In air conditioners the problem is somewhat similar. Here, nearly 40 percent of the year's sales come in May and June. Postponement of a purchase until after July 1 would mean that part of the hot weather is gone and many potential customers would postpone the purchase until next year. In these two cases, the House considered that customer refunds were appropriate with respect to purchases between May 15 and July 1.

As to other industries, the committee noted that retroactive refunds were not provided in the last significant excise tax reduction, that of 1954, and that a retroactive date, with consumer refunds, would constitute a serious administrative burden for the industries affected. In order to provide the Internal Revenue Service with some means of verifying the refund claims, it would be necessary that they be channeled through, and consolidated by, the person who initially paid the tax. For most taxes, this would be the manufacturer. Such a procedure would involve the processing, verifying, and consolidating of thousands of small claims by a manufacturer. For manufacturers that sell many different taxes articles the burdens would be multiplied many times, and the benefit of retroactivity would be far outweighed by the burden of additional paperwork involved. Consequently, the House thought that in view of the short time between the announcement date- May 15-and the effective date of the first scheduled reduction, July 1, it would be wise to proceed in all other cases in accordance with prior practice and avoid retroactive reduction. However, as stated earlier floor stock refunds are provided in the House bill for most of the manufacturers taxes.

The Treasury staff has been working with the staff of the Joint Committee on Internal Revenue Taxation on some technical amendments. We will be glad to discuss these matters with the committee, when it considers the bill in detail.

Thank you.

The CHAIRMAN. Thank you very much, Mr. Surrey.

The Chair would like to ask just a few questions which will be directed first to the Secretary.

Secretary FOWLER. Yes, sir.

The CHAIRMAN. And if desired, the Assistant Secretary for com

ment.

It has been suggested in the last few days that, in the case of certain taxes to be repealed outright, the reduction should be effective on the day the President signs the bill. I would like your opinion, Mr. Secretary, as to whether that should be done.

Secretary FOWLER. Mr. Chairman, as Secretary Surrey's comments have indicated, the effective date has been a matter of real concern to him and his staff in long and extensive interviews with the various industries affected from the very beginning of the consideration of this program. It was felt, after this series of conferences and appraisement of the problem, that the threat of any kind of a buying slowup on the items on which tax reductions would be scheduled could be minimized to a very substantial extent provided there was a reasonably short period of time between the President's message and the action by the Congress. It was our view at the time of the President's message that except for the two items mentioned, any reduction prior to the general effective date, prior to July 1, would not be necessary.

However, I think we are all familiar with the fact that there has been some concern among sellers of some of the other items, and there has been some expression of desire on their part to have the reduction become effective as soon as the bill is enacted, that is, signed by the President, which would be presumably a matter of a week or two before the effective date of July 1, assuming that the Senate should act in the next week.

I do not think that the administration would be opposed to the enactment of this early effective date, to, let us say, June 15. As a technical matter I think Internal Revenue Service could cope with such an amendment if the Senate or the Congress wished to include it.

I would like to point out that the gross revenue consequences on the 1966 budget, according to our best estimate, would be approximately $50 million more or less if June 15 were the date. It is pretty hard to calculate that with any precision. My own feeling, Mr. Chairman, is that this is a close question. I do not believe that any real damage would be done to the economy by keeping to the effective date of July 1 because most of the sales that would be affected would not be cancellations of sales because of the impending excise tax cut. We believe they would be more in the nature of deferral of sales for a 2-week period or arrangements between buyers and sellers whereby the effective date of the transaction would be July 1 or a few days thereafter. So that any real substantial injury to the economy overall or to particular dealers, we believe, is a de minimis problem.

The CHAIRMAN. What would be the loss to the Treasury?

Secretary FOWLER. About $50 million additional gross revenue

loss.

The CHAIRMAN. The next question, what is the difference between the House passed bill and the administration's recommendations?

Secretary FOWLER. The principal difference, Mr. Chairman, has to do with the fact that, as Secretary Surrey has indicated, the House bill would provide the elimination of all 10 points of the current passenger automobile excise tax, whereas the President's program would have provided for only a reduction from 10 to 5 percent.

