,OOO ezc/us;o" for g,ina on. principal residence;
AMT.
Family Econonw: Inccme (FE I) ila tro.d ba.cl inc:.ome ccncep(. FElis ~ed by adding to AGI unreported and ul'ldefreported inccrne; IRA and tc:.ogI'I dedudiona; nontau.bIe Ira...fer peymer'itI such I I Social Security and AFOe; employet'prCMded trYtge
benet.. ; , . . buiI6-up on~, IRAa,
Keogha, and if. hlnnce; taz1Zel'Ylpt interest: and Imputed rent
data aIIoow.
gar. we compcA.ed on an 8CCtUaI bail, adjusted 'Of' inftation 10 the extent that reliable
InftatIanaty lou.- of IenOen we aubtraded and gar. of banowera
added. There iI also an adjustment rOf'
~
0e0I6U8tion 01 r'CIilCOl'1)Cnle~. FEllillhown on. fwnity rather INn. taz~ baM. The ecanomic
orl owner~~. CapaI
at.
n:omes of .. ~ of. family 1.6\1 . . 8dded to 8rJ111'a It the tamit(1 ecanomi:: income used in the diCributiona.
(3)
The c:hange .., Federal taxes iI estirN1ed It 1998 Income IeYei& bI.1 u.awning fully phased in (2007) law and behavior. FOf' the
IRA pt'OYaIona and lducatJon 8C.COUI'CIa, the change iI ~ _ the presenI waIue of the tax uvingI' from one ye.ar'1
~. The effed of the capital
;aina prcMMIn iI baaed on tI'Ie ie¥eI of capital gaina raliUtionI ~ current !rH.
(.. ) The t&xeI n:IuOed .,. ndMOuaJ and ~ i1come, PlynlIiI (Social Seany and ~). and cx.ciseI. Eltale and
gift taxes and c:uatotra ~ .,. a:duded. The Ind~ i'1c:ame to ill auumed to be borne by payotI, the CO(J:IOrate
ream. tD by capital r.a.n. genenlly, PI'f"OI taxas (~ and empIoyft iNres) by labor (wages and uIf-empioyment
~). e:xciI.ea
~
on
~ by
i'ldMduais by the purchMef. and ucise& on pIIChases by buIineta ., pC'opat'Iion to total
e:q;aenOit\les. FedenJ taII:ies are eatimated .1998 i1come ~ bI.a aauming 2007 law and, therefore, exclude
prcMs.jona IN(
a;lire pro- to the end 01 the
~ period
and .... adjuIted
rot the effects of uMldexed Plrametel'l.
o
EPA R T 1\1 E N T
0 F
THE
T REA SUR Y
NEWS
omCE OF PUBUC AFFAIRS .1500 PENNSYLVANIA AVENUE, N.W.• WASHlNGTON, D.C .• 20220. (202) 622-%960
EMBARGOED UNTIL 10 AM. EDT
Text as Prepared for Delivery
June 18, 1997
TREASURY UNDER SECRETARY FOR DOMESTIC FINANCE
JOHN D. HAWKE, JR.
HOUSE GOVERNMENT REFORM AND OVERSIGHT
SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
INFORMATION AND TECHNOLOGY
Mr. Chairman and Members of the Subcommittee, thank you for the opportunity to
appear before you today to discuss implementation of the law that requires the Federal
government to issue payments electronically starting January 1, 1999. This new law, which
excludes only tax refunds, has far reaching implications for millions of Americans. I corrunend
the Subcommittee for the interest it has shown in improving govenunent operations and your
concern that this law be carried out in a manner that truly benefits all Federal payment recipients.
We share these interests.
This electronic funds transfer initiative -- what we refer to as "EFT '99" -- includes four
distinct elements:
•
•
•
•
After July 26, 1996, all Federal payments (except tax refunds) to newly eligible
recipients who have bank accounts, must be made by EFT.
Starting January 1, 1999, all Federal payments, with the exception of tax refunds,
must be made by EFT.
Treasury is directed to ensure that all recipients who are required to receive
payments electronically will have access to an account at a financial institution at
a reasonable cost, and with the same consumer protections as other account
holders at that financial institution.
The Secretary is authorized to grant waivers based on recipient hardship; for
classes of checks; or where otherwise necessary.
RR-1769
For press releases, speeches, public schedules and ufJicial biographies, call our 24-hour fax line at (202) 622-2040
Treasury was given these responsibilities because of its role as the government's chief
disburser. Last year, Treasury's Financial Management Service (FMS) issued over 850 million
payments on behalf of non-defense agencies, including various types of benefits, Federal salaries,
tax refunds, vendor payments, grants and loans.
The goal of the Department of Treasury is to issue payments by a method that will
provide the best service to recipients, the lowest possible cost to taxpayers, and the greatest
degree of transaction security. Treasury has been issuing electronic payments for over two
decades, and our experience is that EFT is substantially more convenient, cost-effective, and
secure than paper checks. Attached to my written statement is a chart that shows the benefits of
EFT.
As the chart shows, EFT payments will save taxpayers money. The Government's cost
for an EFT payment is only $.02, while check payments cost the Government $.43 each. We
estimate that fu1l implementation of EFT '99 will save taxpayers approximately $500 million
over 5 years in postage and check production costs alone. The chart also shows a drastic
decrease in payment inquiries and claims under EFT. Recipients are twenty times more likely
to have a problem with a paper check than with an EFT transaction. Each year Treasury
replaces over 800,000 checks that are lost, stolen, delayed or damaged during delivery. Waiting
days for a replacement check is an inconvenience and burden on recipients, especially those
living on low incomes. Misrouted EFT payments are never lost, and are typically routed to the
correct bank account within 24 hours. In addition, the chart shows that EFT increases
transaction security and significantly reduces opportunities for crime. On average, over 75.000
Treasury checks per year are forged and fraudulently negotiated. Forgeries, counterfeiting, and
check alteration are non-existent with EFT payments.
Mr. Chainnan, I would now like to share with you the principles that Treasury is
following in implementing EFT '99.
TREASURY PRINCIPLES
In implementing the provisions ofthe statute, we believe the following principles should
be observed:
•
•
•
The transition from a paper-based system to an electronic transfer system should
be accomplished with the interests of recipients ranking of paramount importance.
Our objective should be to assure that we maximize private sector competition for
the business of handling Federal payments, so recipients not only have a broad
range of choice of payment services and service.providers, but also that they
receive their payments at a reasonable cost, with substantial consumer protections,
and with the greatest possible convenience, efficiency, and security.
All recipients, and especially those recipients having special needs -- the elderly,
individuals with physical, mental or language barriers, those living in remote or
rural communities -- should not be disadvantaged by the transition to electronic
payments.
2
20009
From: TREASURY PUBLIC AFFAIRS
•
7-31-97 2:51pm
p. 4 of 27
The E~T '99 program should, to the maximum extent possible, seek to bring into
the mamstream of our financial system, those millions of Americans for whom the
system is as a practical matter not presently available.
These principles serve as our guideposts as we move through the implementation process.
ACCOMPLISHMENTS
Since the passage of the Debt Collection Improvement Act in April of 1996, Treasury
has made significant progress in our implementation efforts. We released an interim rule on
July 26, 1996, implementing the first phase of the conversion from check to EFT-- that applying
to newly eligible recipients. This interim rule requested comment on the issues related to
January 1999 EFT mandate. Treasury received a total of29 comment letters from various
stakeholders, such as consumer groups, government vendors, financial institutions and other
Federal agencies. Stakeholder comments were generally very supportive of the mandatory EFT
initiative and its implications for their constituents.
In addition to receiving comments in response to the interim rule, Treasury has
undertaken extensive outreach efforts. These efforts include meetings with various interest
groups, including consumer groups, vendors, financial trade associations, and financial services
providers (including bank and non-bank entities.) Our outreach efforts to consumer
organizations began in earnest with a meeting that I convened last November. Treasury
representatives have met with 11 different consumer groups over the nine months since July
1996. Treasury also held an EFT '99 consumer briefmg session in April attended by over 30
consumer groups.
Treasury representatives have met with 17 financial services providers since the
publication of the interim rule. These providers include financial institutions as wel1 as non-bank
entities, such as check cashers, automatic bill payers, and other financial services providers. In
addition, Treasury held an EFT '99 briefing session that was attended by a number of financial
trade associations. In partnership with the Federal Reserve Banks and the American Bankers
Association, we have reached over a thousand fmancial institutions in nationwide seminars held
since October 1996. These seminars will continue through September 1997.
Treasury has also been meeting with Federal agencies to develop EFT implementation
plans. These meetings have enabled us to educate agencies on the provisions of the Act and
also have provided a forum for agencies to inform us of any potential challenges to EFT
implementation. We obtained additional feedback from interagency policy workgroups that
were formed to address major EFT conversion issues, such as international payments, disaster
payments, and vendor payments.
In April of this year, we met with a group of government vendors to discuss their
concerns regarding the EFT '99 initiative. Since the passage of the EFT legislation, we have
also worked closely with Federal agencies, the Federal Reserve, and financial institutions to
identify and address issues associated with converting vendor payments to EFT I will discuss
3
From: TREASURY PUBLIC AFFAIRS
7-31-97 2:51pm
p. 5 of 27
these issues further in j list a moment.
Treasury obtained further insight into the issues associated with implementing the
EFT '99 initiative by contracting for two research studies. The studies were used primarily to
obtain information regarding the characteristics of Federal check recipients and to better
understand the needs of those recipients, including how best to educate this population on the
advantages of electronic payments.
We have seen tremendous momentum in converting benefit check payments to EFT. The
Social Security Administration, for example, has seen its Direct Deposit enrollment rate nearly
triple since the legislation went into effect on July 26, 1996. This is the result of the required
use of Direct Deposit by newly entitled beneficiaries. as well as an aggressive marketing
campaign SSA has developed with financial institutions to encourage the conversion to EFT. In
addition, the EFT enrollment rate for other types of Federal payments has increased as well.
From FY96 year-end to mid FY97, the percentage of all Treasury disbursed EFT payments has
increased four percent from 53 to 57 percent oitotal Treasury disbursements. Clearly, more and
more people are seeing the benefits of receiving payments by electronic means. However. we
realize that we have much more to do to reach our goals.
MAJOR ISSUES & CHALLENGES
The immediate challenge we are facing is publishing a proposed rule to implement the
second phase of EFT '99. Due to the far reaching implications of this rule and the many
complex issues involved, Treasury is considering all factors before publishing the proposed rule.
Our goal in this rulemaking process is to develop policies that are simple, clear, and, most
importantly, effective in dealing with the difficult issues associated with mandatory EFT. We
anticipate a July 1997 release date with a 90-day comment period for the proposed rule.
By far, the most complex and controversial policy issue confronting us in our efforts to
implement EFT '99 is how to meet the needs of recipients without bank accounts. Under the
existing Federal payment system, electronic payments may only be deposited into accounts at
financial institutions. As a result, the population of Federal payment recipients without bank
accounts is currently precluded from receiving the benefits of Direct Deposit.
Secretary Rubin has made it one oflris highest priorities to encourage people without
bank accounts to move into the financial services ma:in.stream. Financial services providers offer
many services that are critically important, ifnot essential, to virtually all American families.
These may include access to federally insured deposits, the opportunity to earn interest on
deposits, the availability of personal credit, and access to home mortgages. Some 40 million
American households with incomes under $25,000 need these services.
Many payment recipients without bank accounts have told us that the lack of reasonably
priced financial services currently prevents them from moving into the financial mainstream. As
a result, Treasury has devoted significant effort to increasing the availability oflow cost banking
services. Treasury's Direct Deposit Too program encourages banks to offer a reasonably priced
4
20009
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p. 5 of 27
basic account. Direct Deposit Too is a model account, based on debit card access with no
minimum balance requirement, that has been suggested to banks as a low cost alternative to
traditional checking accounts. For recipients who are unable to obtain low cost financial
services through the private sector, Treasury is also developing a nation-wide electronic benefits
transfer system.
We recognize that some recipients of checks will be unable to receive payments
electronically because of their personal circumstances. In the proposed regulation, Treasury will
solicit comments on the circumstances under which a recipient may be waived from receiving
payment electronically. We will take into consideration not only geographic, physical, financial
and mental barriers, but other compelling circumstances.
A major issue associated with implementing the mandatory EFT requirement is how we
convert vendor payments to electronic funds transfer. Although vendor payments comprise only
2% of total Federal payments, they represent a much larger percentage of non-benefit agency
payments -- between 10 and 30 percent, depending on the agency.
Vendor EFT enrollment has increased approximately 60% from FY96 year-end to mid
FY1997. However, the total percentage of vendor EFT participation is still only 26%.
Historically, vendors have been slow to enroll voluntarily in the electronic funds transfer
program. This is partially attributable to obstacles associated with disbursing electronic
payments to vendors. One major challenge is that many vendors are not able to access the
remittance information that is transmitted along with electronic payments. As a result, when
payments are credited to their accounts, it may be difficult for them to reconcile their accounts
receivable.
This problem occurs because many small to medium sized banks do not have the special
software that is needed to translate to readable form the information that is transmitted with
electronic payments. It is estimated that of the approximately 11,000 banks capable of
accepting an electronic payment, fewer than a thousand can translate the remittance data into a
readable form for their customers.
Treasury is cWTently working with other Federal agencies, financial institutions, and
vendors to address these problems and develop low cost solutions. For example, we are talking
with NASA and their vendors on a developing a pilot that will allow NASA's vendors to access
remittance data through an FMS web site. The substantial increase in the Government's use of
the IMP AC card, expansion of programs like the GSA Advantage program and publication of the
EDI Handbook and the Agency Implementation Guide for CTX payments will further facilitate
conversion to electronic payments. We believe initiatives such as these and others being done by
other agencies will raise the level of awareness of options available to vendors, thereby spurring
a movement by vendors to EFT. In addition, Treasury is reviewing CWTent laws, such as the
Prompt Payment Act, with the intention of removing disincentives to using EFT.
5
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From: TREASURY PUBLIC AFFAIRS
20009
7-31-97 2:53pm
p. 7 of 27
PUBLIC EDUCATION
Now I would like to discuss one of the most significant aspects of our plan to implement
EFT '99. Aside from our other implementation efforts, we plan to conduct a comprehensive
public education campaign to ensure that there is sufficient information available to stakeholder
groups and the public about the requirements ofthe mandatory EFT legislation.
In FY 1997, Treasury will provide informational services to financial institutions to
ensure that they are operationally prepared for handling the increased demand for EFT services.
In addition, we will continue our interaction with consumer groups, government vendors,
financial trade associations, and other government agencies to ensure that they are aware of the
implications of the EFT legislation, and that they are given ample opportunity to express their
concerns.
We will also roll out a nationwide public awareness campaign that will encourage check
recipients to convert voluntarily to electronic funds transfer in advance of the January 1, 1999
deadline.
Components of this campaign include messages to current check recipients about the law,
about the safety and convenience of EFT, and about the way to sign up for Direct Deposit.
Another key aspect of this campaign is educating those check recipients without bai1k accounts
on how to maintain a bank account, including instruction on basic finances to he1p them make
the best infonned choices.
A grassroots public outreach effort will involve identifying hundreds of local community
organizations that will assist our efforts in reaching ClUTent check recipients. I believe this
grassroots effort is critical to the success of converting current check recipients (both banked and
unbanked) to electronic payments.
The public education campaign will use a variety of communications vehicles to reach
recipients, including television, radio, direct mail, and check inserts. Treasury included Direct
Deposit inserts in all Federal benefit checks mailed in April of this year.
In swnrnary, the objectives of this campaign will be to partner with the private sector and
other Federal agencies; to educate consumers to make good choices; and to minjmize disruption
to recipients while adding value to the way they conduct their ·finances. Seamless coordination is
a necessity if the public education campaign is going to succeed. Each governmental entity must
work in collaboration with the other, providing reinforcement, assistance and a shared set of
objectives.
CONCLUSION
In conclusion, Mr. Chainnan, the Treasury Department believes that this legislative
mandate provides an important opportunity for us to provide the bigh quality of service that our
customers want and need, and,at the same time to lower the cost to taxpayers. Benefit recipients
6
0:
20009
From: TREASURY PUBLIC AFFAIRS
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p. B of 27
have told us that they want to be able to receive their payments at points that are easily accessible
and that increase their safety and security if this can be done at a reasonable cost. Our proposed
regulations will attempt to address these needs. We welcome, encourage, and look forward to
the public comments that we will receive on our proposal.
We look forward to working with the Committee as we move forward on this initiative.
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DEPARTl\IIENT
OF
THE
TREASURY
NEWS
OFFlCE OFPUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASlDNGTON, D.C. - 20220 - (202) 622·2960
EMBARGOED UNTIL 1:15 P.M. EDT
June 18, 1997
Text as Prepared for Delivery
Remarks of John D. Hawke, Jr.
Under Secretary of the Treasury for Domestic Finance
before the
20 Annual Legislative and Technology Conference of the
Electronic Funds Transfer Association
June 18, 1997
I am honored today to address the 20th Annual Legislative and Technology Conference
of the Electronic Funds Transfer Association. This distinguished organization has watched
over EFT since its infancy, and now, as that one-time child approaches maturity, you should
be proud of your handiwork.
Today, many believe the rapidly evolving electronic payments structure will
revolutionize the global economy. New products are being designed to replace currency and
checks in routine transactions, and new systems allow payments over the Internet. As in the
1970s, the imminent end of paper in the payments and transactions systems is being forecast.
This may tum out to be true, or it may yet again prove to be premature.
To be sure, we have often had difficulty in predicting the impact of technology on
commerce and society. For example:
•
When Mr. Bell invented the telephone, he expected that it would be
used primarily to replace the telegraph in railroad scheduling. And when
Marconi invented wireless, he thought its primary use would be for
communication between ships at sea.
•
Computers were developed during World War II to calculate artillery
logistics tables, and in 1945 the distinguished White House science
advisor Vannevar Bush predicted that business would have need for, at
most, several dozen computers.
RR-1770
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
•
The ARPANET was developed during the 1960s by the Defense
Department as a fail safe communications network in the event of
nuclear war -- but the ARPANET evolved into the Internet. And
speaking of the Internet, who only a few years ago anticipated the
explosive growth in Internet resources or usage?
The history of Automated Clearing Houses indicates that while the creation of new
technology providing an interbank electronic clearing system was easy, it has been more
difficult to develop electronic payment products based on this technology that are more
convenient and cost effective, and more acceptable to consumers, than paper. In our
enthusiasm over new electronic payment systems, it is easy to underestimate the convenience
of paper and the costs and difficulty of building broad-based support for new electronic
payments systems. In the ACH case, it is also possible that government policies may have
actually retarded efforts by the private sector to develop alternative technologies.
U.S. payment systems present a paradox. Our systems for handling high-value dollar
payments are all electronic and have been for many years; financial records have been
computerized since the 1960s; and securities markets rely on heavily automated systems.
However, for transactions initiated by consumers, paper -- currency and checks -- remains the
payment system of choice. Debit and ATM Cards and ACH payments account for a very
small percentage of transactions, and credit cards have only recently begun to challenge
paper's dominance.
As electronic payment systems evolve, the government's regulatory role is to assure
that appropriate private sector risk management systems are in place. As financial systems
become more complex, detailed rules can become burdensome, ineffective, and sometimes
counterproductive, and I believe that it is crucial to ensure that regulations do not inhibit
innovations in electronic payment systems. The lesson from the ACH experience is that
consumers and business -- not government -- will ultimately determine what new products are
successful in the marketplace.
Today, there are several major factors driving the electronic payments revolution:
The first is a sharp decline in the cost of computing and the concurrent increase in
computer power. The old rule of thumb about personal computers -- double the power at half
the cost every 18 months -- seemed amazing enough. However, that trend is accelerating and
spreading beyond the standard desktop configuration to peripherals such as modems and CDROMs.
The second factor is continuing advances in communication technologies. Ten million
Americans are currently connected to their offices via computer, and use of the Internet is
increasing exponentially. These changes imply that companies and their customers no longer
2
have to conduct business face to face and thus no longer have to reside in the same state,
county, or town -- or country.
Third is action by Congress. Last year, Congress passed the Debt Collection
Improvement Act, which requires the Federal government to convert all of its payments
(except tax refunds) from paper checks to EFT by January 1, 1999. This mandate, which we
refer to as EFT '99, will have a very significant impact. I will say more about EFT '99
shortly.
Fourth, electronic payments eliminate the costs of handling cash ($60 billion annually),
and EFT 499 itself will generate significant savings. For example, cost savings to the banking
industry alone from EFT '99 could total $500 million annually. Electronic payments also
reduce collection and deposit float, provide faster funds availability, increase sales due to
faster checkout, and permit self-service. Other benefits include reduction in credit card and
check fraud and increased safety and security -- e-money reduces vandalism of vending
machines and public phones, and retail establishments and service providers are much less
vulnerable to robbery.
Finally, electronic money is more convenient than other payment mechanisms for small
value purchases: It is easier to use than cash, checks, or credit cards.
