ISSUANCE OF TREASURY BILLS MAY 29, 1929.-Committed to the Committee of the Whole House on the state of the Union and ordered to be printed Mr. HAWLEY, from the Committee on Ways and Means, submitted the following REPORT [To accompany H. R. 1648] The Committee on Ways and Means, to whom was referred the bill (H. R. 1648) to amend section 5 of the second Liberty bond act, as amended, having had the same under consideration, report it back to the House without amendment, and recommend that the bill do pass. The present method of financing the requirements of the United States Government was developed as a war measure, and not only served admirably in financing war-time expenditures but has continued to function satisfactorily up to the present time. However, in so far as short-term financing is concerned, certain modifications are desirable in the interest of greater economy and of closer adjustment of current borrowings to the immediate needs of the Government. Generally speaking, short-term financing of the Government is carried on by means of Treasury certificates, with maturities of from 3 to 12 months, issued quarterly on tax-payment dates and maturing on tax-payment dates. These certificates serve a three fold purpose: They maintain a part of the outstanding war debt in the form of short-term securities, which, on the whole, has been advantageous from the standpoint of interest charges; they provide the necessary funds to meet the current obligations of the Government; and since their maturities coincide with the period during which very heavy tax payments are received, they furnish an effective instrument for preventing heavy withdrawal of funds from the market, with a consequent serious disturbance every quarter date. It is not the purpose to dispense with this system, to which our people have become accustomed and which has functioned smoothly and efficiently, but rather to correct certain defects which have developed and to supplement it in such a way as will decrease the cost of financing and adjust it more closely to the needs of the Government. The defects may be briefly described as follows: 1. Since the Government borrows only four times a year, the funds are borrowed in advance of the actual requirements, and the interest cost on such borrowings has exceeded the interest received on idle Government deposits. Thus, for instance, the Government borrows on the 15th of March the funds necessary to meet certain definite obligations on the 15th of April and there is necessarily a 30-day interest loss on the funds borrowed. If, however, the Treasury sold bills on the 15th of April rather than certificates on a deposit credit basis on the 15th of March, the saving would be immediate and substantial. 2. While the maturing of securities to-day synchronizes in a general way with the collection of income taxes, in practice the redemption of these securities proceeds more rapidly than income-tax checks can be collected. Consequently at every tax period there is a temporary excess of Treasury disbursements, which necessitates temporary certificates of indebtedness issued to cover overdrafts at the Federal reserve banks, on which interest must be paid, in addition to the interest paid on the newly issued securities. 3. Under the present system where certificates are issued bearing a fixed coupon rate the Treasury is confronted with the difficult task of accurately adjusting the interest rate to current market conditions, and while the department has been successful in doing this with great accuracy, nevertheless it would be more desirable to have the market itself fix the rate by competitive bidding. The bill, therefore, grants the necessary authority to permit the Treasury to sell short-term bills, with a maturity not greater than a year, on a discount basis. Several important advantages may be expected to follow the adoption of this new form of Treasury obligation: 1. Competitive bidding for these bills should enable the Treasury to get the lowest discount rates consistent with current market conditions. 2. The sale of these securities may be timed to coincide almost exactly with the need for funds, thus saving the interest on money borrowed ahead of requirements. 3. Maturities may be timed to correspond closely to the actual collection of income taxes, rather than on the nominal date of tax payments, as at present. 4. The Treasury will be in a position to take advantage of periods of seasonal ease for the sale of Treasury bills rather than, as sometimes occurs, be compelled to offer a large issue of securities during a period of temporary stringency and high money rates. 5. The banks and the investing public will be furnished with a new instrument for the investing of temporary surplus funds, with frequent and convenient maturities. The bill also (in subdivision (b)) makes the tax exemptions, now applicable to certificates of indebtedness, applicable to Treasury bills, and in addition extends to both an exemption from surtaxes and also provides that gain from the sale of either shall be tax exempt, with the necessary supplementary provision that any loss shall not be recognized. Inasmuch as these are short-term obligations, any advance in price will as a practical matter represent nothing more than interest. In order to make the exemption accorded to interest truly effective, to make unnecessary exceedingly complicated computations, to give the Government the full advantage of the present exemptions, and to place individuals upon the same basis as corporations by removing the discrimination now existing in favor of corporations, your committee believes that the provisions of the bill are proper and desirable. Subdivision (c) of the amended section makes necessary