The House bill provides that as of succeeding years 1967, 1968, and 1969, the additional 5 percent, the remaining 5 percent I should say, excise tax on passenger cars that would exist after the President's program would be eliminated in a staged reduction process, one additional point going off January 1967 and two points going off, January 1, 1968, and 1969.

The CHAIRMAN. Have you an estimate of the loss of revenue?

Secretary FOWLER. Yes, sir. That would be approximately an additional billion dollars of gross revenue loss that would flow from the House bill.

The CHAIRMAN. I would like to ask this question, and I think the committee should have an answer before we act upon the bill. Does the administration want the bill as it is now before the Finance Committee?

Secretary FOWLER. The administration's distinct preference, Mr. Chairman, as Secretary Surrey's statement has indicated, is that the bill that we would like to see emerge is the bill in line with the President's program rather than the bill as approved by the House in this particular area.

There are other minor amendments in the House bill which Secretary Surrey has dealt with in his statement about which there is no substantial difference.

The CHAIRMAN. Would you indicate the differences between the recommendations of the President in the House bill and the bill that is now pending before this committee?

Secretary FOWLER. The principal difference is the one I have indicated. The House bill would eliminate completely by January 1, 1969, the passenger car excise tax. The President's program would retain 5 percent of that 10 percent effective indefinitely with the initial 5-percent reduction becoming effective with a 3-percent reduction on July 1, an additional 1 percent on January 1, and an additional 1 percent the following January 1.

There are other differences, Mr. Chairman. For example, some items are being transferred to the highway trust fund. One item in particular, the tax on lubricating oil, which the President recommended be eliminated, is being retained in the House bill to the extent that the oil is used in highway vehicles and the revenue dedicated to the highway trust fund.

The tax on truck parts, which the President would have left standing and thereby revenues from it flowing into the general fund-the House bill provides it be turned over to the highway trust fund. The total of those changes is approximately $70 million.

The CHAIRMAN. Well, substantially the administration still favors the original recommendations made by the President.

Secretary FoWLER. Yes, sir.

The CHAIRMAN. When the ultimate full-year effect of the bill is reached, how much will it be?

Secretary FOWLER. The bill as it passed the House, the full-vear effect, would be, as indicated in table 1 in my statement, $4.84 billion, nearly $5 billion.

The CHAIRMAN. That is the total.

Secretary FOWLER. That is going through January 1, 1969, when the final tax on passenger cars would be eliminated.

The CHAIRMAN. What is your opinion as to how much the bill will affect the Federal deficits for the fiscal years 1966, 1967, and 1968, until the reductions expire?

Secretary FOWLER. I think as to the fiscal year 1966, the net budget impact of the House bill and the President's program would be $1.8 billion. For the fiscal year 1967 the net budget impact of the House bill would be $2.2 billion and the President's program $2.1 billion.

We have not calculated-made any hard estimate, Mr. Chairman, for the effects for the fiscal years 1968 and 1969 but, under the House bill, there would be some additional impact on the budget in the neighborhood of around $400 million in 1968 and almost the full long-term reduction of $950 million in 1969.

The CHAIRMAN. Now the Federal budget has not been balanced since the fiscal year 1960; is that correct?

Secretary FoWLER. Yes, sir.

The CHAIRMAN. Your predecessor-and I speak with all due credit to him because I knew him very well-had a different estimate as to

when it would be balanced almost every time he appeared before the committee. When do you think the budget will be balanced again? Secretary FOWLER. Well, Mr. Chairman, I am not much given to forecasting in this particular area. I have watched many forecasters make predictions along this line and, it seems to me, the resulting variances between the forecasts and realities that have been achieved would indicate this is a fairly difficult art which I would not pretend to master. Therefore, I would have to respond to your question in this fashion: Provided the economy continues to expand on the trend line that it has followed in recent years, and assuming that the budget proposals, as they are made by the President and as Congress itself acts upon them, hold down any increase in expenditures in a substantial way in 1967 and 1968 so that the increased revenues accrue to the Treasury as a result of the increased expansion, I think it will be feasible to achieve a budget balance in the fiscal year 1967 or 1968-more likely 1968.

The CHAIRMAN. Of course, I take it that you will use all the efforts you can to balance the budget.

Secretary FOWLER. I certainly intend to do so.