As the revolution moves forward, innovation in electronic payment systems present
challenges for government policy makers in a number of areas -- including consumer
protection, law enforcement, government operations, and international cooperation.
In order to address consumer concerns, we must develop policies to address:
•
Liabilities. Some consumers holding electronic cash will lose their
money in the case of accident, theft, or the failure of issuer. How
should such losses be allocated?
•
Disclosure. Existing rules governing transactions and disclosures may
not extend to some e-money activities. While the EFT A and Reg E
apply to electronic debits, no similar rules apply to electronic
transactions, and disclosure for EFT transactions applies to debit
systems, but not necessarily to e-money.
•
Privacy. Electronic payment systems may permit access to private
information, and Internet payments can be intercepted. Every day we
hear a new story about the success of some hacker.
3
•
Access. The poor may be denied equitable access to electronic payment
systems. EFT '99 squarely confronts us with the challenge of how to
bring the unbanked into the financial system.
Those involved in law enforcement argue that electronic payments permit anonymous
transactions without a "paper trait," and thus facilitate financial crimes and reduce the risk of
apprehension. If use of electronic money becomes pervasive, government may face the
question of whether its law enforcement capabilities are sufficient to meet its responsibilities.
The Federal government has already begun to utilize electronic payment systems to
increase efficiency and reduce the cost of government operations. As noted, EFT '99
mandates electronic funds transfers for all Federal payments (except tax refunds) by the
beginning of 1999. The government is also undertaking several other initiatives to realize the
cost savings offered by EFT, including electronic benefit transfer pilots.
Finally, electronic payments can make geographic boundaries irrelevant. Within the
U.S., this reality creates problems concerning the applicability of state laws to interstate
transactions. Where does an Internet transaction take place, after all? International electronic
money transactions pose even more significant potential challenges, and governments may find
it difficult to enforce electronic money-related rules involving personal privacy and tax
collection.
The emergence of new electronic payment methods raises a number of other Federal
concerns. One is how regulations such as reserve requirements, deposit insurance, and
consumer protection laws will apply. Others include the effect of the new payment systems on
the Federal budget and monetary policy. If, the market for these payment systems emerges
slowly, as is likely, there will be time for gradual adjustment and the development of
appropriate government policies. There is a clear possibility, however, that we will be faced
with dramatic advances that will cause these concerns to mature before we have developed the
solutions to deal with them.
We recognize that electronic payment systems are advancing more rapidly than the laws
and regulations to govern them, and this Administration does not want to impose regulations
prematurely for fear of stifling a fledgling industry. Nevertheless, resolving some legal
ambiguity, even if only provisionally, may facilitate acceptance of the new payment systems
by consumers and businesses. We have five broad objectives in developing policies to govern
emerging electronic payment systems:
•
Limiting systemic and other risks that threaten the stability of financial
markets or undermine confidence in the payment system.
•
Providing consumers with appropriate protection.
4
•
Encouraging development of effective, low-risk, low-cost, and
convenient payment services.
•
Ensuring the Fed's ability to conduct monetary policy.
•
Facilitating appropriate law enforcement.
The Administration recognizes that innovation and competition in electronic payment
systems provide important efficiency and consumer benefits, and it firmly supports a nonregulatory, market-oriented approach to electronic commerce. By acknowledging the unique
characteristic of emerging electronic payment systems and avoiding undue restrictions, I
believe that the government can take advantage of an historic opportunity and contribute to the
growth of electronic commerce worldwide.
However, for electronic commerce to flourish the private sector must lead. Innovation,
expansion of services and participants, and lower prices will depend on electronic payment
systems and innovations remaining market driven, not operating as a regulated industry. We
thus believe that government should avoid undue restrictions and unnecessary regulations,
bureaucratic procedures, or new taxes on electronic commerce. Where Federal action is
required, it must support a predictable, minimalist, and consistent legal environment and be
based on a decentralized, contractual model of law rather than on top down regulation.
We also believe that electronic commerce should be facilitated on an international
basis. While we recognize that there are differences in national legal systems, the legal
framework supporting commercial electronic transactions must be governed by consistent
principles regardless of the country in which the buyer or seller resides. The Clinton
Administration worked with its partners in the G-7 to develop the recently-completed analysis
of these international issues.
Finally, in order to examine the opportunities and challenges presented by these new
payment systems, we have formed an electronic payments trsk force, which includes
representatives of the Federal Reserve Board, the FDIC, the FTC, and the Treasury
Department, the principal Federal agencies involved in electronic payments.
I would like to conclude with a few brief remarks about EFT '99 -- which will
accelerate the movement in the U.S. toward electronic payments.
As I noted earlier, EFT '99, which was enacted last year, requires the Federal
government to make all of its payments (except tax refunds) electronically by January 1, 1999.
EFT '99 is a comprehensive effort involving the entire Federal government, the Federal
Reserve, the financial services industry, trade associations, and Federal payment recipients. It
will soon result in millions of Americans being brought into the modem financial system for
the first time, and will dramatically change the way in which money is handled. This program
presents many challenges to both the government and the payments industry, and partnerships
5
between the government and the industry will playa major role in determining the success of
EFT '99.
EFT '99 wi]] create unique opportunities for private industry. Minions of consumers
and thousands of vendors will soon be seeking electronic payment services -- for example,
Social Security recipients will need a way to receive direct deposits if they don't presently
have a bank transaction account, and vendors will be looking to financial institutions to
provide payment services. Senior citizens will require information on how direct deposit
works, welfare recipients will need information on types of deposit accounts, and companies
will need information about electronic data interchange. Treasury is forming partnerships with
all parties impacted -- including the payments industry -- to ensure that the EFf '99 goals are
met. Success depends on these relationships.
One of the major challenges will be to encourage the approximately 30 million
currently unbanked persons -- more than 10 million of whom are regular recipients of federal
payments -- to establish relationships with financial institutions. These unbanked persons rely
on check cashers, pawn shops, money transfer agents, or local merchants to cash their payroll
or benefit checks, frequently at high cost. The challenge is to provide low cost accounts for
these individuals. The Federal government would like to partner with financial institutions and
the payments industry to develop new types of accounts that will meet the needs of the
unbanked, such as electronic access only accounts where funds can only be deposited
electronically through direct deposit and withdrawn electronically via ATMs or POS terminals.
We funy recognize that many current recipients of checks will have a strong desire to
continue receive paper payments, whether or not they have a bank account. Some may find it
more costly to maintain an electronic account, others, because of handicaps or location, may
confront a hardship in making the transition. As we consider how to frame standards for
waivers from the mandatory requirements of EFf '99 we will have the interests of these
recipients very much in mind. While we believe strongly that EFf offers enormous benefits
over paper checks, it is not at all our intent or desire to implement EFf '99 in a way that will
disadvantage millions of Americans. Indeed, to make EFf ·99 work, it is essential that we
retain a broad base of political support for the transition, and I can think of no more effective
way to retard progress than to force this new payment process on millions of people who have
serious and legitimate reasons for wanting to continue to receive checks.
Early experience with electronic benefits transfer or EBT programs suggests that EFT
'99 will have widespread acceptance. EBT enables delivery of government benefits
electronically using a plastic card to access cash and food benefits at ATMs and POS
terminals. In partnership, the government and the private sector have built the foundation of
EBT and are now focusing on national rollout of EBT systems for food stamps and other stateadministered payments. The transformation from a paper-based to an EBT system will convert
$111 billion annually in paper-based benefit issuances, such as checks, vouchers, and food
stamps, to a secure, streamlined electronic delivery of benefits.
6
A particular challenge presented by EFf '99 is vendor payments. Government vendors
must accept EFT payments by January 1, 1999, and by that time more than 40 million annual
Federal payments to corporations will be made primarily through ACH. However, many
financial institutions do not have the capability to pass on crucial information with EFf
payments, and as a result vendors frequently have difficulty reconciling lump sum payments on
individual invoices. Treasury has formed partnerships with private industry to establish
alternative methods to transmit this information electronically to vendors, including voice
response systems, electronic fax, fax-on-demand, e-mail, and Internet access to payment
information. Reasonable cost is also a concern, and obtaining the information electronically
should not be more expensive for the vendors than receiving it on a check stub.
Treasury is working closely with all Federal agencies, the Federal Reserve, the
payments industry, private firms, consumer groups, state governments, and other parties to
ensure a smooth transition to EFf. We are developing a nationwide education and marketing
program, and beginning in late 1997, the program will encourage voluntary conversion of
current Federal check recipients to EFf, stressing that EFf is good for everyone and that it is
a reliable and safe way to obtain money.
This Administration's policy concerning electronic payment systems is to rely on
private initiatives and to regulate only when national security or system safety issues warrant,
and Treasury is proceeding in partnership with private interests to develop workable security
programs so it may soon adopt this media. The government's challenge is to identify potential
issues and responses and to determine the time frame within which it needs to act. We believe
that widespread competition and increased consumer participation and marketplace choices, not
government regulations, should characterize the emerging electronic payments systems.
In closing, let me again emphasize that we support the approach of government,
industry, and consumers working together -- that is exactly how we must work as we go
forward to realize the enormous benefits from this exciting new dimension of the information
age.
7
DEPARTMENT
OF
THE
TREASURY (~·'J.,I
\,<,~';-
TREA'SURY
NEW S
_------~17H'l::...------D.C..
omCE OF PUBUC AFFAIRS • 1500 PENNSYLVANlAAVENUE. N.W .• WASHINGTON.
20220. (202) 622-2960
EMBARGOED UNTIL 930 A.M. EDT
Text as Prepared for Delivery
June 19, 1997
TREASURY DEPUTY SECRETARY
LAWRENCE H. SUMMERS
SENATE APPROPRIATIONS SUBCOM:MITTEE ON TREASURY
AND GENERAL GOVERNMENT
I am pleased to be here today to talk with you about Treasury' s plan to implement lasting
solutions to the difficulties the IRS faces. Before I begin, I would like to thank the Chairman,
the Ranking Minority Member and the other members of this Committee for their leadership on
the matter of IRS reform. With me today are Acting Commissioner of the IRS, Michael Dolan,
Chief of Management and Administration, David Mader and Chief Information Officer, Arthur
Gross. In addition, I hope you will join me in recognizing and thanking the more than 100,000
loyal and dedicated IRS employees who carry on the unpopular but vitally important task of
collecting 95% of our government's revenue.
Management Reform
Me Chairman, recent announcements of problems in modernizing the computer systems
of the IRS have focused attention on the shortfalls of the information technology of the Service.
At the same time, improvements in customer service in the private sector have led the American
people to expect interactions with the IRS to be as efficient and straightforward as interactions
with credit card companies and other private-sector financial institutions This has occurred at a
time when the IRS is also coping with an increased workload This year, the IRS processed over
2 billion pieces of paper which, if placed side by side, would stretch over 200 miles. These
developments have provoked an important debate about how best to improve the Internal
Revenue Service.
RR-1771
For press releases. speeches. public schedules and official bio,!.,Traphies. call our 2.J-ho/lr fa.\ linc at (202) 622-2040
Over the last few years, the Treasury Department has focused intense efforts on
improving the IRS. This Committee and others within the Congress have held extensive
hearings on the matter. A consensus has emerged among a wide group of stakeholders, from
business executives to Members of Congress to leaders of the IRS and National TreasurY'
Employees Union on the need for change.
I believe that, in the next year or so, we have the oppoI1unity and the obligation to bring
about the most far-reaching changes in decades in how the IRS is managed and how it does
business. It will be the task of management at the IRS to manage information technology better
and to harness it toward the goal of better customer service.
~
~
~
Mr. Chairman, I know you and the Committee face many difficult choices as you work to
balance priorities and funding for the coming fiscal year. We recognize that this Committee has
provided critical support for making the necessary changes. But we also recognize the
constraints imposed by the effort to balance the Federal budget by 2002. Our budget request for
the IRS therefore maintains operations essentially at the FY 1997 level, providing the resources
to support current staffing levels -- which are over 12 percent below FY 1993 levels. Our
proposal will include funding to address the Century Date change -- an issue not unique to the
IRS, but one that could be disastrous for our tax system if not addressed effectively and quickly.
Indicators of progress
Secretary Rubin and I recognized last year in testimony before the Appropriations
Committees that the IRS's modernization program was, as we put it at the time, off track. We
called for a "sharp turn" and made clear our determination to bring about change in the way the
IRS uses information technology and provides customer service. And there has been change.
The results, while still in their early stages, give the IRS a solid foundation on which to build,
and are already producing benefits. Some examples of the steps we have taken include the
following
•
We have appointed a new Chief Information Officer at the IRS, Art Gross. Mr. Gross
brings to the IRS considerable systems
integration and tax systems
modernization
.
.
experience from his years with the State of New York.
-
-
•
In May 1997, after many months of intense preparation, Mr. Gross released the IRS's
Blueprint for Technology Modernizatioll, which was well-received in the professional
information technology (IT) communities both inside and outside the government. This
Blueprint is a significant and critical first step in getting IRS on the right track for IT
management, and represents the first comprehensive attempt to form a strategic
partnership on IT with the private sector.
•
Following up on the Modernizatioll Blueprint, we submitted a Request for Comment for
a Tax Systems Modernization prime contractor to Congress and to industry on May 15.
2
•
Based on the reviews performed by Mr Gross and senior IRS leaders of the technology
efforts underway at the IRS, we cut and collapsed the number of projects by nearly twothirds -- from 26 to nine.
•
The IRS has increased outsourcing. The percentage of work on tax systems
modernization performed by contractors has increased from 40 to 64 percent over the
past two years. The number of IRS staff working on tax systems modernization has
decreased from 524 to 156 We are also developing an outsourcing strategy for
submissions processing.
Some other activities currently underway include the following:
•
The IRS is now working with a top marketing firm on an electronic filing marketing
strategy to bolster taxpayer participation in the entire line of IRS electronic filing
products, including Telefile, On-line filing, 1040-PC filing, and traditional electronic
filing. The bureau is also putting forth a Request for Information (RFI) that will produce
opportunities for partnering with the private sector to increase electronic filing.
•
A joint Treasury, IRS, and National Performance Review (NPR) task force is conducting
a gO-day study of customer service. The study will draw on the experience of front-line
employees and will focus on the issues that touch customers most deeply. Among other
tasks it will attempt to identify ways to improve notices, the quality of walk-in center
assistance, and training.
I understand that the IRS is providing separate testimony describing in further detail the
progress that is occurring at the IRS in customer service, electronic filing and other performance
measures. The steps we have taken so far are obviously only the beginning. Everyone involved
in this process at Treasury, the IRS, Congress, and the Union has recognized that the problems at
the IRS have developed over decades and will not be solved overnight or even over a couple of
filing seasons. But I believe that we have set up an effective structure for reforming the IRS,
and that we are making progress towards our vision of a tax system that serves taxpayers better,
collects more unpaid taxes, and is more efficient.
The Treasury Department's Five-Point Plan for the IRS
Let me now present our broad approach to IRS reform. We are determined to bring
about changes in the way the IRS uses information technology, provides customer service,
monitors tax compliance, and manages its own resources. As with any institution, however,
there is a right way and a wrong way to make change. We believe that the approach described
below is the right way: it charts a new course for the IRS, but does so without jeopardizing the
institution and our nation's revenue stream. Our approach has identified five critical areas to
effect this "right" kind of change (1) oversight; (2) leadership; (3) flexibility; (4) budgeting;
3
and (5) tax simplification. I will address each of these in turn.
1. Strenbrthening Oversight
First, Treasury has strengthened its oversight of the IRS and is commined to
institutionalizing this oversight function. Oversight of the IRS by the Treasury Department is
essential to ensuring accountability for the American people and to coordinating tax
administration with tax policy
Last March, I announced the formation of the Modernization Management Board (MMB)
comprised of senior officials from Treasury, the IRS, and other parts of the Administration.
Initially, the MMB evaluated only information technology issues. Now, however, it is beginning
to oversee the entire range of IRS activities. We are asking that the President sign an Executive
Order that expands the powers of the MMB by making it permanent and clarifying that its
responsibilities cover the broad range of strategic issues facing the IRS. This new Internal
Revenue Service Management Board will meet at least monthly and will prepare semi-annual
reports to the President and the Congress, which will be transmitted by the Treasury Secretary.
The Executive Order will also contain the requirement that the Secretary and Deputy
Secretary make themselves available twice yearly to Congress to report on the IRS.
We will also establish the IRS Advisory Board, to report directly to the Secretary of the
Treasury. This board will be comprised of senior,business executives, experts in information
technology, small business advocates, tax professionals, and others. It will meet regularly to
make recommendations on major strategic decisions facing the IRS, and will issue an annual
report to the American people and the Congress. This new Board will provide an additional
vehicle for the private sector input from which the IRS can so clearly benefit, without
compromising the bureau's government responsibilities, such as enforcing federal tax laws and
ensuring the equitable administration of the tax system.
These three steps, creating a permanent management board, requiring the Secretary and
Deputy Secretary to report to Congress semi-annually and creating an advisory board comprised
of outside experts will institutionalize the oversight function.
In recent weeks, however, there has been considerable interest in a more radical model of
oversight. As you know, two weeks ago, the National Commission on Restructuring the IRS
proposed that the IRS be governed by an outside board of private citizens who serve on a parttime basis. We believe that a private-sector board would not meet frequently enough to address
the critical and complicated decisions facing the bureau over the next decade. The challenges
the IRS faces and the size and complexity of the institution demand more than the part-time and
sporadic attention that the Commission's proposed board would provide.
In contrast, Secretary Rubin and I, as well as other Treasury officials, are available every
4
day to discuss pressing issues with the IRS. Treasury oversight is also critical because tax policy
and tax administration are inexorably linked. The IRS's relationship with Treasury provides an
effective mechanism for presenting to senior Administration officials the iRS' analysis of the
impact of proposed tax changes on tax administration. I raise such concerns frequently in tax
policy discussions in the White House and elsewhere throughout the Administration.
Furthermore, Treasury oversight allows the IRS to draw upon Treasury resources for critical
projects, as demonstrated by our current cooperation on the Year 2000 conversion.
') Recognizing the importance of leadership
The second element of our approach to the iRS is recognizing that leadership is crucial to
performance. As we move forward, we are excited by the prospect of appointing a new
Commissioner with experience in managing organizational change, customer service
improvement, and information technology challenges. We also will be proposing legislation to
create a five-year fixed term for the Commissioner, to provide the continuity and leadership
necessary for guiding the bureau into the next century.
Taken together, the first two elements of our plan, strengthened oversight and renewed
leadership can achieve the critical goals of ensuring continuity, outside input and accountability
without putting at risk the progress underway at the IRS or the vital functions of government
3. Enhancing IRS management flexibility
The third component of our five-point IRS strategy is to enhance and strengthen the
IRS's ability to manage its operations, working with Congress and the union to improve
management flexibility in personnel and procurement. In return, employees of the IRS, as in
any well-managed business, will be held accountable for results. In addition, we will enhance
and strengthen the IRS's ability to manage its operations. For example:
•
The iRS should be able to attract and retain the highest quality information technology
specialists and other professionals.
•
The IRS should not face rules that make restructuring the workforce needlessly difficult
for employees and the employer.
To strengthen the Commissioner's ability to effect change, we at Treasury will work with
Congress, the Commission, and the union to improve flexibility: to bring on people with specific
skills more quickly ... to pay them more competitively. and to give them the training they need.
This might include providing recruitment, retention and relocation incentives and using
commercial recruiting firms to identify and screen employment candidates. Thus, the IRS faces
a multitude of restrictions -- restrictions that would be unacceptable in the private sector -- that
hamper its ability to provide efficient service. Some changes may require legislation, and we
expect to propose this legislation to Congress later this year.
5
Let me add that in taking these steps, we are committed to maintaining the independence
and freedom of the IRS from political influence
4. Obtaining stable funding
The fourth component of our strategy is to work with Congress to obtain stable and
predictable funding for the IRS. Today, the IRS operates in a low-trust short-tether budgeting
environment. This unduly complicates rational planning for capital projects in areas such as
information technology. As we demonstrate that the IRS is investing its resources more
prudently, Congress should consider longer-term approaches to budgeting. To this end, the FY
1998 budget proposes multi-year investments for technology. This multi-year proposal would
provide funding stability as the IRS modernizes its information technology operations.
Over time, the Administration and Congress will have to give careful consideration to the
appropriate size of the IRS budget. The IRS budget has declined by more than nine percent in
real terms over the last two years. Reducing expenditures on compliance run counter to the goal
of reducing the federal deficit. Over the long term, the IRS estimates that every dollar invested
in IRS enforcement returns at least $4 in actual collections. For example, in 1995, we undertook
to invest $2 billion over five years to increase compliance. In the first year of that program, we
more than exceeded the targets established for revenue gains
Looking forward, there are conflicting pressures on the IRS budget. Efficiency
improvements are surely possible through information technology, which should enable us to
reduce the budget in the long term. But we must also strive to meet expanding customer service
expectations, which could increase our budget requirements. And to promote fairness and
integrity in implementing tax laws while keeping pace with increasingly complex business
transactions, we should also invest additional resources in compliance
5 Simplifying the tax code
The fifth component of our strategy is to simplify, wherever possible, a tax code that
currently covers 9,451 pages. In April of this year, the Administration offered a series of
simplification proposals as part of our overall plan to improve IRS operations. The proposed
package, which could save taxpayers millions of tax preparation hours, contains more than 60
legislative proposals to reduce the complexities and paperwork burdens of the existing Internal
Revenue Code and provide substantial new tax rights to the American taxpayer. It is important
to stress that these proposals would simplify the tax code without the severely adverse
distributional consequences that detract from most other simplification proposals.