clarifying amendments to the Federal reserve act, by making the provisions, now applicable to bonds, notes, and certificates of indebtedne s, applicable also to Treasury bills. For example, under this amendment notes issued for the purpose of carrying or trading in Treasury bills, or certificates of indebtedness, will be eligible for discount, under the second paragraph of section 13; Treasury bills and certificates of indebtedness will be acceptable security for advances to member banks, under the seventh paragraph of section 13; and they are included among the securities which Federal reserve banks may purchase, under subdivision (b) of section 14. It is believed that the proposed legislation will afford a necessary flexibility in Government financing, that the advantages should be obtained at the earliest possible time, and that the legislation should be enacted at the present session. The changes made by the bill over existing law are shown in italics as follows: [Existing law in roman type; proposed changes in italic type] "SEC. 5. (a) That in addition to the bonds and notes authorized by sections 1 and 18 of this act, as amended, the Secretary of the Treasury is authorized to borrow from time to time, on the credit of the United States, for the purposes of this act, to provide for the purchase or redemption before maturity of any certificates of indebtedness or Treasury bills issued hereunder, and to meet public expenditures authorized by law, such sum or sums as in his judgment may be necessary, and to issue therefor (1) certificates of indebtedness of the United States at not less than par and at such rate or rates of interest, payable at such time or times as he may prescribe; or (2) Treasury bills on a discount basis and payable at maturity without interest. Treasury bills to be issued hereunder shall be offered for sale on a competitive basis, under such regulations and upon such terms and conditions as the Secretary of the Treasury may prescribe, and the decisions of the Secretary in respect of any issue shall be final. Certificates of indebtedness and Treasury bills issued hereunder shall be in such form or forms and subject to such terms and conditions, shall be payable at such time not exceeding one year from the date of issue, and may be redeemable before maturity upon such terms and conditions as the Secretary of the Treasury may prescribe. Treasury bills issued hereunder shall not be acceptable before maturity in payment of interest or of principal on account of obligations of foreign governments held by the United States of America. The sum of the par value of such certificates and Treasury bills outstanding hereunder and under section 6 of the First Liberty Bond Act shall not at any one time exceed in the aggregate $10,000,000,000. "(b) All certificates of indebtedness and Treasury bills issued hereunder (after the date upon which this subdivision becomes law) shall be exempt, both as to principal and interest, and any gain from the sale or other disposition thereof shall be exempt from all taxation (except estate or inheritance taxes) now or hereafter imposed by the United States, or by any local taxing authority; and no loss from the sale or other disposition thereof shall be allowed as a deduction, or otherwise recognized, for the purposes of any tax now or hereafter imposed by the United States or any of its possessions. "(c) Wherever the words 'bonds and notes of the United States,' or 'bonds and notes of the Government of the United States,' or 'bonds or notes of the United States' are used in the Federal reserve act, as amended, they shall be held to include certificates of indebtedness and Treasury bills issued hereunder." о DISPOSITION OF UNALLOCATED INTEREST FUND MAY 29, 1929.-Committed to the Committee of the Whole House on the state of the Union and ordered to be printed Mr. HAWLEY, from the Committee on Ways and Means, submitted the following REPORT [To accompany H. R. 3083] The Committee on Ways and Means, to whom was referred the bill (H. R. 3083) to amend subsection (a) of section 26 of the trading with the enemy act, as amended by the settlement of war claims act of 1928, so as to authorize the allocation of the unallocated interest fund in accordance with the records of the Alien Property Custodian, having had the same under consideration, report it back to the House without amendment and recommend that the bill do pass. The bill involves no substantial question of policy, but it is very important that the bill be enacted as soon as possible in order to permit the allocation and distribution of the unallocated interest fund in accordance with the policy enacted by the Congress in the settlement of war claims act of 1928. The present law, enacted as a part of the settlement of war claims act of 1928, provides that the Alien Property Custodian shall allocate, among the various trusts which he holds, the funds in the so-called unallocated interest fund, in accordance with the rules prescribed by the law. However, the present law provides that this allocation shali be based upon the average rate of earnings determined by the Secretary of the Treasury. The records of the Alien Property Custodian show the date upon which he acquired the money, but do not show the date upon which the money was turned over to the Secretary of the Treasury for investment in accordance with section 12 of the trading with the enemy act. There was, of necessity, a certain lag between the time that the Alien Property Custodian acquired the money and the date on which he was able to turn it over to the Secretary of the Treasury. The books of the Secretary of the Treasury show the date upon which he received the funds from the Alien Property Custodian. |