The CHAIRMAN. How much has the Federal debt increased since 1960?

Secretary FowLER. Mr. Chairman, I do not recall exactly what it was in 1960. I have those figures readily available in another one of these black books but the current figure now, I think, for the debt as we stand here today is about $319 billion. I believe that is what the Treasury statement would show today. I do not have the 1960 figure to measure that again. Just 1 second, it is being handed to me here. The public debt at the end of the fiscal year 1960 was $286 billion.

The CHAIRMAN. In this bill the administration would reduce excise taxes and general fund revenue. In another bill before the committee the administration would increase social security, medical care taxes, and trust funds receipts. Taking these two bills together, what will be the ultimate effect on the workingman's tax bill?

Secretary FOWLER. I think that mathematically it would I have not been able to follow in detail what the current estimates are of the legislation before this committee, but assuming the same withdrawal of revenues, of income from the House bill, I believe it would be fair to say that the President's program on excise taxes and social security would mean that at the beginning of the calendar year 1966 there would be available to the taxpayer for private use approximately $1 billion, if the two-step excise tax amounting to about $3.5 billion becomes effective as of January 1. A net stimulus, as the economists would say, of about $1 billion.

The CHAIRMAN. In other words, speaking of 1966 alone and not of the other years but this is not the full effect, there is a net reduction in taxes as compared to the increase.

Secretary FOWLER. There is a net overall benefit to taxpayers after counting in the increased social security benefits.

The CHAIRMAN. Will you repeat again how much it will be for the year 1966?

Secretary FOWLER. The net effect of the tax changes and the additional benefits in the two programs is approximately $1 billion as I

understand it.

The CHAIRMAN. Just one more question, and it is not tied to this bill. You have placed tax receipts, excise tax receipts, in the highway trust fund.

Secretary FOWLER. Those excise tax receipts that are currently dedicated to the highway trust fund under the Highway Acts of 1956 and 1961 continue to be dedicated as they are under the existing legislation. The CHAIRMAN. It so happens I was one of the patrons of the highway trust fund many years ago and I think that is a very fair way to handle it because it comes from the gasoline tax.

Secretary FowLER. Yes, sir.

The CHAIRMAN. When a person uses the roads, he pays part of its costs. Would you give me some figures on that trust fund at this time? Secretary FOWLER. The figure of transfers to the highway trust fund under the provisions of the law that are now in effect-the act we referred to amounts to $3,759 million for estimated 1966 levels of income.

The CHAIRMAN. That is, distributed to the States?

Secretary FOWLER. That is correct, sir.

The CHAIRMAN. Thank you very much, Mr. Secretary.
Senator Long?

Secretary FOWLER. Thank you, Mr. Chairman.

Senator LONG. Mr. Secretary, I am not worried too much about this increase in the debt. We have been increasing the debt by about 2 percent a year for the last 5 years while have been increasing the income and the growth product of our people by about 5 percent. I am somewhat concerned about this problem: Are we going to be able to set up this Government on such a basis that one of these days we quit increas ing the debt or do we have to anticipate a gradual increase in the debt as the country grows, assuming we can keep the country prosperous? Secretary FOWLER. Well, I think that the keeping of the country prosperous does not, Senator Long, depend upon increasing the Federal debt. Increasing private debt and State and local debt and Federal debt as a totality of course does have some relationship to expanding the economy and purchasing power. But I don't think that the quantity of the increase in the Federal debt is a very material factor so that we need depend on it.

Therefore, I think that the Congress and the executive branch have an option when you have a balanced budget or a surplus of allocating the increased revenues that come out of an expanding economy either to debt retirement or to further tax reduction or to increase the Government expenditures and these are options which presumably, I would hope, we would be able to exercise some day. We are in essence exercising those options in one form by over the last 2 years, allocating the additional revenues that have resulted from the expansion between, largely between, tax reduction and reduction of the deficit in the administrative budget while holding expenditure levels fairly close. I think the average expenditure increase over the last 2 fiscal years has been about $1 billion, and so that is the policy we are following

now.

Should we reach a situation in which we had the economy expanding substantially and a balanced budget or surpluses, the handling of debt requirement-it can be handled in such a way that it is not deflationary can serve to make available in the private sector funds for