We are pleased that Chairman Archer included most of our proposals in the recent Ways and
Means Committee tax bill. Of the total of about 80 simplification proposals in his bill, we count 69
that are substantially derived from the Administration package These measures, if enacted, will
6
improve the functioning and administration of the tax law for many taxpayers and the IRS
However, we note that the pending bill also includes many new provisions that are complex,
and some that are far too complex. In crafting legislation, simplification must always be weighed
with other important tax policy goals, including fairness, equity, economic efficiency, progressivity
and revenue impact.
Summary
These five steps -- institutionalizing oversight, introducing new leadership, increasing
flexibility, obtaining predictable funding, and simplifying taxes -- provide a framework for
improving our tax administration system. Of course, there are other critical issues that we must
address. But I believe that progress on these five fronts is essential to addressing the IRS' problems
Conclusion
This morning I have discussed some of the specific steps we are taking to modernize the IRS.
In turn, I have discussed the broad five-point plan that we believe represents the best way to reform
the management of the IRS.
The Treasury Department is committed to working with the IRS as it moves forward with
its change effort I look forward to working with members of this Committee and other interested
parties in the coming months and years to meet the challenges faced by the IRS I would welcome
your questions.
-30-
D EPA R T 1\,1 E N T
TREASURY
0 F
THE
T REA SUR Y
NEWS
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W .• WASHINGTON, D.C .• 20220. (202) 622.2960
EMBr1ROOBD UN'!'IL 2: 3 0 P. M.
June 18, 1997
o::NIACT:
office of Fil'larlcing
202/219-3350
'I'R:E:ASUR.Y TO AUcrICN 2 - nAR AND 5-YE'.AR NOIES
'IOrAL.IN3 $27,000 MIu.IW
TIle Treasury will auction $15,500 million of 2-year notes and $ll, 500
million of s-year notes to refund $29,192 million of publicly-held securities
nat.uring June 30, 1997 I and to pay down about $2,200 million.
In addition to the public holdings, Federal Relierve Banks hold $1, 122
million of the maturing securities for their own accounts, which nay be
refu:nded. by issui.na additional ancr.mts of the new securities.
The rraturing securities held by the public irJclude $2,439 million held
by Federal Reserve Banks as agents for foreign and mt.ernat.ional rrcnetaxyauthorities. Mounts bid for these a.ccounts by Federal Reserve Banks will be
added to the offering.
Both the 2-year and 5-year note auctions will be conducted in the
single-price auction forrrat. All carpetitive and noncarpetitive awazds will
be at the highest yield of accepted ccnpetitive tenders.
Tenders will be received at Federal ReserJe Banks and Branches and at
the Bureau of the Public tebt, Washin3ton, D. C. This offering of n:ea.sury
securities is govemed by the terms· and condi'tions seoc forth in t:.he tbi.fcrm
Offering Circular (31 CFR Part. 356, as arrended) for the sale am issue by the
'I':reasu::cy ~ the public of marketable D:ea.sury bills, notes, and k:cnds.
Details about. each of the new securities axe given in the attac:hed.
offering highlights.
Attachrrent
RR-1772
HIGHLIGHTS OF TREASURY OFFERINGS TO THE PUBLIC OF
2-YEAR AND 5-YBAR NOTES TO BE ISSU8D JUNE )0, 1997
June 18, 1997
Offering Amount . . . . .
Rescription of Offering:
Term and type of security
Series . . . .
CUS I P 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 .
$15,500 million
$11,500 million
2-year notes
5-year notes
H-2002
912827 2Y 7
June 25, 1991
June 30, 1997
June 30, 1997
June 30, 2002
Determined based on the
highest accepted bid
Determined at auction
December 31 and June 30
$1,000
AG-1999
912827 2X 9
June 24, 1997
June 30, 1991
June 30, 1997
June 30, 1999
Determined ba~ed on the
highest ac~epted bid
Determined at auction
December 31 and June 30
$5,000
$1,000
$1,000
None
Determined at auction
None
Determined at auction
The followina rules a~ to all securities mentioned above:
Submission of Bids:
Accepted in full up to $5.000,000 at the highest accepted yie 1.1
Noncompetitive bids
(1) Must be expressed as a yield with three decimals, e.g., 7.123%
Competitive bids
(2) Net long position for each bidder must be reported when tIle
sum of the total bid amount. at all yields. and the net l')l1g
position is $2 billion or greater.
(3) Net long position must be determined as of one half-hour ljrior
to the closing time for receipt of competitive tenders.
Maximum Recognized Bid
35% of public offering
at a Single Yield
35% of public offering
t4aximum A"/ard . . . • .
Receipt of Tenders:
Prior to 12:00 noon Eastern Daylight Saving time on auction day
Noncompetitive tenders
Prior to 1:00 p.m. Eastern Daylight Saving time on auction day
Competitive tenders
Pull payment with tender or by charge to a funds account at a
Payment Terms . . . . . .
Federal Reserve Bank on issue date
/\11~
Very Preliminary
Ways and Means Democrat's Package (1)
(1998 Income Lewis)
i
Tatal Tax Change
I
I
r:am~y
~~
I
Number
Economic
of
Families
Average
Tax Change
Amount (3)
Cuintile (2)
(millions)
($)
(SM)
Highest
21.6
22.2
22.3
22.3
22.3
Total (5)
Top 10%
Top 5%
Lowest (5)
Second
Third
Four1tl
Top 1%
Percent
Di5tribution
(%)
Tax Change as a Percent of:
CUlTent
Family
Federal
Eccnomic
Taxe5 (4)
Income
(%)
(%)
20.7
259
31.8
-14.16
·9.48
.... 77
-3.05
·127
-087
-1.07
-0.79
-0.59
-36383
100.0
·2.50
-0.49
-8268
22.7
19.1
12.2
-1.25
-1.43
-1.71
-0.28
-82
·263
·1779
·5842
4.9
16.1
·338
-7523
~24
·520
-9431
·11578
111.3
-327
11.1
5.6
·742
-1249
1.1
-3966
-6966
-4449
-0.28
-0.33
-0.42
JuneS, 1997
(1) This table distributn the estirnllted change in tu burdenw due to the tax propoNI5 in the following iUU5trative baseline tax pac;bge:
i} Hope SdIoIenhip Cf~ ($1.100 158-1919, $1,200 in 2000, $1,500 in 2001 indexed beginning in 2002; no
a minU5 rule; and no
Federal grant oC'fut) and 20'Mo tuition CBdit ($4,000 in 1997102000 and $7,500 therollftar); n) Permanent exten5ion of Section 127;
iii) $500 child credit which is refundllble against the a"'f)loy.. shara of payro. tues ($250 in 1998, $300 199910 2000, and $500
In 2001, Indexed beginning In 2(02): Iv) 18'Mo maxlmum capital gains rate on non-pubUcly traded assets ($800,000 lifetime ClIp Oolnt),
3 year holding period); v) Allow deductibility on loss. on sale of prW1clpal residence: vi)
S5OO,ooo e.cluslon of galna on the sale of
principal residence (Presldenrs FY1998 Budget proposal); and vii) distressed areas initiative and other lax incentives in the
President's FY1998 Budget (equitable toiling, Section 936, and FSC software).
('2)
F&mIIy Economic: Income (FEI) Is a broad-OaMcllneama concept. FEI is conslNcted by edding to AGt unrapolted and underreported Income; IRA and Keogh deductions; nontuBbie
n.ntt.r peyments such as Social Security and AFOC; employ.·
provided fringe benefits; Inside build-up on pensIona, IRAa, Keoghs, and life inaurance; tu-e.empt Interest; and imputed rent
on _ _~ housing. Capital gains ara computed on an ac:crual basis, adjusted for innation to the extant that reliable
c1ata sllow. InftatJonary losses d lenders .,. subtnlcted anctgains of borrowers ara lidded. Thera is also an IIdjustmant for
~Ielated deprac:iation of noo~rporata
busi_.
FEI Is shown on a family rath.r than a Woofatum ba5is. The ec;gnomlc:
II'ICOfnft of all mernben oIa family unit are added to arriva
(3)
at the lIImily's economic income used in the distributions.
The change in Federal taxa Is estimated al 1998 inc;orne level, but_ming fully phaHd in (2007) law and behavior. The aIfect
oIlhe capital ;aiM propoMIls baaed on the level d capital "aina r.lizIItIona undar currant law.
(4) The laKes induded era individlal and corporfie im:oma. peyrvU (Social Sac:urity and unemployment). and excises. Est.ta and
"lit ..... and cu.toma dutiM ani UICIuded. The individual incDme tax Is _umad 10 be bame by pllyon, the corpome
~
ta by C8pltal incDme ,, _ _ IIy.
~ IDea
(amplD)'ar and employee .nsr.., by lllbor (wag.. anctaelf-e"'f)1oyment
income), elc" on jNrc:ha_ by Individuals by the purcha_, and e~ an purchases by business In proportion to Iobil
cansumption opendituras. ~ac.~~1 tues are estimated 811998 Income lewis but assuming 2007 law and, It!ereforw, uclude
proviUons thIIt expire prior 10 the end of the Budget period and are adjusted for the elJacts of unindaxec:l p;iramet.,...
(S)
Families with negatw. i~ ara .lICIuded hm the Iawvst qulntila but included In the total lina.
NOTE: Quintllea bagln at FEI at. S8C1:IIICI $18,950; Third $32,563; Fourth $54,758; Highest $93,222; Tap 10% $127,373;
Top 5% $170,103; Top 1% $408,55"
RR··1173
Very Preliminary
Ways and Means
Democrat's Package (1)
(1998 Income levels)
Till( Change as; a Percent at.
Totll Tax Change
Number
Family Economic
Income Class (2)
[
. ~(OOO)
of
Families
(millions)
0-15
15 - 30
30-40
18.5
21.8
4O-SO
SO-50
9.7
7.9
60 -75
75 - 100
100 - 200
200 & over
9.4
Total (5)
Av.~g.
Tax Change
(S)
3,9
1".3
-327
1'.7
15.6
(SM)
(%)
.07
-2.a
-304
-342
-4OS
-443
-388
-273
-1629
12.1
Amount (3)
Percent
Distribution
Current
Federal
Taxes (4)
(%)
-13.27
-10.70
~n
3,4
14.B
10.1
9.1
8.8
11.5
12.5
11.7
17.5
-36383
100.0
-1238
--53n
-3659
-3323
-3208
-4175
-4537
-4262
Family
Economic
Income
(%)
-5.89
-4.55
-4.08
-3 ..a
~,4S
-2.50
-0.49
Fedel1ll glllnt olbal) lind 20" tuition Cfedit ($4,000 In 1997 to 2000 and $7.500 thereafter); Ii) Permanent elrten$lon of Sac:tion 127;
Iii) $500 c:tIlid Cfedlt whlc:tlls refundable agllinst the employee $hare of payroll taxn (5250 in 1998, 5300 1999 to 2000, and 5SOO
In 2001. indued beginning In 2(02); Iv) 18'1' maximum capital gains rate on non-publicly traded _ t s ($600.000 lifeti~ cap Ooinl).
3 year holding period); v) Allow daductibilily em losses em sale of principal residence; VI) $500.000 ellclusion of gains on the sale of
principal residence (President's FY1gga Budget proposal); and viI) distressed areas initiative lind other tu incenlives in the
Presidanrs FY1998 Budget (aqua'- tolling, Section 838, end FSC software).
Family Economic: Income (FEI) '- a bfoa6-bQ.ed Inconw conc.pl. FEI is c:onstructed by adding to AGI unreported and under-
payments .ueh es Social Security end AFOC; employer-
provided fringe benefits; inside bulld-up on ~ns. IRAs. Keoghs. end lif. insurance; tax..lIempt interest; end imputed rent
on crwner1)CCupied housing. Captlal gains er. computed on an eccrual basis. adjusted (or inBation 10 th. eldent that reliabl.
data IIlIow. InflatioMry Iosus of land.,. era .ubtrected end gains of borTOWBfS ere added. There is elso an edjustmanllor
acceIeraled depoKietion of rlOIICCIfJIOI"te busin_. FEI is shown on a family rather than e tp-ratum basis. The ~nomic
ineorne& of all members of e family unit ere added to errive at the family's economic: income used In the distribuUoM.
(3)
The dlangeln Fecl8r1I11U.. Is eslilMted at 1998 Income IIrwIs but . .uming fully phased In (2007) law end behavior. The elfact
of the capital gaina poapoul '- baNd on the ~ ttl capitel pins realizations und.n:urrant 11M.
(4) The Iu_ included e,. individual end QOf'JICnte Inc:ame, payroll (SocIal Security and unemployment). end
uel....
Estate end
gift ..... end customs duties era ududed. The indMduellncome tax '- ...umed to be borne by paycn, ItIa corpotate
inc:ome tax by IOIIpital income ~11y. paynIIllU_ (employer end employ. . shares) by labor <weg_ and self-employment
income). eXCises on purchases by individuals by the purdluer, end excises on purchases by busintl$S in proportion to total
conaumption ~itur.. Federal taus er. estirnated at 1991> ..
_levels but essuming 2007 law end. therefor. ••xclude
ptovaNons lhet eKPir. priaf 10 the end of the Budget period end e,. edjusted for the a/l'eds
(5) FarnIIiea witt! negative Incomes er.lncluded In the lobIllin. but not $hown sepa,.tely.
at unindalled palllmat8l1l.
~.66
-<1.21
-0.35
tax burdens due to the tax proposals in the following illustrative baseline tax package:
~ad i~; IRA end Keogh ded~iona; norrtax.bIa trannr
~.74
-<1.98
-1.51
i) Hope Scholarship credit (51,100 1998-1999, $1,200 in 2000. 51.500 In 2001 indued beginning in 2002; no B minus rul.; .nd no
(2)
~.76
-2.26
June 8,1997
(1) This table distributes the estimaled dwlng. in
-0.79
-1.11
-<1.87
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PU8LIC DEBT - WASHINGTON DC
CONTACT:
FOR IMMEDIATE RELEASE
June 19, 1997
Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 52-WEEK BILLS
Term:
364-Day Bill
Issue Date:
Maturity Dar:e:
CUSIP Number:
June 26, 1997
June 25, 1998
9127944Wl
~~GE
OF ACCEPTED COMPETITIVE BIDS:
Discount
Rate
-----Low
High
Average
Investment
Rate 1/
Price
------
----------
5.34 %
5.35 %5.35 %
5.64 %
5.65 %
5.65 %-
94.601
94.591
94.591
Tenders at the high discount rate It/ere allotted
~~OUNTS
TENDERED AND ACCEPTED (in thousands)
Tendered
Tender Type
competitive
Noncompetitive
$
58,641,795
976,790
Accepted
$
10,341,469
976,790
PUBLIC SUBTOTAL
59,618,585
11,318,259
Federal Reserve
Foreign Official Insc.
Refunded Maturing
Additional Amounts
5,:315,000
5,375,000
1,692,500
1.026,500
1,692,500
1,026,500
TOTP.L
1/
94%.
Equivalent coupon-issue yield.
RR-1774
$
67,712,585
$
19,412,255
DEPARTMENT OF THE TREASURY
WASHINGTON. D.C.
'1ETARY OF r'-'E TREASURY
June 18,1997
The Honorable William V. Roth, Jr.
Chainnan, Committee on Finance
United States Senate
Washington, DC 20510
Dear Bill:
I have reviewed the Chainnan's Mark you released yesterday providing details of the tax portion of
the bipartisan budget agreement. The President wants to implement the agreement into law by
signing legislation that is fiscally responsible and provides a significant share of its benefits to
middle income and working families.
While we are pleased that your mark moves in the direction of the principles underlying the budget
agreement as compared to the Ways and Means Committee bill reported last week, we believe that
certain changes -- indicated below - should be made to correct our very serious concerns with the
proposed bill.
In general, we believe that the benefits of the tax cut package should be distributed equitably
throughout the income levels. Our·preliminary analysis of your Mark shows 65.5 percent of the
tax changes, when fully in place, going to the top 20 percent of taxpayers, 13.1 percent to the top 1
percent of taxpayers, and only 12.7 percent to the lowest three quintiles.
A number of the specific changes that we recommend below would provide a fair balance of the
benefits of the tax cuts to working Amencans, as well as mitigate the outyear escalation in the cost
of the bill.
Children living in moderate and low-income families should benefit from the child credit we are
creating in this bill. The Mark should be revised so that the child credit would be allowed before
EITC is applied to ensure that middle and lower-income families benefit from this new credit.
Otherwise, families who most need the help from a child credit would not be eligible. Millions of
middle to lower-income families owe income tax before the EITC is applied. but not after. If the
EITC is applied before the child credit, then almost all families with incomes under S20,000 per
year, and many with incomes in the $20,000-30,000 per year range, would not benefit from this
credit. The families who would be denied tax relieffrom the child credit under the Mark are
hardworking Americans who pay Federal income tax and other taxes.
The education package falls nearly $15 billion short of the agreed goal of$35 billion in tax cuts for
education that are consistent with the HOPE scholarship and tuition deduction proposals in the
President's FY98 Budget. Furthermore, as compared to the President's proposals, the Mark directs
more benefits toward upper-income families, while reducing the benefits to lower-income
RR-1775
2
families. We also believe it important to restore the full 100% credit for the first $1,500 for
students in their first two years of college education. We are pleased that you have eliminated the
Pell grant offset as a reduction of the maximum available HOPE credit. The President recently
announced that he endorses such a change.
The Mark does not adequately deal with relief from the expenses of post-secondary education
following the first two years. A tax incentive should be provided for such expenses in order to
satisfy the terms of the budget agreement and meet the goals of continuing incentives for life-long
education and provide relief from the squeeze on middle income parents educating their children.
Individual Retirement Accounts (lRAs) are currently available to married couples with less than
$50,000 of income and all workers not covered by employer provided pension plans. The Mark
contains a number of provisions to create new or enhanced individual retirement accounts or
equivalent incentives -- increased income limits for existing regular IRAs, a new joint filer
provision. a new backloaded "IRA Plus" account, an education IRA associated with the child credit
for older children, new tax-free educatIonal savings through prepaid tuition plans. and a new
backloaded education IRA The IRA Plus account, the education IRA and prepaid tuition plan
modifications create IRA type tax benefits for savings contributions without regard income
limits. Since most workers already have an opportunity to contribute to tax deductible IRAs, the
new provisions will largely become vehicles to provide tax breaks for savings that would
otherwise occurred by upper income taxpayers. The new spousal income provision will permit
well off families to benefit from tax-free accumulation.
to
We recognize the value ofIRAs (as indeed the President's own budget proposal demonstrated).
However, we believe that the proliferation of IRA relief and other tax-favored savings incentives
without income limitations in the mark will not lead to materially greater savings and violates the
principles of balance and avoiding outyear explosion of costs that we articulated above.
We are pleased to note that you have chosen not to provide capItal gains indexing, which we
believe IS unduly complex and would bestow inappropriately large benefits on high-income
taxpayers, particularly in combination with a separate favorable rate schedule for capital gains.
Our preference would be to limit capital gains relief to sales of residences and small business
investment.
We also strongly support the remaining tax cut initiatives (including the urban and welfare-towork initiatives, equitable tolling, Puerto Rico tax credit and the DC incentives) in the
Administration's budget proposals to the extent not reflected in the Mark.
We look forward to ultimately fashioning a product that accommodates these concerns as well as
those of both the maJonty and minority members of both houses of Congress.
C?: ')
Roben E. Rubm
P"UBLIC DEBT NEWS
Depal:unent of the Treasury • Bureau of the Public Debt • WashingtOn. DC 20239
FOR IMMBmAIE REI_EASE
CONTAcr: Office. of Financing
(2.02) 219:-]350
Iunt 23, 1997
CALCULATION OF IN'l'EREST PAYMENTS
FOR THE 100YEAR INPLA110N·INDJtXED NOTE
The first semi-annual. interest payment for the 3 3/8 S lO-year jnflation·1ndexed note
(CUSIP No. 9128272M3) that matures OD Janway IS, 2007, is payable on July IS. 1997.
Interest payments for various par amcums of the noteS are shown in the following table, based
on the annual interest rate of 3 3/8iJ and the July IS, 1997, index ratio of 1.01085:
InfIadon-
Par
AID21lnt
51,000
$10,000
. $100.000
51,,000,000
510,000,000
$100,000,000
AIljustcd
Adjusted
lIltcrest
Princmat
Payah'e
$1,010.85
517.06
$10.108.50
S170.58
SI,705.81
517,OS8.09
$101,085.00
$1,010,850.00
$10,108,500.00
5101.085,000.00
$170,580.94
$1,705,809.38
This information is available through the Treasury's Office of Public Affairs automated fax
systc:m by calling 202~-2040 and requestiJ1g doc:ument number 1T/6. The information is
also available on the Intcmct at Public Debt's home page: (bttp:llwww.publicdebt.tn:as.gov).
000
PA-270
RR-1776
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt. Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE
June 23,
Office of Financing
CONTACT:
202-219-3350
1997
RESULTS OF
TR~.SURY'S
AUCTION OF 13-WEEK BILLS
91-Day Bill
Term:
Issue Date:
Maturity Date:
June
26, 1997
September 25, 1997
912794SNO
CUSIP Number:
RANGE OF ACCEPTED COMPETITIVE BIDS:
Discount
Rate
Investment
Rat.e 1/
------
----------
Low
High
Average
4.91 %
4.95 %4.94 %
Price
-----98.7, )
98.749
98.751
5.04 \
5.08 %
5.07 %
Tenders at. the high discount rat.e were allotted
AMOUNTS TENDERED AND ACCEPTED (in
$
Federal Reserve
Foreign Official Inst.
Refunded Maturing
Addir.ional AmountS
1/
Equivalent coupon-issue yield.
RR-1777
Jl.ccepr.ed
32,616,025
1,188,817
$
4,593,145
1,188,817
33,804,842
PUBLIC SUBTOTAL
TOTAL
~housands)
Tendered
Tender Type
Competitive
Noncompetitive
18%.
$
3,379,235
3,379,235
1,228,200
1,226,200
o
o
38,412,277
$
10,389,397
TREASURY SECURITY J..UCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE
J1l.'I'le 23. 1997
CONTACT:
Office of Financing
202-219-3350
RESULTS OF TREASURY'S AUCTION OF 26-WEEK BILLS
183 -Day Bill
June 26, 1997
December 26, 1997
Term:
Issue Date:
Maturity Date:
CUSIP Number:
9127945Y6
R~GE
Low
High
Average
OF ACCEPTED COMPETITIVE BIDS:
Discou..Tlt
Rate
Investment
Rate 1/
------
----------
5.04 %
5.06 %5.05 %
Price
------
5.24 %
97.438
5.27
%-
5.25
~
97.428
97.433
Tenders at: the high discount rat:e ....'ere allotted
~~OUNTS
TENDERED
.~
ACCEPTED (in thousands)
Tendered
Tender Type
Competitive
Noncompetit.ive
s
PUBLIC SUBTOTJ..L
Federal Reserve
Foreign Offlcial Inst.
Refunded Maturing
Additional Amounts
TOTAL
1/
Equivalent coupcn-issue yield.
RR-1718
21%-.
$
29.670,825
1,046,408
Accepted
$
2,973,995
1,046,408
30,717,233
4,020,403
2,895,000
2,035,000
3,000,000
1,548,400
3,000,000
38,160,633
1,548,400
$
11,463,003
INTERNATIONAL MONETARY FUND
1997 Article IV Consultation with the United States of America
Statement of the Fund Mission
June 19, 1997
1.
The successful implementation of fiscal and monetary policy over the past four years
has helped make the current economic expansion one of the longest in the period since World
War II. Steady and important progress has been made in reducing the federal fiscal deficit
since the current Administration took office in January 1993. In FY 1996, the deficit reached
its lowest level in relation to GDP since FY 1974, and it is expected to fall further in FY
1997 to around % percent of GDP. The recent agreement between the Administration and the
Congress holds the promise that the objective of balancing the budget by FY 2002 will be
achieved. At the same time, monetary policy has succeeded in maintaining inflation at a
relatively low rate and in promoting the continued expansion of the economy. Flexibility in
labor and product markets has helped to foster the creation of a substantial number of new
jobs, bringing the unemployment rate down to its lowest level in decades and restraining
inflationary pressures. The U.S. authorities should be highly commended for their policy
efforts and the resulting outstanding performance of the U.S. economy.
2.
At this juncture, a major immediate policy issue is to safeguard against the emergence
of inflationary pressures and to prolong the life of the current economic expansion. While
there is little evidence of pressures on prices at present, several elements in the current
situation raise concerns. In the past year, the economy has shown considerable strength,
and it appears more likely than not that this momentum will be carried forward. The
economy is operating at a high level of resource utilization and may move to even higher
levels in the near term. Moreover, the influence of factors that have restrained inflation
(including slowly rising labor costs, appreciation of the U.S. dollar, and increased external
competition with weak growth in other major countries) is likely to wane in the period ahead.
Such concerns motivated the Federal Open Market Committee's preemptive increase in the
target for the federal funds rate in March, and they point to the need for the monetary
authorities to remain vigilant and to be prepared to raise interest rates further in coming
months.
3.
A forward-looking approach to monetary policy along the current lines, moving in
small steps to change the stance of policy as circumstances warrant, is the most effective
means of promoting a sustained expansion of the economy and keeping inflation in check,
especially given the lags with which monetary policy affects output and prices. In the IMF
staff's view, such an approach is likely to call for a moderate tightening of monetary
conditions in the near future. This approach would not, however, preclude the economy
RR-1779
-2-
from reaching a new, higher level of resource utilization, if as some economists have
argued structural changes have taken place that would allow the economy to operate at higher
capacity utilization rates without triggering a rise in inflation.
4.
More generally, the IMF staff agrees with the view expressed by the authorities that
monetary policy needs to pay attention to cyclical conditions, while focusing on containing
inflationary pressures during economic expansions in order to permit a gradual ratcheting
down of inflation over the course of successive business cycles.
5.
While much of the current policy debate in the United States focuses on short-run
macroeconomic issues, particularly monetary policy, fiscal and trade policy issues are
critically important for the longer-term growth of the economy. The recent agreement
between the Administration and the Congress on a broad plan to balance the federal budget
by FY 2002 is a welcome development. The agreement also seeks to maintain a balanced
budget over the period to FY 2007, a very important consideration given the proposed
measures to cut taxes. Prospects that these objectives will be met are good, provided the
economy continues to perform well. The key task at hand is to define the specific measures
to be taken within the framework of the balanced budget agreement and to move quickly to
implement them.
6.
While the agreement envisages significant savings in entitlement spending, it
also relies on substantial further cuts in discretionary spending, mainly after FY 1999.
Such expenditure cuts could prove difficult to implement, given the substantial compression
of spending on discretionary programs that has taken place in recent years and the
Administration's desire to raise spending in such priority areas as education and training.
Reliance on the further compression of discretionary spending also raises concerns about
whether the provision of basic government services, including the development and
maintenance of public infrastructure, might be impaired; these concerns could be allayed to
some extent by ongoing efforts to improve the efficiency of the public sector. These concerns
also could be addressed by some reallocation of discretionary expenditures from defense
spending toward areas of higher priority.
7.
Although it would not be feasible to change the targets of the balanced budget
agreement in a material way, the timing of spending cuts might be brought forward and tax
cuts delayed somewhat within the agreement's framework, in order to achieve an earlier
reduction in the budget deficit; this would strengthen the plan's credibility and leave the fiscal
situation less vulnerable to adverse shocks. Moreover, a faster pace of deficit reduction would
serve in the near term to reduce aggregate demand pressure, reduce the extent to which
interest rates may need to be raised, and limit upward pressure on the exchange rate. In the
longer term, a more substantial fiscal effort would raise national savings and help to reduce
the external current account deficit and growing net U.S. international indebtedness.
-3-
'8.
In recent years, the Administration and the Congress have introduced targeted tax
incentives to promote some of their policy objectives. Indeed, changes in the tax system
over the past decade have in large part undone the simplification achieved in the Tax
Reform Act of 1986. The balanced budget agreement illustrates this tendency with the
inclusion of tax credits and deductions for educational expenses. Such incentives, which
take the form of tax expenditures, narrow the tax base and make the income tax system
increasingly less efficient and transparent. In the coming years, consideration should be
given to simplifying the income tax system and to reducing distortions in order to enhance
economic efficiency.
9.
The rising share of the elderly in the U.S. population will place increasing strains on
the Medicare and Social Security systems, with significant implications for fiscal policy over
the longer term. Prompt efforts are required to reduce the financial burden that these
programs will otherwise impose in order to avoid more draconian measures in the future.
Such efforts also could contribute to the increase in national savings and reduction in the U.S.
external imbalance alluded to above.
10.
The balanced budget agreement addresses the near-term financial problems of the
Medicare system, with the measures proposed ensuring the integrity of the system for at least
the next ten years. However, the longer-term finances of Medicare remain a critical problem.
The Administration's proposal to establish a bipartisan commission to develop a plan to
address Medicare's longer-term finances should be acted on quickly. It would not be
desirable to address the system's financial needs solely through increases in payroll taxes. To
spread the burden more equitably, reform options to be considered might include
combinations of increases in the Medicare payroll tax, further constraints on payments to
health-care providers, increases in the costs paid by Medicare beneficiaries, and some
increase in the age of eligibility. In addition, it has to be recognized that a once-and-for-all
fix to Medicare's long-term finances may not be possible, owing to the difficulties in
projecting the demand for health care and the costs of medical services.
11.
The financial problems of the Social Security system are less immediate than those of
Medicare, but it is no less important that a plan to shore up the system's longer-term financial
position be implemented as soon as possible. The magnitude of the problems of Social
Security and options for reform are well-known and have been studied extensively. Estimates
suggest that measures equivalent to about a 2'1t percentage point increase in the payroll tax, if
enacted promptly, would be sufficient to bring Social Security into actuarial balance. This
could be accomplished through a combination of a small payroll tax increase and benefits
cuts, including raising the retirement age, increasing the income taxation of benefits, and
reducing cost-of-living adjustments to reflect the bias in the consumer price index. By taking
such an approach, the burden of ensuring Social Security's financial soundness could be
shared across generations.
12.
The appreciation of the U.S. dollar over the past two years mainly reflects relative
cyclical positions and policy developments in the major countries, together with the
-4-
confidence inspired by the strong U.S. economy. During this period, the dollar's strength has
helped to moderate aggregate demand in the United States and limit inflationary pressures,
while the high level of U.S. domestic demand and the appreciation of the dollar have
contributed to a widening in the external current account deficit.
13.
The persistence of large U.S. current account deficits and growing international
indebtedness remains a matter of concern, and reducing these imbalances should be an
important medium-tenn objective. By boosting national saving through continuing
improvements in the fiscal position, the United States could avoid the crowding out of
investment, which would potentially stem from a correction in the external deficit owing to
exchange rate movements.
14.
The United States continues to be a major force behind the advancement of trade
liberalization in new sectors (for example, in telecommunications and intellectual property
protection) and through regional and multilateral initiatives. Current efforts to expand
international trade include initiatives to broaden membership in NAFTA, to establish a
timetable for negotiations on a Free-Trade Area of the Americas, to advance trade
liberalization in the Asian-Pacific region on a most-favored-nation basis, and to further the
scope for liberalization under WTO auspices. U.S. support for regional market opening on
tenns supportive of the multilateral trading system and the goal of global free trade is to be
commended. Extensive use by the United States of the WTO's trade dispute-settlement
procedures, frequently in conjunction with Section 301 actions, would appear to reflect a
shift in U.S. policy in favor of the resolution of disputes on a multilateral basis, and this is
also a welcome development. At the same time, the IMF staff urges the authorities to be
cautious in their use of unilateral actions and encourages the United States to exercise its
leadership role by pushing forward more quickly with trade liberalization in traditionally
sensitive sectors.
15.
The communique of the 1996 Lyon G-7 summit underscored the importance of
developing and transition economy countries giving priority to avoiding unproductive
expenditures, in particular excessive military spending, and this is an issue that the IMF also
has stressed in its work with these countries. To support such efforts, the IMF staff urges the
United States, together with other major countries, to administer their policies on military
sales to developing and transition economy countries in a way that avoids encouraging
unproductive expenditures and heightening security tensions.
16.
The United States has played an important leadership role in the area of official
development assistance (ODA). However, U.S. ODA has declined as a share of GDP from
its average in the early 1990s of 0.2 percent to around 0.1 percent in 1995 and 1996, and
the Administration's FY 1998 Budget proposed only stabilizing such assistance at
historically low levels. The IMF staff urges the authorities to make every effort to ensure that
ODA does not fall further and to see that vigorous efforts are made to reverse its decline.
U.S. leadership in efforts to raise ODA is important to help reverse a downward spiral in such
assistance that appears to have developed on a world-wide basis, and threatens to offset a
large part of the potential benefits from special programs such as the initiative for Africa.
DEPARTMENT
OF
THE
TREASURY
NEWS
~8~9~. . . . . . . . . . . . . ..
................
OFFICE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.. 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
June 23, 1997
Contact: Michelle Smith
(202) 622-2960
TREASURY PRESS STATEMENT
Secretary Rubin today released the concluding statement of the staff of the International
Monetary Fund following completion of its 1997 annual economic consultations with the United
States. This statement represents IMF staffs independent judgement and assessment of U.S.
economic perfonnance and policies. In releasing it, the United States joins a number of countries
that have chosen to do so in recent years, including several of our G-7 partners.
The IMF staff statement, or Statement of the Fund Mission, highlights the strength of the Clinton
Administration's economic record, which has helped make the current expansion one of the
longest and most dynamic on record. But it also observes that there is still work ahead in
securing the longer tenn health of the economy.
We do not agree with every point in the statement. However, our release of it underscores our
strong commitment to enhancing the transparency of IMF activities, so as to strengthen the
institution's internal workings and build greater public support for the critical contribution the
IMF makes to the successful functioning of the world economy.
Every year, IMF staff review economic perfonnance and policies in the vast majority of its lSI
member countries as part of its so-called "Article IV surveillance" consultations. Following the
consultations, IMF staff generally provide a concluding statement to the country's senior
economic officials. For several weeks in May and early June, IMF staff conducted the U.S.
consultations in meetings with technical experts and economic policy officials. IMF Managing
Director Camdessus and the IMF staff team met earlier this month with Chairman Greenspan and
Secretary Rubin to wrap up the consultations. The IMF Executive Board will consider the IMF's
findings next month. We expect that a summary of..!...he Board's conclusions will be released.
-30-
RR-17S0
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
DEPART~IENT
OF
THE
1789
TREASURY
NEWS
omCE OFPUBUCAFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASHINGTON, D.C. - 20220 - (202) 622-2960
EMBARGOED UNTIL 2:30 P.M.
June 24, 1997
CONTACT:
Office of Financing
202/219-3350
TREASURY'S WEEKLY BILL OFFERING
The Treasury will auction two series of Treasury bills
totaling approximately $15,000 million, to be issued July 3, 1997.
Th~s offer1ng w~~l result in a paydown for the Treasury of about
$2,150 million, as the maturing publicly-held weekly bills are
outstanding in the amount of $l7,159 million.
In addition to the public holdings, Federal Reserve Banks for
their own accounts hold $7,271 million of the maturing bills,
which may be refunded at the weighted average discount rate of
accepted competitive tenders. Amounts issued to these accounts
will be in addition to the offering amount.
Federal Reserve Banks hold $4,394 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 amounc 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, as amended) 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
.ZGRLZGHTB or
,..asu.~
o . . . .XHGso. WaBKLY
TO BB %S8UBD JULy 3,
B%~L.
1997
June 24, 1.997
Offering AmoUDt . . . . .
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 . . . . . .
.
.
.
.
.
.
.
$7,500 million
$7,500 million
91-day bill
912794 SP 5
June 30, 1997
July 3, 1997
October 2, 1997
April 3, 1997
$10,037 million
$10,000
$ 1,000
183-day bill
912794 5Z 3
June 30, 1997
July 3, 1997
January 2, 1998
July 3, 1997
$10,000
$ 1,000
The following rule. a»Dlv to all securitieB_mentloned aboves
Submission of Bids:
Noncompetitive bids
Accepted in full up to $1,000,000 at the average
discount rate of accepted competitive pide
Competitive bids
(1) Must be expressed as a discount rate with
two decimals, e.g., 7.10t.
(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
35% of public offering
at a Single Yield
35' of public offering
Maximum Award . . . . . .
Receipt of Tenders:
Noncompetitive tenders
Prior to 12:00 noon Eastern Daylight Saving time
on auction day
Prior to 1:00 p.m. Eastern Daylight Saving time
Competitive tenders
on auction day
Payment Terms . . .
Full payment with tender or by charge to a funds
account at a Federal Reserve Bank on issue date
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
OF THE PUBLIC DEBT - WASHINGTON DC
BUREAU
FOR IMMEDIATE RELEASE
CONTACT:
Office of Financing
June 24, 1997
202-219-3350
RESULTS
OF TREAStJRY'e AUCTION OF 2-l'EAR NOTES
Interest Rate: . 6 %'
AG-~99~
Series:
CUSIP No:
9128272X9
High Yield:
Issue Date:
June 30, 1997
Dated date:
Maturity Date:
June 30, ~997
June 30, 1999
6.027%
Price:
99.950
All noncompeticive and successful competitive bidders were awarded
securities at the high yield. All tenders at lower yields were
accepted in full.
Tenders at che high yield were allotted
90%.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Tender Type
Competitive
Noncompetitive
37,040,074
$
PUBL!C SUBTOTAL
Federal Reserve
Foreign Official Inst.
TOTAL
$
Median yield
tenders was
6.010%: 50% of the
~endered a~
Low yield
S.950~:
tenders was tendered
RR-1782
Accepted
Tendered
a~
amoun~
of
1,145,933
14,360,554
1.145,933
38,186,007
15,506,487
644,435
1,660,000
644,435
1,660,000
40{490,442
17,810,922
accep~ed
$
competitive
or below that rate.
5% of the amount of accepted
or below that rate.
compe~itive
D EPA R T 1\1 E N T
0 F
THE
T REA SUR Y
NEWS
omCE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIllNGTON, D.C. - 20220 - (202) 622-2960
FOR IMMEDIATE RELEASE
June 24, 1997
Contact: Hamilton Dix
(202) 622-2960
MEDIA ADVISORY
Treasury Secretary Robert E. Rubin will present the first Jackie Robinson gold and silver
coins to Mrs. Rachel Robinson and the Jackie Robinson Foundation at 11 a.m. Thursday, June
26, at Hamilton Plaza, the South entrance to the Treasury Department, 1500 Pennsylvania
Avenue, N.W.
Treasury will produce up to 100,000 gold and 200,000 silver Jackie Robinson
commemorative coins in honor of the 50th anniversary of the breaking of the color barrier in
major league baseball by Jackie Robinson.
A portion of the proceeds from the sale of the coins will go to the Jackie Robinson
Foundation for education and youth leadership skills development and increasing the availability
of scholarships for economically disadvantaged youths.
-30-
RR-1783
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
D EPA R T MEN T
0 F
THE
T R· E A SUR Y
NEWS
FOR IMMEDIATE RELEASE
Text as Prepared for Delivery
June 24, 1997
Secretary Robert E. Rubin Remarks to the
James W. Rouse Forum on the American City
June 24, 1997
Let me start by thanking Brookings, Fannie Mae and the Fannie Mae Foundation for
hosting this event. All three organizations play key roles in helping the inner cities -Brookings with its analysis of urban issues; the Foundation as a warehouse of information for
homeowners and the largest grant maker in housing; and Fannie Mae as an important source of
capital for urban development. For example, between 1994 and 2000, Fannie Mae will have
invested or committed $75 million to CDFI -- money that goes to very good use in restoring
opportunity to the inner cities.
I am honored to speak with you today at the first James Rouse Forum on American
CItIes. Jim Rouse was a practical visionary who had a deep love for America's cities. At a
time when many were suggesting that the age of great cities had come and gone, he devoted
his life to reviving cities and he even came up with a name for it: urban renewal. Through the
Enterprise Foundation, he worked hard to provide affordable housing for low-income people
and make cities places where people from all segments of society would want to work, shop
and live. As President Clinton said when he awarded Rouse the Presidential Medal of
Freedom, this is a man who "helped to heal the torn out heart of American cities."
My experience in both the private sector and in government has reinforced for me two
basic observations regarding the inner cities. First, we all have an enormous stake in dealing
with these issues because our nation's long-term economic health for all of us will be greatly
affected by the state of America's cities. Second, there is a great deal of activity taking place
right now involving community groups, the private sector, and all levels of government that is
showing signs of real progress. Our challenge is to identify what works and replicate it
elsewhere so that the total effort has a scale commensurate with the issues.
RR-1784
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The progress that we have seen shows clearly that on the one hand there is a vital role
for government and that on the other hand, no one sector -- government, communities and
nonprofits, and business -- can do it alone. If we work together, we can make real progress.
Today, I would like to discuss some of the steps I believe each of these crucial players can
take to help meet the challenge of our inner cities.
I would like to start for a moment on the economy, because a strong economy is a
requisite for dealing with these issues, although it is far from being enough: necessary, but
not sufficient.
When President Clinton came to office, our nation's economy was in a morass, and, in
tum, many parts of our cities were in dismal shape. Unemployment in the fifty largest cities
was at 9 percent. Crime was at all time highs in many areas. There was a sense that the
problems of the inner cities were insoluble.
Today, in large measure due to the deficit reduction program of 1993, and the
economic growth that it generated, the deficit has fallen from close to five percent of GDP to
an estimate of roughly one percent of GDP for 1997. That deficit reduction was key to
reducing interest rates and increasing confidence, which, in tum, drove and sustained our new
long lived recovery.
There are also some hopeful signs of renewal in America's cities. Unemployment in
America's largest cities is down to 6.5 percent. Nearly three million people have left the
welfare rolls in that time. Crime is down substantially.
Yesterday, the President released a report on the state of America's cities, the most
important and comprehensive review of the condition of urban America in decades, that
provides valuable evidence that contradicts the widespread perception that problems in the
inner city are insoluble. But the report makes clear that there is still an enormous amount to
do. Just as it has taken decades for many of the economic and social problems in the inner
cities to develop, it will take time and a concerted effort to make the progress that needs to be
made.
In order to bring new jobs and opportunity to our inner cities and their residents, we
must take action to make our urban areas safer, to invest in the education and job readiness of
people and to increase access to capital to help businesses grow. In each of these areas,
partnerships among government, the business sector and communities can make a real
difference.
Public safety is primarily the responsibility of government, and where government fails
to provide it, businesses will be reluctant to go. From the federal to local levels, governments
around the country have begun to take innovative steps to reduce crime, from community
policing to sophisticated crime tracking. This Administration has done its part with the
2
President's Crime Bill, his plan to put 100,000 more police on the beat, and his strong and
successful efforts to enact the Brady law and the assault weapons ban. Along these lines,
Treasury's BATF has launched very promising pilot projects in 17 cities to track down gun
dealers who push guns to kids.
In some communities, innovative partnerships between the business sector, nonprofit
intermediaries, community groups, and local police have helped strengthen their collective
ability to promote public safety. The Local Initiatives Support Corporation (LISC), a
wonderful organization with a name that has the resonance of a section of the Internal Revenue
Code, and the Enterprise Foundation have teamed up with local community groups and major
corporations, such as Metropolitan Life, to pioneer these efforts. What we need to do is
disseminate information about the "best practices" of these partnerships so that many more
businesses and communities can get involved.
Businesses on their own can also play important roles in many ways. Through decisions
about everything from site selection and lighting, to hiring from the neighborhood where they
are located, to co-locating community police stations in their commercial space, to establishing
hot lines, businesses can add to the safety of their neighborhood -- and that is good for the
neighborhood and for their own bottom line.
The second area I mentioned is human capital -- investment in people. Through
education and training we need to make sure all Americans have the tools to succeed in today's
economy, and that the private sector has a well-trained work force from which it can hire.
For the federal government's part, we've expanded Head Start and rewarded work with
the Earned Income Tax Credit. Funding for education and training are key priorities in the
budget agreement, with new initiatives to increase literacy and tax credits and deduction for
college and lifelong training. The President's welfare to work tax credit proposal will help
businesses and job placement firms to develop innovative strategies to move low skilled people
into jobs. The Administration's job training proposal would replace outmoded structures for
job training with new funding for local strategies for job training and placement. But
Congress needs to join us in these efforts and unless the business sector -- and local
communities -- are also integrally involved, these efforts simply will not work.
In many areas, community based organizations, because of their extensive knowledge
of their community, can playa most useful role: in screening job applicants, in helping them
to become "job ready" with the social and work skills necessary to succeed, in developing
long-term relationships and reputations with area ~usinesses that permit them to act as brokers
in linking residents to available jobs, and in providing the ongoing mentoring, intervention and
support so critical to the objective that jobs, once attained, are retained.
Businesses can get involved in the school to work transition in partnership with local
school districts. And can help develop vocational curricula in high schools and community
3
colleges and assist with local training efforts so that they are relevant to local economic needs.
And businesses can do what McDonald's has done -- create "job ladders" for low skill
employees, providing opportunities for promotion within their company, and developing
relationships with other companies to enhance training and opportunities for their workers.
We have seen partnerships among government, business and communities work, from
San Jose's CET to Newark's New Community Corporation. I was in Los Angeles last summer
and met a woman named Juanita Tate, who was working with a community development
corporation called Concerned Citizens for South Central Los Angeles. They took an
environmentally contaminated area, known as a brown fields site, restored it and then set up a
selection and training program for inner city residents to provide an employment base for
prospective businesses coming to the area.
By creating this context, they have gotten commitments from developers and
manufacturing businesses and when I was there they were well on their way to having a fully
leased industrial park with businesses that have made economic decisions to locate in the inner
city, instead of going elsewhere. To help efforts like these, we have proposed a new tax
incentive, called the Brownfields tax credit, to clean up abandoned industrial properties in
economically distressed areas.
That brings me to the third area I want to discuss, access to capital and business
development. Despite the fact that financial markets in the United States are today the most
innovative, the broadest, and deepest in the world, we still have a severe shortage of inner city
financial institutions and inner city credit to create housing and jobs. As Robert Kennedy once
said, "To ignore the potential contribution of private enterprise is to fight the war on poverty
with a single platoon, while great armies are left to stand aside."
That is why, at the federal level, we've improved the regulations under the Community
Reinvestment Act to encourage mainstream financial institutions to lend to creditworthy
borrowers throughout their community. In fact, home mortgage lending in low and moderate
income areas is up over 25 percent since 1993. We also made permanent the low income
housing tax credit, helping to create 60,000 affordable units per year.
We've launched the CDFI Fund to create a nationwide network of community
development financial institutions, and we created a new Presidential awards program to
highlight best practices in micro-enterprise development. These CDFIs are helping to create
jobs, rebuild neighborhoods and restore hope in communities across the nation.
We need Congress' help in many of these efforts. On Wednesday, the V A/HUD
Subcommittee in Congress will mark up its bill to fund the CDFI Fund, and I believe it is very
important that the President's full request of $125 million for next year be granted. We have
also introduced legislation for the brown fields tax incentive I just mentioned, new
empowerment zones and a new tax credit for equity investments in CDFls.
4
The Congressional leadership agreed in their letter accompanying the budget agreement, to
work to include these tax incentives in the balanced budget legislation, but thus far the tax bills
have not included these measures.
In a host of other ways the Administration is working with communities on job creation
in inner cities. Treasury and Commerce are working on an innovative project to develop a
secondary market for community development loans. Treasury is working on increasing access
to financial services for millions of the unbanked. The President has proposed a plan for
revitalizing our Nation's Capital, by restructuring the federal - D.C. relationship, improving
services, and proposing a new economic development corporation and tax incentives for the
District. And we've created a new Office of Community Development Policy at Treasury to
bring added focus and energy to coming up with creative approaches to these issues.
In job creation, too, I would like to focus for a moment on the important role
community based organizations play. These organizations can enhance public safety, impart to
businesses important local knowledge of markets, and sites, help screen and prepare a potential
workforce, and help recruit businesses to locate in this area. Many community based
organizations have themselves been growing small businesses for years.
Let me conclude by returning to where I began. I strongly believe, and more
importantly the President believes, that fostering growth in the inner cities is central to the
future economy and sound well being of our nation and therefore of all of us.
Simply put, this country will never reach its full economic potential until, as one
newspaper said of Jim Rouse in his 78th year, we chose "to see in our cities what most
Americans don't -- human potential that, given the right resources, can be uplifted."
We must all work together to achieve that objective. We at Treasury need to continue
to build on our efforts to expand access to private sector capital and to promote inner city job
growth. Business needs to look at involvement in inner cities, not because it is charity, but
because it makes good business sense as a a source of new workers and new markets.
Community organizations can play an enormous role, as the people closest to the problems,
and the many challenges and opportunities of the inner cities.
And government at all levels have a vital and integral role. Working together, we can
over time foster economic and social health in our inner cities, a social and economic health
that will benefit all Americans. Thank you very much.
--30--
5
DEPARTMENT
O'F
THE
TREASURY
~~/78~q~. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
....................................
OFFICE OF PUBUC AFFAIRS -1500 PENNSYLVANIA AVENUE, N.W. - WASIDNGTON, D.C. - 20220 - (202) 622-2960
EMBARGOED UNTIL 9:30 A.M. EDT
Text as Prepared for Delivery
June 26, 1997
u.s. TREASURER MARY ELLEN WITHROW
HOUSE BANKING AND FINANCIAL SERVICES SUBCOMMITTEE
ON DOMESTIC AND INTERNATIONAL MONETARY POLICY
I am happy to be here today with the Assistant Secretary for Management and Chief
Financial Officer (CFO) and the Directors of the Bureau of Engraving and Printing (BEP) and
the U. S. Mint to talk about the production of our nation's money and the Department's role in
directing and overseeing those efforts.
In my capacity as Treasurer of the United States, I am responsible for the oversight of the
BEP and the Mint. As you know, Mr. Chairman, the BEP and the Mint manufacture products
that are used by people worldwide. Most of us carry some amount of coin and currency with us
every day. Two thirds of our currency circulates outside of the United States. The stamps that
the BEP produces are used by citizens daily. And the Mint's commemorative products are
marketed worldwide.
For that reason, Treasury takes very seriously its role in producing the nation's coinage
and currency.
As Treasurer, I observe the effectiveness of our policies and their effects on the public
and commerce through my daily interactions. In the formulation of policy, my office works
closely with the Mint, BEP, the Office of the Assistant Secretary for Management and CFO,
other Departmental offices, and the Federal Reserve Banks.
As part of my oversight role, I meet with the Directors on a weekly basis and we talk
about their programs and the problems that they encounter. I interact with the management and
staff of the BEP and the Mint during site visits, programs, meetings and other events. I provide
guidance on policy decisions, such as currency redesign, and the implementation of those
RR-1787
Far press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
policies These interactions allow me to advise the Secretary and Deputy Secretary about the
challenges and issues involved with the production of money.
I work in conjunction with the Office of the Assistant Secretary for Management and
CFO, which also promotes the efficiency and effectiveness of coinage and currency production.
As part of its department-wide mission to provide oversight and assistance, I work with
Management in the areas of: strategic planning, organizational improvement, budgeting,
accounting and internal controls, personnel policy, security, property management, and
information systems for the Mint and BEP.
My oversight role also requires me to work closely with the Office of Domestic Finance
to maintain the stability of our currency and ensure our ability to support the nation's system of
commerce.
Additionally, I work with Treasury policy offices on a number of joint initiatives, such
as the Advanced Counterfeit Deterrence (ACD) Committee and the E-Money Task Force.
To produce coins and currency in great quantity and to secure these products until they
are delivered is a very complicated task. The employees of the BEP and the Mint do a very
good job. The customer feedback we receive is quite encouraging. But there is always room for
improvement and there is always a benefit to taking time to reexamine and reflect on structures,
systems and overall policies. The oversight of this committee is an important part of that
process and we welcome this opportunity to respond to this committee's questions on a wide
range ofBEP and Mint issues. We know the importance of reexamining and reinventing.
I am proud of the work of Mint and BEP. Their missions are challenging, and they are
taking a forward-looking approach. BEP and the Mint have stepped up to the plate to pilot
reinvention and GPRA initiatives, and have fared well in these efforts. Their Directors are
aggressive in their strategic planning initiatives and want to make sure they have the tools and
resources available to most efficiently meet the demands of their customers. The
implementation of the Public Enterprise Fund and the waiver of procurement rules and
regulations in 1996 for the Mint have allowed for more streamlined, business-like investments.
In 1996, BEP introduced several new products, including the redesigned $100 note--to provide
additional counterfeit deterrence, and pressure sensitive postage stamps--to meet customer
demand.
Mr. Chairman, we believe that maintaining the confidence of the general public is very
important to our success. That is why we factor in the public's attitudes and concerns when we
are considering changes to our programs or products. We have observed that if there is a
compelling reason or need for a change in the money, and that reason is well articulated, then the
public is more likely to accept the change. For example, the objective of our currency redesign
initiative is to make counterfeiting more difficult by staying ahead of changes in reproduction
and computer technology. A recent article in the Washington Post cites the success of the new
2
$100 bill, which is credited, in part, with the sharp decline in the number of counterfeit $100
bills.
Additionally, we are providing a feature on the redesigned $50 note to make it easier to
use for the visually impaired. We were pleased with the worldwide acceptance of the redesigned
$100 note, and are confident that the $50 note will meet with similar success when it is released
in the fall of thi·s year.
Conclusion
The Department, working together with BEP and the Mint, has undertaken many
initiatives to make the management of the production of money more efficient and effective.
We continue to stay abreast of new developments--such as electronic money, and reproduction
and computer technology--and the challenges and opportunities they represent.
However, Treasury needs to move forward cautiously, making sure to weigh cost savings
measures with their impact on the public--our customers. As I stated in the beginning, our
products are used worldwide, and consequently, any changes to those products, or their
availability can have a profound impact and implications for our citizens, as well as for others
around the world.
As Treasurer, I am particularly qualified to fulfill my oversight role. I am the first
Treasurer in our nation's history to have served as Treasurer at all three levels of government-Local, State and Federal. In November 1976, I was elected County Treasurer and served for six
years. In November 1982, I was elected to the Office of State Treasurer for the state of Ohio. I
served in that capacity for twelve years. Finally, in March of 1994, I was honored to be
appointed as Treasurer of the United States. That means that for a total of more than 21 years I
have had responsibility for taking care of the public's money.
I would like to thank the Subcommittee and you, Mr. Chairman, for this opportunity to
appear before you today. Now I would be pleased to respond to any questions you may have.
-30-
DEPARTMENT
O"F
THE
TREASURY
1789
OFFlCE OF PUBUC AFFAIRS • 1500 PENNSYLVANlAAVENUE, N.W.• WASHINGTON, D.C.. 20220. (202) 622-2960
EMBARGOED UNTIL 9:30 AM. EDT
Text as Prepared for Delivery
June 26, 1997
TREASURY ASSISTANT SECRETARY (MANAGEMENT) AND
CHIEF FINANCIAL OFFICER GEORGE MUNOZ
HOUSE BANKING AND FINANCIAL SERVICES SUBCOMMITTEE
ON DOMESTIC AND INTERNATIONAL MONETARY POLICY
I am pleased to be here today, along with the Treasurer and the Directors of the Bureau
of Engraving and Printing (BEP) and the US. Mint to talk about the production of our nation's
money and Treasury's role in directing and overseeing those efforts.
The production, integrity, use and security of our money is central to Treasury's mission
and responsibilities. Because Tre~ury collects most of the revenues for the federal government,
and because it is responsible for paying most of the obligations of the federal government, it is
always looking for ways to reduce the cost of tllese transactions. Yet, a substantial portion of
private sector commerce still requires the use of currency and coins, especially because of their
integrity, acceptability, and ease of use For that reason, various Treasury policy officials and
offices take an interest in, and are responsible for, advising the Secretary on matters having a
direct or indirect impact on our use of money.
Roles and Responsibilities
With respect to cost and production of our currency and coins, the Secretary of the
Treasury has delegated responsibilities of oversight of the BEP and the Mint to my office along
with the Office of the Treasurer. The Advanced Counterfeit Deterrence Steering Committee
(chaired by the Under Secretary for Domestic Finance) is taking the lead on the currency
redesign project
Matters concerning the production and mix of currency and coinage arc also under the
purviev.; of other central Treasury offices, including Economic Policy, Domestic Financc, Office
RR-1788
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
of Enforcement, and the Treasury's Electronic-Money Task Force headed by the Comptroller of
the Currency. Because of the variety of issues associated with our coins and currency (such as
production, integrity, security, public acceptance and usage, impact on commerce), Secretary
Rubin rdies on various economic and enforcement offices for advice on the use and alternatives
to our coins and currency.
The Bureau directors have illready discllssed with you the detilils of therr bureaus'
operiltions As Treasury's Assistant Secretary for Management and Chief Financial Officer, I
would like to focus on the leadersrup and policy making responsibilities of my office, as well as
the other central Treasury offices The following are some of the oversight activities conducted
by my office with respect to the BEP and the Mint
1.
Budget Review. My office is responsible for reviewing bureau budgets to ensure they
are in line with the President's priorities, and submitting those budgets to the appropriate
oversight bodies. We have taken the lead in working with the bureaus to ensure the
budgets are presented in terms of performance goals and measures, and include standard
financial statements and schedules that are unique to manufacturing
2
eFO Activities. As Treasury CFO, I meet monthly with bureau CFOs, and am
responsible for the integrity of the bureaus' ftnancial statements. I am proud to say that
both the Mint and BEP have clean audit opinions. The Mint has made major strides in
ridding itself of its financial reporting problems.
3
Overall Management. My office also has the responsibility of addressing personnel,
procurement, and security matters dealing with the Mint and BEP, as well as other
Treasury bureaus. For example.
--The Departmental Task Force on Physical Security and Internal Controls at BEP was
directed by my office. That Task Force did an extenSIve security review of BEP and
issued it" report. Within 2 years of the reports' issuance, BEP has implemented 92% of
the high risk recommendations and 90% of the low risk recommendations. BEP is
completing the actions in accordance with their schedule of full implementation by end
of calendar year 1999.
--Another example is the guidance and oversight of the Year 2000 computer conversion
proj ect.
--And fInally, my offlce has worked togetller with the Millt and Congress, to establish the
MIJ)t's Public Enterprise Fund, provide a waiver of procurement rules and regulations,
and the eliminate 9 presidential appomtee positions These mitiatives have assisted the
Mint to streamline its operations and provide for more business-like investments
4.
Assist the Treasurer's Office My office provides important support to the Treasurer
2
ill
the carrying out of her duties. Rather than duplicate efforts, the Treasurer is able to call
upon Departmental expertise to assist in her oversight role For example, the Treasurer
reviewed the performance measures of the Mint and BEP as well as their efforts on the
Year 2000 computer conversion with our management staff
Conclusion
The Department, working together with REP and the Mint, has undertaken many initiatives to
make the management of the production of coin and currency more efficient ami effective.
I would like to thank the Subcommittee and you, Mr. Chairman, for this OppOrtuDlty to appear
before you today. Now I would be pleased to respond to any questions you may have
-30-
D E P'A R T MEN T
0 F
'IREASURY
17S'I
THE
T REA SUR \'
NEWS
OffiCE OF PUBUC AFFAIRS .1500 PENNSYLVANIA AVENUE, N.W.• WASIDNGTON, D.C.• 20220. (202) 622-2960
FOR IMMEDIATE RELEASE
Junt! 25, 1997
Contact: Hamilton Dix
(202) 622-2960
MEDIA ADVISORY
Treasury St!cletary Robert E. Rubin and Deputy Secretary Lawrence H Summers will
hold a press conference to discuss proposals to reform the IRS at 130 pm today in the
Secretary's large conference room of the Treasury Department, 1500 Pennsylvania Avenue,
N.W Cameras may set up at 1 p.m.
The National Commission on Restructunng the IRS today released its report proposing a
variety of changes for IRS governance The Secretary and the Deputy Secretary will discuss the
Treasury plan for reforming IRS as well as the Commission's proposals and they will respond to
lJuestions
Media without Treasury, White House, State, Defense or Congressional credenlials
planning to attend should contact the Office of Public Affairs at (202) 622-2960, willl the
following information: name, social security number and date of birth, by 1 pm. today This
information may be faxed to (202) 622-1999.
-30-
RR-ln9
For press releases, speeches, public schedules and official biographies, call our 24~mlr fax line at (202) 622-2040
PUBLIC DEBT NEWS
Department of the Treasury • Bureau of the Public Debt • Washington, DC 20239
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR
IMMEDIATE RELEASE
CONTACT:
Office of Financing
June 25, 1997
202-21.9-3350
RESULTS OF TREASURY'S AUCTION OF
CUSIP No:
High Yield:
NOTES
Issue Date:
Dated date:
Maturity Date:
6 1/4%
H-2002
S128272Y7
Interest Rate:
Series:
5-YEP~
Price:
6.298%
June 30, 1997
June 30, 1997
June 30, 2002
99.797
All noncompeti~ive and successful competicive bidders were awarded
securities at the high yield. All tenders at lower yields were
accepted in full.
Tenders
a~
~he
high yield were allotted
87%.
AMOUNTS TENDERED AND ACCEPTED (in chousands)
Tendered
Tender Type
Competitive
$
Noncompe~it.ive
PUBLIC SUBTOTP.L
Federal
Reserv~
Foreign Official Inst.
TOTAL
$
36,111,395
5-=9,150
Accep~ed
s
36/660,5~5
11,500,265
478,000
1,060,000
478,000
1,060,000
38,198,545
$
Nedian yield
6.290%: 50% of the amount of accepted competitive
tenders was tendered at or below that rate.
LO'." yield
6. 2S0~:
5% of the amount of accepted competitive
tenders was tendered at or below that rate.
RR-1790
10,951,115
549,l50
13,038,265
DEPARTMENT
OF
THE
TREASURY
~/78£q~. . . . . . . . . . . . . . . . . ..
....................
OmCE OF PUBUC AFFAIRS. 1500 PENNSYLVANIA AVENUE, N.W.• WASHINGTON, D.C.• 20220. (202) 622-2960
Remarks Prepared for Delivery
EMBARGOED UNTIL 11:00 A.M.
June 26, 1997
Contact: Hamilton Dix
(202) 622-2960
TREASURY SECRETARY ROBERT RUBIN
JACKIE ROBINSON COIN EVENT
I want to welcome all of you to the Treasury Department for this special occasion. Let me
extend a special greeting to the members of Congress who are with us today, as well as Mrs.
Robinson and Betty Adams of the Jackie Robinson Foundation. I would also like to recognize
Reginald Livingston, the recipient of a scholarship from the Foundation, as well as Jim Peed and
Al Maletsky, two of the engravers who designed the coins.
Fifty years ago, America took a great stride forward in addressing our troubled history of
race relations when Jackie Robinson broke the color barrier and joined the Brooklyn Dodgers.
Jackie Robinson is a true American hero, not only to African Americans, but to all Americans,
as a symbol of courage overcoming adversity, of talent overcoming prejudice, of determination
overcoming hate --of one individual helping to make America live up to its promise of equal
opportunity for all. After his career ended, Jackie Robinson continued to be a powerful voice for
ending racial barriers so that each American can perform to the best of his or her ability, and be
judged solely by those abilities. President Clinton recently announced a major initiative to heal
divisions between the races. We can all look at Jackie Robinson as inspiration as we move
forward on this critically important effort.
Let's not forget, Jackie Robinson was also one heckuva good ballplayer. He was one of
the most dynamic, talented and exciting players to ever play the game. When Jackie Robinson was
at bat you knew --and the opposing team knew --that something exciting was going to happen.
I worry that far too many Americans are not aware of Jackie Robinson's accomplishments
--both on the field and off. To Americans of all races who were not alive at the time --and who
admire such African American sports heroes as Michael Jordan, Ken Griffey, or Tiger Woods --it
may seem incomprehensible that for much of our history African Americans could not play with
white Americans. But that indeed was the case. Because of Jackie Robinson, it no longer is.
RR-1791
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I am pleased and honored that the Treasury Department joins the celebrations surrounding
the fifty year anniversary of Jackie Robinson entering the major leagues with the release of these
commemorative coins honoring Jackie Robinson and his accomplishments. The gold coin shows
the face of Jackie Robinson in his later years on one side. and. on the other side. the years of his
birth and death with the words "Legacy of Courage" set on a baseball. The silver coin shows a
view of Jackie Robinson sliding into home during one of his famous steals of home. The reverse
side contains a view of the 50th Anniversary logo of the Jackie Robinson Foundation. which has
been worn as a patch by all major league baseball players this season.
The release of these commemorative coins will serve two main purposes. First, a portion
of the proceeds received from the sale of these coins will go to the Jackie Robinson Foundation,
helping them provide more scholarships to minority students. Second. we hope the coins will help
increase awareness about Jackie Robinson's accomplishments so that the hope and courage that
he represents will inspire a new generation.
First, I will present a set of the coins to Leonard Coleman. Chairman of the Board of the
Jackie Robinson Foundation, and Betty Adams, President of the Jackie Robinson Foundation.
Now, I will present the coins to Mrs. Robinson and ask her to say a few words.
-30-
@ffice of t~e 1\ttornrl,! ~enrrnl
l!JlIag~ington.
m. (U. 205~O
June 27, 1997
Dear Law Enforcement Colleague:
Earlier today, the Supreme Court ruled that part of the
Brady Handgun Control Act is unconstitutional. Although we are
disappointed in the Court's decision, we must all abide by it.
All of you should understand that the Supreme Court's
decision did not "strike down the Brady Act," "declare it
unconstitutional" or anyone of a number of broad based and
inaccurate statements that you may hear. Rather, the Court
simply stated that the federal government cannot require that
state, county and municipal officials conduct the checks provided
for under the law until November 1998, at which time the National
Instacheck System (NICS) will become effective.
We know that the vast majority of concerned and effective
law enforcement officers in this country support and conduct
background checks under the Brady Act, not because they are
required, but because it is good law enforcement. Therefore,
this decision will likely have little impact on law enforcement.
Those who wish to purchase a handgun from a licensed federal
firearms dealer (FFL) must still complete a background check form
under the Brady Act, and the FFL must forward that form to the
chief law enforcement officer (CLEO). As before, if, af~er five
days, the CLEO has not advised the FFL not to transfer the
handgun, the FFL may sell the handgun to the purchaser.
The sole change occasioned by the Supreme Court decision is
that the CLEO is no longer required by federal law to run the
Brady background check. We expect and hope that the vast
majority of law enforcement agencies in America will continue to
run these checks voluntarily because they are saving lives,
keeping guns out of the hands of criminals and generally in the
best interest of law enforcement. We urge you to continue these
checks.
Since the Brady Act went into effect, over 250,000 felons,
fugitives and other prohibited persons have been denied handguns.
We are making great strides in reducing violent crime in America
and our failure to keep up these Brady background checks will
seriously undermine all of our efforts in this regard.
RR-1792
We recognize that some CLEOs may still use the Court's
decision as an excuse not to conduct Brady background checks.
That would be most unfortunate for the people of this country.
It~is just common sense that we all keep doing whatever we can to
keep guns from criminals.
Please do not let America down.
Please join responsible law
enforcement in continuing to serve and protect the public.
Janet Reno
Attorney General
Robert E. Rubin
Secretary of the Treasury
DEPARTMENT OF THE TREASURY
WASHINGTON, D.C.
SECRETARY OF THE TREASURY
June 25, 1997
The Honorable Trent Lott
Majority Leader
United States Senate
Washington., D.C. 20510
Dear Trent:
The Administration is pleased that, as compared to the Ways and Means Committee Bill, the tax
portion of the Revenue Reconciliation Act of 1997, S.949, moves in the direction of the principles
underlying the bipartisan budget agreement. The Administration., however, has a number of
serious concerns that need to be addressed.
An essential element of the understandings reached at the time of the budget agreement was that
tax cuts would avoid explosion of outyear costs and would be targeted to provide significant relief
for middle- and lower-income taxpayers. The agreement called for roughly $35 billion over 5
years of education incentives along the lines of the President's HOPE scholarship credit and
tuition deduction proposals, as necessary to provide relieffor middle- and lower-income families
paying higher education expenses.
We believe that the benefits of the tax cut package should be distributed equitably. The
combination of the various IRA provisions and the capital gains provisions in S.949 result in a tax
bill that disproportionately benefits high-income taxpayers. Our preliminary analysis of S.949
shows 65.0 percent of the tax changes (when fully in place) go to the top 20 percent of taxpayers,
12.5 percent go to the top one percent, and only 13.3 percent go to the lowest 60 percent of the
population. I have enclosed a distribution table showing the effect of the tax reductions in 5.949.
A number of the changes that we recommend below would improve distributional equity, as well
as moderate the ballooning of out-year revenue losses. We strongly believe that the following
problems must be addressed:
The education package is insufficient and unfair to lower-income students. Because of the
absence of a generally available tuition deduction, total education spending on initiatives
consistent with the President's FY 98 Budget is only $20.4 Billion., well short of the agreed goal
of $35 billion. Because there would be no general tuition deduction., the proposal offers
low-income students and students who work to pay tuition little or no help beyond the first two
years of higher education. Overall, the package directs more benefits toward upper-income
families while reducing the benefits to lower-income families, particularly those who rely on their
earnings to finance their education.
RR-1793
•
The HOPE credit, while an improvement over the House provision, would be cut
by 25% to 50% of tuition expenses in many cases, significantly reducing the value
of education benefits for millions of students attending low-cost institutions.
•
Tax-free savings offered through new education IRAs and the opp~rtunities for
tax-deferred saving through prepaid tuition plans are overly generous to upperincome families. No income limits are imposed. High-income taxpayers will have
the incentive to use these plans to shift existing savings into investment vehicles
that are never taxed, even if they never intend to use the earnings for education
expenses. Also, the education IRA and prepaid tuition plan provisions in the Bill
will provide an opportunity for high-income taxpayers to avoid estate and gift
taxes on substantial transfers.
The effect of altering the stacking order of the Earned Income Tax Credit (EITC) and child credit
is unfair to low income working families. The Bill would stack the $500 child credit after one half
of the EITC. While this is an improvement as compared to the Ways and Means Bill, on average
it provides significantly less than half the benefit to low-income working families relative to
stacking the credit before the EITC. If this approach were adopted, families would not be entitled
to any child credit unless they had income tax liability after claiming half of the EITC, adversely
affecting millions of low-income families and their children. A married couple with two children
and $23,000 of income, for example, would receive no tax relief from the child credit under this
proposal. If the child credit was stacked before the EITC, this family would get $675. This
family pays $1760 in payroll taxes, their employers pay $1760 in payroll taxes and they pay $675
in income taxes. Working families who pay taxes deserve to receive the benefit of the child credit.
The Administration believes strongly that the child credit should be treated like other
nonrefundable credits and stacked before the EITC. Both the 1995 Balanced Budget Act tax
proposals passed by Congress, and the legislation you introduced this year (S.2) stacked the child
credit before the EITC.
The backloaded IRA Plus accounts and other IRA-type proposals are not sufficiently targeted.
The proposal allows contributions to back-loaded IRAs without any income limits. We are
concerned that it could result in high-income taxpayers shifting existing savings into tax-preferred
investment vehicles, rather than creating new savings. The IRA proposals, in total, have explosive
outyear costs, rising from a cost of$3.3 billion over the first five years to $24.l billion over 10
years.
The Bill contains other provisions that raise serious concerns. For instance, the Administration
opposes the provision transferring 4 3 cents per gallon in fuel taxes cyrrently dedicated to deficit
reduction from the General Fynd to transportation trust funds. While the transfer provision in
itself has no revenue or spending effect, transferring the revenue feeds efforts to move the trust
funds off-budget and creates pressure to increase ground transportation spending to levels
significantly higher than anticipated in the Bipartisan Budget Agreement.
2
The Nation's mayors and urban and rural communities have clearly told us that the President's
Brownfields initiative is vitally important to encouraging businesses to clean up and revitalize
thousands of contaminated sites around the country. The Bill should include this proposal.
Furthermore, the Bill should provide for additional Empowerment Zones and Enterprise
Communities to stimulate private investment and economic activity in depressed urban and rural
communities.
The Bill omits or modifies a number of important initiatives that were included in the President's
fY98 Budget We oppose the changes to the Work Opportunity Tax Credit (WOTe) that allow
employers to claim the WOTC credit for hiring workers for a very short period of time. This
change is particularly troubling when no welfare-to-work provision is provided to encourage the
hiring oflong-term welfare recipients. No provision is included to stimulate investments in
Community Development Financial Institutions to revitalize distressed neighborhoods around the
country. No economic incentives are provided for new investment in Puerto Rico. Finally, no
provision is included for equitable tolling, which protects a taxpayers rights when he or she is
incapacitated, or for restructuring our Nation's affordable housing portfolio.
The BjlJ is heavily laden with special-interest provisions. We belieye that it is inappropriate to use
this reconciliation Bill as a catch-all for new tax breaks for special interests.
For all of these reasons, significant modifications need to be made. Nevertheless, we are eager to
work with the Congress to fashion, and enable the President to sign, tax-cut legislation that
addresses these problems, that is faithful to the bipartisan budget agreement, and that is fair to all
Americans.
~<:
_ _ _ _~Si~cerely,
0u)
Robert E. Rubin
3
Very Preliminary
Major Tax Cut Provisions in the Bill Passed by the Senate Finance Committee (1)
(1998 Income Levels)
Total Tax Change
Tax CIange as a Percent of:
Number
of
Average
Family Economic
Families
Tax Change
Amount (3)
Distribution
Income Quintile (2)
(millions)
($)
($M)
(%)
Lowest (5)·
Highest
21.6
22.2
22.3
22.3
22.3
-12
-77
-292
-615
-1871
Total (5)
111.3
Top 10%
11.1
5.6
1.1
Second
Third
Fourth
Top 5%
Top 1%
Percent
-2f5'T
-1713
C~
Family
Federal
T8lIII!S (4)
rA)
Economic
Income
(%)
-13679
-41659
0.4
2.7
10.2
21.3
65.0
-2.13
-2.78
-4.13
-4.43
-4.58
-0.13
-0.31
-0.68
-0.85
-1.01
-576
-64078
100.0
-4.41
-0.87
-2433
-3246
-7160
-27097
-18099
-8033
42.3
28.2
12.5
-4.09
-3.70
-3.09
-0.93
-0.86
-0.76
-6506
Department of the Treasury
June 25,1997
Office of Tax Analysis
(1)
This lable distributes the estimated change in tax burdens due to the major tax provision in the bill passed by the Senate Finance
Committee which include the following: i) a child credit; ii) a modified HOPE scholarship tax credit; iii) a deduc!ilab student loan
interest; iii) a deduction for education expenses paid through Slate-sponsored prepaid tuition programs; iv) ~ edension of
Section 127; v) education investment accounts and private prepaid tuition programs; vi) expanded front-loaded -.I . - backloaded IRAs: vii) Capital gains provisions (lower individual rates, edension of S. 1202, and $500,000 exclusion" gains on a principal
residence); viii) changes in the individual AMT; and ix) a modification of the treatment of company-owned life irmance.
(2)
Family Economic Income (FEI) is a broad-based income concept. FEI is constructed by adding to AGI unreportlldMd underreported income; IRA and Keogh deductions; nonlaxable transfer payments such as Social Security and AFDC;empIoyerprovided fringe benefits; inside build-up on pensions. IRAs. Keoghs, and life insurance; tax..xempt interest; and imputed rent
on owner-occupied housing. Capital gains are computed on an accrual basis, adjusted for inflation to the extenttat reliable
dala allow. Inflationary losses of lenders are subtracted and gains of borrowers are added. There is also an adju*nent for
accelerated depreciation of noncofJlOrate businesses. FEI is shown on a family rather than a tax-retum basis.
n. _norruc
incomes of all members of a family unit are added to arrive at the family's economic income used in the distributians.
(3)
The change in Federal taxes is estimated at 1998 income levels but assuming fully phased in (2007) law and behwior. For the
IRA provisions and education accounts, the change is measured as the present value of the lax savings from _yeats
contributions. The efleet of the capital gains provision is based on the level of capital gains realizations under aaNfIt law.
(4) The taxes included are individual and corporate Income. payroll (Social Security and unemployment). and excises. Eslate and
gift taxes and customs duties are excluded. The individual income lax is assumed to be borne by payors. the ClllplFBte
income tax by capital income generally. payrolliaxes (employer and employee shares) by labor (wages and ~nt
income). excises on purchases by individuals by the purchaser, and excises on purchases by business in propclltion to tolal
consumption expenditures. Federallaxes are esbmated at 1998 income levels but assuming 2007 ,"-end. tIletWe. exclude
provisions that expire prior to the end of the Budget penod and are adjusted for the etlects of unindexed ~.
(5)
Families with negative incomes ere excluded from.thelowest quintile but included in the total line.
NOTE: Quintiles begin at FEI of: Second $16.950; Third $32.563; Fourth $54.758; Highest $93.222; Top 1~ $127,.1l3;
Top 5'110 $170.103; Top 1'110 $408,551.
Very Preliminary
Major Tax Cut Provisions in the Bill Passed by the Senate Finance Committee (1)
(1998 Income Levels)
Tax Change as a Percent of:
Total Tax Change
Number
Family Economic
of
Average
Income Class (2)
Families
Tax Change
(000)
(millions)
($)
Current
Family
Percent
Federal
Economic
Amount (3)
Distribution
Taxes (4)
Income
($M)
(%)
(%)
(%)
0-15
18.5
-11
-2.11
21.8
-62
-197
-1347
0.3
15-30
2.1
-2.68
-0.28
30-40
121
-170
-2046
3.2
-3.29
-0.49
40-50
50-60
9.7
7.9
-328
-3189
-3527
5.0
5.5
~.36
~
60-75
-528
~971
75 -100
9.4
11.7
-0.73
-O.B2
-0.79
~7
-9911
100-200
15.6
-1518
200 & OVe!
3.9
111.3
Total (5)
~.49
~.14
-0.13
7.B
15.5
~.94
-0.98
37.0
-5.46
-1.15
-3822
-23677
-14961
23.3
-3.53
-0.83
-576
-6407B
100.0
~.41
-0.87
Department of the Treasury
June 25,1997
Office of Tax Analysis
(1)
This table distributes the estimated change in tax burdens due to the major tax provision in the bill passed by the Senate Finance
Committee which include the following: i) a child credit; ii) a modified HOPE scholarship tax credit; iii) a deduction for student loan
interest; iii) a deduction for education expenses paid through State-sponsored prepaid tuition programs; iv) permanent extension of
Section 127; v) education investment accounts and private prepaid tuition programs; vi) expanded front-loaded and new backloaded IRAs: vii) Capital gains provisions (lower individual rates, extension of S. 1202, and 5500,000 exclusion for gains on a principal
residence): viii) changes in the individual AMT: and ix) a modification of the treatment of company-owned life insurance.
(2)
Family Economic Income (FE/) is a broad-based income concept FEI is constructed by adding to AGI unreported and underreported income; IRA and Keogh deductions; nontaxable transfer payments such as Social Security and AFOC; employerprovided fringe benefits; inside build-up on pensions. IRAs, Keoghs, and life insurance; tax-exempt interest; and imputed rent
on owner-occupied housing. Capital gains are computed on an accrual basis, adjusted for inflation to the extent that reliable
data allow. Inflationary losses of lenders are subtracted and gains of borrowers are added. There is also an adjustment for
aceelerated depreciation of noncorporate busin8S$8$. FEI is shown on a family rather than a tax-ratum basis. The economic
incomes of all members of a family unit are added
(3)
to arrive at the family's economic income used in the distributions.
The change in Federal taxes is estimated at 1998 income levels but assuming fully phased in (2007) law and behavior. For the
IRA provisions and education accounts, the change is measured as the present value of the tax savings from one year's
contributions. The effect of the capital gains provision is based on the level of capital gains realizations under current law.
(4) 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 individual income tax is assumed to be borne by payors, the corporate
income tax by capital income generally, payroll taxes (employer and employee shares) by labor (wages and self-employment
income), excises on purchases by individuals by the purchaser, and excises on purchases by business in proportion to total
consumption expenditures. Federal taxes are estimated at 1998 income levels but assuming 2007 law and, therefore, exclude
provisions that expire prior to the end of the Budget period and are adjusted for the effects of unindexed parameters.
(5) Families with negative incomes are included in the total line but not shown separately.
DEPARTMENT OF THE TREASURY
WASHINGTON. D.C.
SECRETARY OF THE TREASURY
June 25, 1997
The Honorable Newt Gingrich
Speaker
United States House of Representatives
Washington, D.C. 20515-4005
Dear Newt:
The Administration strongly opposes H.R. 205, The Taxpayer Relief Act of 1997, as it will be
considered on the floor of the House.
An essential element of the understandings reached at the time of the bipartisan budget agreement
was that tax cuts were to avoid explosion of outyear costs and were to be targeted to provide
significant relieffor lower- and middle-income taxpayers. The agreement called for roughly $35
billion over 5 years of education incentives along the lines of the President's HOPE scholarship
credit and tuition deduction proposals, as necessary to provide relief for lower- and middleincome families paying higher education expenses. The Bill fails to meet these agreed-upon
conditions.
We believe the benefits of the tax cut package should be distributed equitably. Our preliminary
analysis of the major tax cut provisions in the Bill shows that 67.9 percent of the tax changes
(when fully in place) go to the top 20 percent of taxpayers, 19.3 percent go to the top 1 percent,
and only 12.1 percent go to the lowest 60 percent of the population.
We strongly believe that the following problems must be addressed. These changes would
improve distributional equity, as well as moderate the ballooning of outyear revenue losses.
The Bill will reduce the value of the $500 child credit for millions of low-income families by
reQuiring a family to take the child credit only after the Earned Income Tax Credit (EITC) is taken
against their tax liability. A married couple with two children and $25,000 of income, for
example, would receive no tax relief from the child credit under this proposal. If the child credit
was stacked before the EITC, this family would get $975. This family pays $1912.50 in payroll
taxes, their employers pay $1912.50 in payroll taxes and they pay $975 in income taxes.
Working families who pay taxes deserve to receive the benefit of the child credit. The
Administration believes strongly that the child credit should be treated like other nonrefundable
credits and stacked before the EITe. Both the 1995 Balanced Budget Act tax proposals passed
by Congress, and the legislation introduced by Majority Leader Lott this year (S.2) stacked the
child credit before the EITC.
RR.-1794
2
The proposed legislation singles out certain families who pay for child care and gives them a
smaller tax cut. Based on Chairman Archer's recent announcement, married couples earning
above $60,000 who receive a tax credit for their child care expenses would, beginning in 2002,
lose 50 cents for each dollar of their child credit. This provision unfairly limits tlx relief for
single parents who are required to work to support their children and families with second
earners who are struggling to maintain a decent standard of living.
The education package falls nearly $13 billion short of the agreed goal of $3 5 BOlion jn tax cuts
for education that are consistent with the HOPE scholarshjp and tuition deduction proposals in the
President's FY98 Budget. Furthermore, as compared to the President's proposals, it directs more
benefits toward upper-income families while reducing the benefits to lower-income families who
rely· on loans and grants to finance their education. It introduces serious administrative
complications. and would be much less effective than the President's proposals in enhancing
educational opportunities for students.
•
The HOPE credit would be cut to 50 percent of tuition expenses, halving the value
of education benefits for millions of students attending community colleges and
other low-cost institutions.
•
Unlike the universally available tuition deduction in the President's package, the
tuition deduction in the Bill would be available only if education expenses are paid
from certain education savings plans. Hence, no help is given to low-income
students and students who must borrow to pay tuition.
•
Tax-free savings offered through new education investment accounts and the
opportunities for tax-deferred saving through private prepaid tuition plans are
overly generous to upper income families, since they have neither income limits
nor contribution limits. This would give high-income taxpayers an incentive to use
these vehicles to save tax-free, even if they never intend to use the savings for
education expenses.
the American Dream IRAs are not sufficiently targeted. Contributions could be made to these
back-loaded IRAs without any income limits, which would surely result in a substantial shifting of
existing savings into tax-preferred investment vehicles by high-income taxpayers, rather than
creating new savings. These provisions significantly add to the dual problems of outyear cost
explosion and distributional inequity.
The proposal to index certain capjtal assets and lower the rate of tax on capital gains provides a
double benefit to taxpayers substantially overcompensating them for the effects ofintlatjon. The
package would disproportionately benefit those with high incomes over lower- and middle-income
wage earners. The package also would have an explosive revenue cost in years after 2007,
possibly jeopardizing all of our important work on deficit reduction. In addition, the indexing
proposal is enormously complex and difficult to administer. To quote the New York State Bar
Association, indexing is "fundamentally flawed" and would create problems that would
3
"overwhelm taxpayers and the IRS." The President has indicated he would not sign legislation
with this provision.
The Bill provides ynwarranted benefits to large corporations. At a time when the U.S. economy is
the strongest in the world, and profits are running at record levels, the Bill proposes to spend $22
billion over 10 years to reduce corporate Alternative Minimum Tax liabilities for America's largest
companies. In addition, we are concerned about the proposal to reduce the corporate capital gains
tax rate.
The Bill contains other provisions that raise serious concerns. For instance, the safe-harbor for
independent contractor status would permit employers to avoid essential worker protections. This
proposal could lead to widespread shifting of employees to independent contractor status, resulting
in loss of worker protections such as pension and health coverage, and consequently wage and
hour protections, unemployment insurance benefits and compensation for work-related injuries.
We oppose the changes to the Work Opportunity Tax Credit (WOTC) that allow employers to
claim the WOTC credit for hiring workers for a very short period of time, particularly when this
measure is paid for by weakening the incentive provided by the welfare-to-work credit.
The Nation's mayors and urban and rural communities have clearly told us that the President's
Brownfields initiative is vitally important to encouraging businesses to clean up and revitalize
thousands of contaminated sites around the country. The Bill should include this proposal.
Furthermore, the Bill should provide for additional Empowerment Zones and Enterprise
Communities to stimulate private investment and economic activity in depressed urban and rural
communities.
The Bill omits a number of important initiatives that were included in the President's FY98
Budget.. No provision is included to stimulate investments in Community Development Financial
Institutions to revitalize distressed neighborhoods around the country. No provision is included
for equitable tolling, which protects a taxpayer's rights when he or she is incapacitated, or for
restructuring our Nation's affordable housing portfolio. No economic incentives are provided for
new investment in Puerto Rico.
The Bill is heavily laden with special-interest provisions. We believe that it is inappropriate to use
this reconciliation Bill as a catch-all for new tax breaks for special interests.
For all of these reasons, the Administration opposes the House Bill in its current form.
Nevertheless, we are eager to work with the Congress to fashion, and enable the President to
sign, tax-cut legislation that 'addresses these problems, that is faithful to the bipartisan budget
agreement, and that is fair to all Americans.
Sincerely,
..-----
-
-----
\
-_/
Gu
'-,
~
Robert E. Rubin
DEPARTMENT
OF
THE
TREASURY
NEWS
FOR IMMEDIATE RELEASE
June 27, 1997
Contact: Kelly Crawford
(202) 622-2960
DAVID LIPTON NAMED UNDER SECRETARY FOR INTERNATIONAL AFFAIRS
President Clinton today announced his nomination of Assistant Secretary of the Treasury
for International Affairs David A. Lipton to be Under Secretary of the Treasury for International
Affairs.
"David has been an important part of this Administration's international economic team. He
has been a key contributor to our policy toward Russia and the Ukraine and has been instrumental
in shaping the economic and financial aspects of our policy in Bosnia," Secretary Rubin said.
As Under Secretary of the Treasury for International Affairs, Lipton will advise and assist
the Secretary and the Deputy Secretary on all aspects of international economic policy. As Assistant
Secretary of the Treasury for International Affairs since December 1995, Lipton focused on
international and economic policy coordination; economic and financial relations with both
industrialized and developing countries; foreign investment in the United States and the U.S. policy
with respect to the International Monetary Fund and the multilateral development banks. Prior to
this position, Lipton was the Deputy Assistant Secretary for Eastern Europe and the former Soviet
Union. During this time, he worked to design and implement a policy of U.S. leadership in support
of comprehensive, market oriented reform in the economies in transition and worked to engage the
G-7 and the international financial institutions in pursuit of multilateral backing for that historic
process.
Before joining the Clinton administration in the spring of 1993, Lipton was a Fellow at the
Woodrow Wilson Center of Scholars. From 1989 until 1992, working under the auspices of the
United Nations Development Program and the World Institute for Development Economics
Research, he was an economic advisor to the governments of Russia. Poland and Slovenia. Lipton
was an economist at the International Monetary Fund from 1981-1989.
Lipton was born on November 9, 1953 in Boston. Massachusetts. He received a B.A. in
Economics from Wesleyan University and both an M.A. and a Ph.D. in Economics from Harvard
University. He is married to Susan Galbraith and has three children.
-30RR-1795
For press releases, speeches, public schedules and official biographies, call our 24-hour fax line at (202) 622-2040
0
CD
Ol
N
federal financing
WASHINGTON. D.C. 20220
June 27, 1997
S
FEDERAL FINANCING BANK
Charles D. Haworth, Secretary, Federal Financing Bank (FFB) ,
announced the following activity for the month of May 1997.
FFB holdings of obligations issued, sold or guaranteed by
other Federal agencies totaled $51.9 billion on May 31, 1997,
posting a decrease of $1,376.8 million from the level on
April 30, 1997. This net change was the result of a decrease in
holdings of agency debt of $318 million, in holdings of agency
assets of $1,050 million, and in holdings of agency guaranteed
loans of $8.8 million. FFB made 16 disbursements during the
month of May. FFB also received 24 prepayments in May.
Attached to this release are tables presenting FFB May loan
activity and FFB holdings as of May 31, 1997.
RR-1796
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Page 2 of 3
FEDERAL FINANCING BANK
MAY 1997 ACTIVITY
BORROWER
DATE
AMOUNT
OF ADVANCE
FINAL
MATURITY
INTEREST
RATE
GOVERNMENT - GUARANTEED LOANS
GENERAL-SERVICES·oADMlNiSTRATION
Memphis IRS Service Cent.
Atlanta CDC Office Bldg.
Foley Square Courthouse
HCFA Headquarters
Miami Law Enforcement
Atlanta CDC Office Bldg.
. Chamblee Office Building
Chamblee Office Building
HCFA Headquarters
Memphis IRS Service Cent.
Foley Square Office Bldg.
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
S/A
5/5
5/14
5/14
5/14
5/14
5/22
5/23
5/29
5/29
5/29
5/30
$3,759.82
$1,458.62
$36,853.00
$23,120.00
$1,458.62
$1,531.56
$500,902.19
$1,394,431.00
$2,236.70
$19,718.92
$130,092.00
1/2/25
9/2/25
7/31/25
7/1/25
1/3/22
9/2/25
4/1/99
4/1/99
7/1/25
1/2/25
7/31/25
7.024%
7.044%
7.044%
7.044%
7.033%
7.088%
6.375%
6.444%
7.146%
7.145%
7.098%
5/19
$11,058,491.67
11/2/26
7.033% S/A
5/2
5/2
5/8
5/16
$253,000.00
$955,000.00
$1,072,000.00
$2,407,000.00
12/31/14
1/3/17
1/2/24
12/31/20
6.855%
6.904%
7.023%
6.921%
GSA/PADC
rCTC Building
RURAL UTILITIES SERVICE
Pulaski-White Tele. #417
W. Farmer Elec. #285
Pineland Telephone #403
Tri-state #336
S/A is a Semi-annual rate:
Qtr. is a Quarterly rate.
Qtr.
Qtr.
Qtr.
Qtr:
Page 3 of 3
FEDERAL FINANCING BANK
(in millions)
Net Change
FY '97 Net Change
5/1/97-5/31/97
1011/96-5/31/97
May 31, 1997
April 30, 1997
$ 1,357.3
2,353.3
0.0
3,710.5
$ 1,357.3
2,671.2
0.0
4,028.5
Agency Assets:
FmHA-RDIF
FmHA-RHIF
DHHS-Health Maintenance Org.
DHHS-Medical Facilities
Rural Utilities Service-CBO
Small Business Administration
sUb-total*
3,675.0
15,455.0
5.5
18.8
4,598.9
0.1
23,753.3
3,675.0
16,505.0
5.5
18.8
4,598.9
0.1
24,803.3
0.0
-1,050.0
0.0
0.0
0.0
-1,050.0
-3,245.0
Government-Guaranteed Loans:
DOD-Foreign Military Sales
DoEd-HBCU
DHUD-Community Dev. Block Grant
DHUD-Public Housing Notes
General Services Administration +
DOl-Virgin Islands
DON-Ship Lease Financing
Rural Utilities Service
SBA-State/Local Development Cos.
DOT-Section 511
sUb-total*
3,133.7
0.2
36.9
1,561.4
2,371.4
19.0
1,308.1
15,679.1
288.5
4.0
24,402.3
3,146.4
0.2
37.0
1,561.4
2,367.6
19.0
1,308.1
15,674.4
293.1
4.0
24,411.2
-12.7
0.0
-0.1
0.0
3.9
0.0
0.0
4.7
-4.6
.o...Jl
-8.8
-113.5
0.0
-2.2
-65.4
39.2
-0.8
-74.7
-1,071.6
-29.9
Agency Debt:
Export-Import Bank
Resolution Trust Corporation
U.S. Postal Service
sub-total*
grand-total*
*figures may not total due to rounding
+does not include capitalized interest
=========
$ 51,866.2
---------
$ 53,243.0
$
0.0
-318.0
il.a..Q
-318.0
il.a..Q
=========
$ -1,376.8
$
-464.5
-3,642,,9
-1.500.0
-5,607.4
0.0
-3,245.0
0.0
0.0
0.0
0.0
-B.2
-1,327.7
=========
$-10,180.1
D EPA R T 1\1 E N T
0 It'
THE
T REA'S U R Y
NEWS
TREASURY
1789
ornCE OF PUBUC AFFAIRS • 1500 PENNSYLVANIA AVENUE. N.W.• WASHINGTON, D,C.. 20220. (202) 622·2960
rOR IMMLOlATE RELEASE
.Tune 27, 19'17
Contact: Kelly Crawford
(202) 622-2960
GARY GENSLER NAMED ASSISTANT SECRETARY FOR FINANCiAL MARKETS
President Clinton today announced his nom illation 01 Gary Gensler to be Assistant Secretary
of the Treasury for Financial Markets
Gensler is a partner of the international investment banJung tinn. The Goldman S\lchs Group,
L.P. G~nskr joined Goldman Sachs in 1979 in the tVlcrgcrs & ACqUJSltlOl1 Depat1111enl. In 1984,
he assllined rt::sponsibility for the firm's efforts advising media companies and was elected a partner
in 1988. Genskr subsequently joined the firm's Fixed Income 01 VISion a and directed Goldman's
Fixed Income and Currency trading efforts in Tokyo. Since 1095. Gensler has been Co-head uf
finance for Goldman Sal.:hs worldwide,
As Assistant Secretary for Finanl.:ial Markets. Gensler wi II serve as a senior advisor to the
Secretary of the Treasury in developing alld implementing the Federal Government's policies and
plans for debt management ann the sale of US government securities. He will further advise on
broad matters of Federal, State and local finance, including kauing the Treasury's participation in
the financing of the District of Columbia (;ensltr will serve as a seJ liur member of the Treasury
Financing Group and the Working Group on Fill(lncifll .'vlarktts
Gensler graduated summa cum laude from the lJIlIVel'iIIY ot PelU1syivallia\ Wharton School
in 1978 with a Bachelor of Science in Economics, where he ill<;o received a Masle:r of Business
AdministratioIl from the Graduate Oi vision in 1979. Gensler IS (1 Niltl0I1i11 Trustee of The Baltimore:
Museum of Art. He and his wife, Francesca Danieli. have three daughters ann reside in New York
City. (Jensler was born ill Ballimore, ~1aryland,
--30--
RR·1797
For press releases, speeches, public schedules arid official hingraphie" call our 24-hour fax line at (202) 622·2040
'IREASURY
NEWS
OffiCE OF PUBUCAFFAIRS .1500 PENNSYLVANlAAVENUE, N.W .• WASIDNGTON, n.r. .• 20220. (202) fi22-2960
FOR IMMEDIATE RELEASE
June 27, 1997
Contact: Kelly Crawford
(202) 622-2960
NANCY KlLLEFER NAMED ASSISTANT SECRETARY FOR MANAGEMENT & CFO
President Clinton today announced his nomination of Nancy Killefer to be Assistant
Secretary of the Treasury for rV1anagcmcnt and Chief Fll1ancial Officer
Ktllefer is a Director in the Washington, D.C. office of McKinsey &Company, Incorporated
and IS a leader of the Consumer and Retailing Practice GroLlp. [n lIer 17 years with the Finn,
Killefer has focused on strategy, marketing and organizational efficiency issues tor consumer goods
and services businesses.
.
As Assistant Secretary for Management, she will serve as the pnnclpill policy advisor to the
Secretary and Deputy Secretary on all matters involving the tinanclal and Internal management of
the Department and its bureaus. Killefer will be responsi ble tor the Department's budget and also
oversee all management, persormel and procurement poliCies Within the Department. As Chief
Financial Officer, she will further be responsihle for ensuring sOLlnd financial management and
proper stewardship of taxpayer funds at thc Department.
Ms. Killcfcr graduated with honors from Vassar College with a Bacbelor of Arts in
economics, and she also received a Master in the Science of ivfanagemelll and Finance from the
Sloan School of the Massachusetts Institute of Technology.
--30-RR-1798
For press release., ~'peeches, public schedules and official biographies, call OUT 24-hoUT fa:r line at (202) 622-204()
PRESIDENT CLINTON'STAX CUT PROPOSAL
SUMMARY DOCUMENTS
June 30, 1997
RR-1799
TABLE OF CONTENTS
I.
Summary Table of Tax Cuts
--
II.
Fact Sheet on Tax Cuts
III.
Distribution Table
IV.
How President Clinton's Tax Cut Proposals
Benetit Typical American Families
V.
It is Wrong to Deny Tax Relief to America's
Working Families
VI.
President Clinton's Higher Education Tax Cuts -Greater Benefits for More Families
VII.
Chart on Distribution of Tax Cut
President Clinton's Tax Cut Proposal
A Fact Sheet
EDUCA TION TAX CUTS
•
Two-J!eur HOPE ScJ,o'ar~hip. A maximum $1.500 cn::dit beginning in 1998. Students anending on at least a
half-time baSIS would receive a 100% credit for the first $1,000 of tuition and rl!quired fees tor enrollment in
a post-secondary degree or certificate program and a 50% credit for up to the next $1,000. For example, a
student anendmga community college with tuition costs of$1,400 would receive a $1.200 HOPE
Scholarship. Sch01ar!>hips would be phased out for joint filers earning between $80,000 and $100,000.
Eligible students could receive both a full Pell Grant and a HOPE Scholarship. The previously proposed Brule has been dropped. After 2002, the HOPE Scholarship increases to a 100% credit tor the first $1.500 and
a 50% credi t for the next $1,000 of tuition and required fees.
•
20% Tuition Tax CrcdiL Third and fourth year students, graduate srudents. plus working people going to
school to improve their education and skills, would benefit from a 20% tax credit on '.he first $5,000 of
ruition and required fees through the year 2000 and after 2000 a 20% tax credit on the first $10,000 of tuition
and required fees. The credit would be phased out for joint filers earning between $80,000 and $100,000.
•
Education and Retirement SaYings Accounts. Allows pennlty.free IRA withdrawals for undergraduate.
post-secondary vocational, and graduate education expense and the first-time purchase of a nome.
Additionally, taxpayers are given me opportUnity to contribute their child tax credit plus an additional $500.
up to $1,000, to a Kidsave Account for the child's education, first-time home purchase or rhe taxpayer's
retirement. Eanlings would accumulate [ax-free in the Kidsave Account and no taxes would be due upon
withdrawal for an approved purpose.
•
Tax Incentives for School Construction. Provides tax credits to finarlce construction and/or rehabilitation of
elementary or secondary schools in distressed commwtities. States would be able to allocate a tixed amount
of tax credits (based on population) to public schools to hc:lp pay for construction or renovation projects. Th~
allocation would be tor projects in schools that are in empowerment zones or enterprise communities, or that
have a high percentage of low-income srudents. This program would function similarly to the current lowincome housing ta.x credit program.
Employer-Provided Education Benefits. Extends permanently Sc:ction 127 of the tax code, which allows
people to exclude $5,250 of employer provided education benefits from their taxable income. Both
undergraduate and graduate education would be eligible. Additionally, a 10% employer credit for small
business training is included. This credit would apply to payments made to third parties to cover expenses of
education for employees under employer·provided education assistance programs. The credit would be
available to employers with average annual gross receipts of $1 0 million or less for the prior three years.
Student Loan Interest Deduction and Forgiveness. Allows a deduction of up to $2,500 per year of intereSl
on education loans for expenses of students enrolled at least half-time at an institution of higher education.
The deduction would be allowed for the first 60 months interest is due on a loan. The deduction would phase
out for taxpayers making between $45,000 and $65,000 ($65,000 and $85,000 for mamc!d taxpayers tiling
jointly). ThIS deduction would be available even if the taxpayer does not itemize deductions.
To encourag~ people to use thelf education.end traimng in corrununity servIce, the Income exclusion for
student I()an forojveness would be expanded to include loan forgiveness extendl!d by nonprofit tax·exempt
charitable or ~d~catlonal institutIons, and to loans forgiven unJer the Direct Loan Program' s incomecontingent rep.1yment program Currently, the exclusion generally covers unly contingent forgiveness
arrangemeIH5 betw~en students and government entities.
Incentives for K-/2 Computer Donations. Provides tax .1Ocentives for private sector donatIons of compUlt.!f
equipmenl to schools. The proposal would work 10 combmatlon with the TelecommUnlCallOnS Act of 1'-196 to
ensure that public schools have access to modern computer lechnology
•
Repeal Cup un Tax Exempt Bond Issuance by Colleges and Univenilit!!\. Repeals.the ~ 150 million bond
cap that affects pri lIale higher education institutions and cenam other charItable Institutions. The repeal
w()uld apply tn tax-exempt bonds Issued by these Institutions to finance new capnal expendltures.
CHILD TAX CREDIT
The President's child tax credil includes the following feamres:
•
•
•
Age. Covers children under 17 through 2002 and undc:r 19 thereati.er.
Amount per child. $400 in 1998, $500 in 1999 and thc:n indexed.
Income Limits. Phased out for families making $60.000 to $75,000 until 2000. and then $80,000 to
$100.000 thereafter.
Refundability to Cover Out-oC-Pocket Income and Payroll Taxes. Working families who payout of
pocket federal taxes would benefit from the child tax credit. Child ta.l( credit is calculated before the EITC
and will be partially refundable. A family will get a child credit for their income taxe$ plus the extent to
which their out-of-pocket (employee share) payroll ta..xes exceed their EITe.
Savings Incentive Feature. As described above, taxpayers who are entitlc:d to a child credit would be
given the opportunity to contribute their child tax credit plus an additional $500 each year to a Kidsave
Account for the child's education. first time home purchase or the taxpaytr's retirement. Earnings would
accumulate tax-fTee in the account and no taxes would be due upon withdrawal for an approved purpose.
URBAN REVITALIZATION
Incentives 10 Clean Up and Redevelop Contaminated Sites (Brownjields). Cenain envirorunental
remediation costs would be provided tax favorable treaunent, allowing them (0 be fully dedl:le·ted
immediately, to spur clean-up and redevelopment of contaminated sites in high poverty areas .. To qualify for
this tax incentive, sites would have to satisfY use, geographic, and contamination requiremt:nts.
•
Expand Empowerment Zones and Enterprise Communities. The proposal has the three main components
that were in the President's budget. First. within 180 days of enactment, two additional urban empowerment
zones would be authorized and would benefit from current tax incentives. Second, technical changes would
be made to allow a broader range of businesses in EZs and ECs to borrow the proceeds oftax.-exempt bonds.
Third. the proposal authorizes the additional designation of 20 (15 urban and 5 rural) Empowerment Zones
and 80 (50 urban and 30 rural) Enterprise Communities. The newly designated zones would have different
available tax incentives than ex.isting zones. The current law wage credit would not be available. The
brownfields incentives would be available as would special expensing of business assets and qualification for
private-activity bonds.
•
Community Development Financial Institutions Fund. Up to $100 million 10 lax credits would be made
available to (he CDfI Fund to allocate for equiry investors in conununity development financial institutions
(0 leverage private investmen[ in distressed areas and to stimulate economic revitalization.
Washington, D.C. Provides tax incentives for firms to hir~ District residents. and 3. new credi[ that will be
allocated [0 debt and equi[y by a new economic development corporation, and to allow the issuance of
additional tax-exempt debt to help finance new business activiry in (he District
WELFARE-TO-WORK TAX CREDIT
As proposed In the Presidcnr'$ budget. to help move people from welfare to work. a new 50% tax credit would be
made availabl~ on the first $10.000 in annual wages of certain long-term family 3.SSlst~ce recipients for two
years of employment.
SMALL BUSINESS TAX CUTS:
Home office ded uction
The existinn home office deductIon would be broadened to cover small businesses where. (I) the office IS
exclu~l\lel/'lIsed to conduct substantial and essential admtnistrative or mana~t:mt:nt activities on a regular basis.
and (2) the taxp;1yer has no other locatIon
[0
conduct these essential admInistrative or management activities.
uample #3:
A single mother lives with her six year old daughter in California. She's been workIng as a bank teller for several
years and her pay. is now $20.000 a year. When she tallies up her taxes. she owes $1.200 in federal income
taxes. A $1.150 Earned Income Tax Credit offsets much of this income tax. However. she pays $1.530 a year in
payroll taxes. not to mention the additional $1,530 the bank pays on her behalf
Under the President's plan this single mom would receive a $500 child tax credit for her daughter.
(Note: This
woman and her daughter would.receive no tax cut under either the House or Senate plans).
Tax Cut under
Clinton Proposal
Family of two with one child
aged 6 and $20.000 income:
Child Ta.x Credit for 6
y~ar
old
$500
Total tax cut:
$500
EX;lmple #4
A teacher with six years experience, earning $40.000 a year, would like to get her masters degree before she
marries and has children. Her principal has agreed to adjust her schedule so that she can anend classes in the
afternoon and evening. The tuition and fees charged for the program total $6,500.
She will receive a 20 percent tax credit on the first $5,000 of the tuition she pays.
Tax Cut under
Clinton Proposal
Single teacher making $40,000,
anending graduate school:
Tuition Tax Credit:
$1 000
Total T (LX Cut:
$1,000
(Nole: All e:o:.ampi<;:'\ art: for ta:o:. yt!ar 1999)
IT IS WRONG TO DENY TAX RELIEF
TO AMERICA'S WORKING FAMILIES
Compared lO the President" s proposal, four million working families will largely be denied a child tax credit
under (he congressional tax plans. The President strongly believes that families who work hard, play by the rules
and makl! approximately $18,000 or $28,000. who pay taxes, and who are trying to do the best for their kids just
like everybody else, deserve a tax cur too.
This is an issue rhar is susceptible to both eye-glazing technical jargon, talk of "stacki ng," and misleading
rhetoric: "It's welfare." Senlt'lg aside the jargon and the rhetoric, chis is an issue best weighed by looking at real
people:
Example -- Family of Four with Two Children
Consider a family oj/our WiTh rwo children living in a medium sized sou/hem city The father is a rookie police
officer making $23. 000. and the mother is taking afew years offfrom working. This family pays federaltaxe.'i
well uhov€.' the amnunr of EIre they receive:
Federal Tax SiTuatioo Before Any Child Tax Credit:
Incom~
taxes owed before EIIC
Payroll Taxes (just employee share)
Excise Taxes/l
$675
$1.760
$354
Federal out of pocket taxes owed before EITe
$2.789
Employer Share of Payroll taxes
$1,760
F cderal Taxes before EITC
$4.549
Benefit from EITC
SI,668
President Clinton's
Proposal
House Bill
Sen.llte Bill
S767
SO
SO
Child Tax Credit for
family of rookie police
officer making S23,OOO
NOleS
1
E~tlm3te calculated from Congn:sslOnal Budget Office Ddra CBO estlmates that In 199&, f3IT1i1les with Incomes berwe~1l
S20.0()() and $30,000 v.ould pay 154 percent of their Income: In (,dual excise taxes,
How the President's Tax Cut Proposals
Benefit Typical American Families
Example #1
Consider a family of four who makes $40,000 a year. The father is a carpenter and makes $25,000 and the
mother makes $15.000 working at a local department store. They have two kids, a son who is 14 and a freshman
in high school and 3 daughter enrolled full-time in her first year at the local community college. Her ruition is
$1,200 d ~t!ar.
The President" s tax cut proposal will benefit this family in at least two ways. They will receive a child tax credit
of$500 for their son plus a HOPE Scholarship of$1,100 for their daughter. In total, they will receive a $1,600
tax cut in the President's proposal.
Tax Cut under
Clinton Proposal
Family of four with two children
aged 14 and 18 and $40.000 income:
Child Tax Credit for 14 year old
HOPE Scholarship for 18 year old
Total tax cut:
$500
$1.100
$1,600
Example #2
Consider a family of three making $55,000 a year. The father has a degree in acc~unting and works for a local
business in the accounti ng department. The mother works parHirne at the local lIbrary. They hav~ one daughter
aged 14 Tht! father would like:: [0 return to school to prepare for his CPA examination. He is going to :mend the
local liberal 3r1$ college. He has signed up for two courses with total ruition of )4,000
This family will receive a $500 tax child tax credit for their daughter and a $800 tuition tax credit to help pay for
the farher's course work.
Tax Cut under
Clinton Proposal
bmily of three with one chtld
aged 14 <lnd $55,000 income:
Child Tax Credit for 14 year old
Tuition [('Ix. credit
Total tax cut:
SSOO
$800
S1.300
President Clinton Unveils Tax Cut Proposal
June 30. 1997
President Clinton.'s tax cut proposal provi.des. needed. (ax relief to wor~ing families who play by the rules, pay
taxes, ~d are trymg .to do the best for their kids. ft mcl~des a major. Investment I.n the President' Stop priOnty __
educat1o~ -- by makmg .th~ first two years ~f college untv~ally avaIlable and domg something the other plans do
not helpmg those Amencans who are working and want to Improve their education and upgrade their skills.
Lastly. Presidenr Clinton's proposal incorporates Republican priorities in a good faith effort to honor the budget
accord and to reach final agreement for a tax cut the American people deserve.
THE PRESIDENT'S PROPOSAL IS FAIR. The bulk of the President's tax cut goes [0 middle-class families-two-thirds of the President's tax cut goes to the middle sixty percent of families. twice the share the! alremative
congressional plans provide these'middle class families.
THE PRESIDENT PLACES-A HIGHER PRIORITY ON EDUCATION TAX CUTS. Education must be
America's highest priority and the core of our tax cut plan must help families pay for education, To offer opportUniry
in the new and rapidly changing economy, we must make the 13th and 14th years of education -- the first two yt:ars of
college -- as universal as a high school diploma is today. We must also do what we can to help people: throughout their
lives improve their education and upgrade their skills throughout their lives. The President's plan:
./ AnY ANCES THE GOAL OF MAKING THE FIRST TWO YEARS Or-COLLEGE UNIVERSAL.
The plan includes a modified two-year $1.500 HOPE Scholarship that does more to hclp community college
srudents than the congressional alternatives. First and second year srudents would receive a $1,000 credit for the
first $1,000 of tuition and fees plus 50% of as much as another $1,000 in tuition and fees. Therefore, a student
going to a typical community college with tuition of $1 ,200 would receive a $1.100 credit under the President' s
proposal. compared to just $600 and $900 under the House and Senate plans respectively .
./ HELPS THIRD AND FOURTH YEAR STUDENTS AND PROMOTES LIFELONG LEARNING. The
congressional plans give virtually no support to families who arc struggling to pay college costs out of pocket,
Students beyond the second year would benefit only if they had substantial savings or when they paid interest on
student loans. Students over 30 -- one-fourth of all undergraduate students -- could not even make use of the
education savings account~ that Congress is proposing, At a time when older workers need to improve their
education and upgrade their skills, it is critical that the education tax cuts promote lifelong learning. The
President's proposal accomplishes this goal: It provides a 20 percent tuition credit on expenses up to $5,000
initially and $10,000 beginning in 2001.
.t INCORPORATES OTHER GOOD EDUCATION IDEAS INCLUDED IN VARIOUS PROPOSALS,
such as a permanent extension of the tax preference for employer-provided undergraduate and graduate education.
tax incentives for school construction, a srudent loan interest deduction. and tax exclusion for community service
and income-contingent loan forgiveness.
THE PRESIDENT BELIEVES THAT FAMILIES \1/HO WORK HARD. PAY TAXES, AND TRY TO DO
cur. HIS PLAN CUTS THE TAXES OF THE 4
MILLION FAMILIES SHORTCHANGED BY CONGRESS. The Presldt:nt's proposal includes a $500 child
[ax credit for children under 17 through 2002 and under 19 thereafter. The PreSIdent has a basic disagreement with
some members of Congress. Consider a family offour Wilh two small children. the father Is a rookie police ufficer
making $23, 000. and the mother IS taking a few years offfrom teaching. They payout of pocket over S1. 000 a ytJar in
federal l(lles.· The President believes that this fu.mily needs and deserves a tax cut just as much as family who makes
twic\! as much. The Congressional plans would deny this family a tax cut. Under the PreSIdent's plan. this family
would receive a $767 chIld tax credit.
THE BEST FOR THEIR KIDS DESERVE A TAX
TAX INCENTIVES TO CLEAN-UP AND REVIT A.LIZE DISTRESSED NEIGHBORHOODS BELOl'lG
IN THE fINAL TAX PACKAGE. In the balanced budget agreement. President Clinton and Congress agreed to
make all efforts to includc three programs critical to our urban areas in the final budget package: a Brownfields tax
incentive; new Empowerment Zones and Enterprise Communities (EZfEC); and expansion of the Community
Development Financial Institutions (CDFI) fund. Unfortunately, neither the House tax bill nor (he Senate tax bill
includes the President's Brownfields and EZlEC initiatives. Today. lhe President zncludes lhese rwo vllal
provisions. plus a new /(ll credit to encourage InveSlment in CDFIs and an enhanced welfare-to-work taJ: credit. ill
his t(ll cut proposal.
Change in Income Tax: Comparison of Current Law with
The President's Proposal and the House and Senate Tax Bills
Couple with Income of $23,000 and Two Children
(1999 Tax Parameters)
Current Law
-'
Adjusted Gross Income (AGI) -- all earnings
Standard Deductjon
Personal Exemptions
Taxable Income
Income Before Tax Credits
Employee Payroll Tax (7.65% of earnings)
Child Credits
Earned Income Credit (refundable)
Income Tax After Credits
Tax Savings Compared to Current Law
Department of the Treasury
Office of Tax Analysis
President's
Proposal
House
Tax Bill
Senate
Tax Bill
23,000
23,000
23,000
23,000
7,300
7,300
7,300
7,300
11.200
11.200
11.200
11.200
4.500
4.500
4,500
4,500
675
675
675
675
1,760
1,760
1.760
1,760
0
767
0
0
1,668
1,668
1,668
1.668
-993
-1,760
-993
-993
767
o
o
June 27, 1997
The President's Higher Education Tax Cuts:
Greater Benefits for More Families
While providing the greatest help in the first two years, the President's plan has always gone much further.
granting a substantial tax cut for any investment in postsecondary education or traming. Unlike the
Congressional plans. the Administration's higher education tax cut covers all types and ages of students.
including:
•
part-time students;
•
students beyond their first two years of undergraduate study;
•
graduate students;
•
workers who are improving job skills rather than seeking a degree:
•
those not fortunate enough to have been able to put a lot of money into'savings.
For many siruarions that families find themselves in, the plans passed by the Senate and the House provide little
or no help. Consider the following common situations:
Family with SSO,OOO mcome, one child
gomg to an average two-year comrnuruty
college full-time ($1,200 [UlHOn and fees)
House Plan
Senate Pial)
President
$600
$900
~ 1.1 OU
$0
$0
$400
~O
$0
S 1.000
SO
SO
S700
f--
Eamlly 'With 5:30,000 Jncome, one parent
going to a public 1our-ycarcoliege.lessJban
half-time ($2,000 ruition 3.!1d fees)
family with $40.000 Income, one child is
junior at average pnVi.1te college ($12,000
tuition and fee:;)
Homemakl.:!r, f:mULy.income of $70:000,
deCides to go to gradU.3.te school at'public
uruverslty Wa being out of college for 20
years ($3,500 twLlOn and fees)
I
Share of Tax Cuts Going to
Middle ~,ixty Percent of Families
100
-~
~~~~~~--------
80
67%
+-'
c
60
I
(J)
0
L-
a>
{L
40 I
320/0
34%
20
o
President
Source: Department of Treasury
House
Senate
PROPOSED REVENUE RAISERS (in millions of dollars)
Expansion of requirement that involuntarily converted property be replaced with property acquired
from an unrelated person
Repeal installment sales grandfather rules of 1986 Act
Inclusion of income from notional principal contracts and stock lending transactions under Subpart
1997-2002
1997-2007
30
115
353
507
92
202
51
156
230
552
0
0
37
105
1.925
3,391
452
978
5
10
49,771
100,526
F
Further restrict like-kind exchanges invol\'ing foreign personal property
Impose holding period requirement for claiming foreign tax credits with respect to dividends
Limitation on treaty benefits for payments to hybrid entities
Treatment of income form certain sales of inventory as U.S. source income
Modify foreign tax credit carryover rules
Replace truck excise tax deduction for tire value with tax credit for excise tax paid on tires
Limitation on Charitable Remainder Trust annual payouts
TOTALS
Year-by-year path of net tax cuts in the competing tax plans
Net Tax Cuts in House, Senate and Administration Proposals, 1998-2007
(in billions)
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
House
4.4
5.8
26.7
27.2
20.0
27.1
29.7
31.9
36.1
40.9
Senate
-1.5
19.1
22.2
24.9
20.1
24.1
29.0
32.0
36.1
41.1
Administration
5.0
17.0
17.7
20.6
24.0
27.8
30.5
30.6
32.6
34.1
---
JCT Sconng of Senate Finance package (June 20, 1997, #97-2 164); JCT scoring of House Package (#97 -1 149); Treasury scoring of Administration Package.
Alternative Tax Cut Proposals
A Comparison of Distributional Impact
Pres.,idgnl Clil1.tQll
HQIJJJf
S~t1.{1le
1.20/0
0.6%
0.4%
Second
10.1
2.5
2.7
Third
22.2
9.6
10.2
Fourth
34.6
20.0
21.3
Highest
31.5
66.8
65.0
Top 100/0
11.7
47.3
42.3
Top 50/0
6.5
34.9
28.2
Topl%
2.6
18.8
12.5
Income by Quintile
Lowest
-
Middle 60%
66.9%
32.10/0
34.2%
(Second.third. four1h quinliies)
Source:
U.S. Department of Treasllry
Tables assumes fully phased-U) (2007) 1.1\1{ and behaYlor. in 1998 dollars. It includes major tax cut proyislons In each or the plans:
HOPE Scholarship. tuition credit. Section 127, Student loan interest deductIon. child tax credit. Kidsaye accounts. capital gains
pro .. i~lons. home: oftice deduction, disO'essed areas initiatives. Puerto Rico ca.'( incentives. individual and corporate AMT changes.
prcp!:lld tUition programs. (Ms. DC tax incentives. safe harbor for mdependent contractors. moditications of treaOTlent of company
owned life insurance
PROPOSED REVENUE RAISERS (in millions of dollars)
1997-2007
1997-2002
Constructive sales treatment for appreciated fmancial products
708
1,199
Disllowance of interest on indebtedness allocable to tax-exempt obligations
114
373
Gains and losses from certain terminations with respect to property (extinguishment doctrine)
117
242
Determination of original issue discount where pooled debt obligations subject to acceleration
1,311
1,857
(75)
352
1,459
1,848
Tax treatment of redemption involving related corporations
35
60
Modify holding period for dividends-received deduction
51
136
Registration and other provisions relating to confidential corporate tax shelters
170
392
Certain preferred stock treated as "boot"
195
249
Reporting of certain payments made to attorneys
12
31
Decrease of threshold for reporting payments to corporations performing services for Federal
agencies
34
93
6,376
6,736
116
304
1,271
1,732
15
34
29,655
69,297
646
1,342
3
8
Modify control test and include attribution rules to determine UBIT consequences of certain
payments from subsidiaries of tax-exempt organizations
41
62
Repeal 1986 Act grandfather rule for Mutual of America
32
78
170
377
3,518
5,194
\1odification of treatment of company-owned life insurance - pro rata disallowance of interest on
febt to fund life insurance
499
2,240
~epeaI14-day rule on rental of vacation properties
123
274
Tax treatment of certain extraordinary divjdends
Recognition of gain in certain section 355 transactions
Extend FUTA surtax and increase the statutory limit on the FUA Trust Fund from .25% of covered
wages to .50%
Disclosure of return information for administration of certain Veterans' programs
Modify levy exemption and provide continuous levy on certain payments
Consistency requirement for returns of beneficiaries of estates and trusts
Extend airport and airway trust fund excise taxes
Reinstate LUST excise tax and extend
Flat excise tax on vaccines; allow new vaccines to be automatically covered
Tennination of suspense accounts for family farm corporations required to use accrual method of
accounting
I-year carryback and 20-year carryforward for net operating losses (S-special rule for disaster areas)
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR IMMEDIATE RELEASE
June 30,
CONTACT:
Office of Financing
202-219-3350
1997
RESULTS OF TREASURY'S AUCTION OF I3-WEEK BILLS
91-Day Bill
July 03, 1997
October 02, 1997
912794SPS
Term:
Issue Date:
!"laturi ty Date:
CUSIP Number:
RANGE OF ACCEPTED COMPETITIVE BIDS:
Low
High
;tI.verage
Discount
Rate
Investment
Rate 1/
Price
------
----------
------
5.09 %
5.12 %5.12 %
98.713
96.706
5.23 %"
5.26 %
5.26 %
98.706
Tenders at the high discount rate were allotted
49%.
AMOUNTS TENDERED AND ACCEPTED (in thousands)
Tendered
Tender Type
Competitive
Noncompetitive
$
PUBLIC SUBTOTAL
Federal Reserve
Foreign Official Inst.
Refunded Maturing
Additional Amounts
TOTAL
1/
Equivalent coupon-issue yield.
RR··1800
33,385,830
1,326,972
Accepted
----------------S
34,712,802
6,758,502
3,786,430
3,786,430
743,878
743,878
263,922
263,922
$
5,431,530
1,326,972
39,507,032
$
11,552,732
TREASURY SECURITY AUCTION RESULTS
BUREAU OF THE PUBLIC DEBT - WASHINGTON DC
FOR TMMSDIATE RELEASE
1997
CONTACT:
June 3 0,
Office of Financing
202-219-3350
RESULTS OF XREASURY'S AUCTION OF 26-WEEK BILLS
Term:
Issue Date:
r'~aturl ty Date:
CUSIP Number:
183 -Day Bill
July 03, 1997
January 02, 1998
912794523
RANGE OF ACCEPTED COMPETITIVE BIDS:
Discollilt
Rate
------
Low
High
leverage
5.12 %
5.14 %5.14 %-
Investment
Rate 1/
---------5.33 %
5.35 \"
5.35 \-
Price
-----97.397
97.387
97.387
Tenders at the bigh discounc rate were allotted
60% .
.~OUNTS TENDERED AND ACCEPTED (in thousands)
3,469,205
1,220,289
PUBLIC SUBTOTAL
29,184,758
4,689,494
Federal Reserve
Foreign Official Inst.
Refunded Maturing
Additional Amounts
3,485,000
3,485,000
2,837,622
1,007,778
2,837,622
1. 007,778
TOTAL
E(JUivalent coupon-issue yield.
RR-18C11
$
$
27,964,469
s
1, 220,289
Competitive
Noncompetitive
1/
Accepted
Tendered
Tender Type
36,515,158
$
12,019,894
@FedFRASER