CHART 13

One factor in the proposed tax increase which should not be overlooked is the amount of tax savings which results from actions taken after 1963. These tax savings, which were over $8 billion in 1964, will rise to nearly $24 billion in 1969. Even after the increases passed in 1968 and assuming enactment of those proposed, the savings in 1969 would still come to over $12 billion. Thus, even with the proposed tax increase, American taxpayers are still far ahead of where they would have been were tax rates to have remained at pre-1964 levels.

TAX SAVINGS FROM ACTIONS TAKEN AFTER 1963
Taxpayers will continue to benefit from huge tax savings after
proposed and enacted tax increases*

$Bil.

$Bil.

Office of the Secretary of the Treasury

! Calendar Years

*Tax increases exclude amounts from continuation of excise tax rates.

CHART 14

The proposed continuation of the surcharge at 10 percent for the full calenda year 1969 would still leave individual taxpayers paying much less income ta than they did in 1963. For example, a married couple with two dependents a a wage and salary income of $7,500 would have a 1969 tax liability of $755 i stead of $877 at 1963 rates--a saving of $122. Savings at other income levels a shown in the chart.

CHART 15

The tax savings at 1969 proposed rates are relatively greatest at lower wage and salary levels, as shown in the chart. For example, at 1969 rates, a married couple with two dependents and wage and salary income of $3,000 would pay about 94 percent of their total 1963 tax liability. (There would be no increase in 1970 tax for a married couple whose tax at 1967 rates was $290 or less.)

TAX SAVINGS AS A PERCENT OF 1963 TAX:

AT 1969 PROPOSED RATES COMPARED WITH 1963 RATES Wage or Salary Income, Married Couple, Two Dependents

3,000 5,000 7,500 10,000 12,500 15,000 20,000 25,000 35,000
WAGE OR SALARY INCOME (DOLLARS THOUSANDS)

Secretary BARR. Chart 13 shows tax savings from actions taken after 1963. Charts 13, 14, and 15 indicate that although we are asking you to extend the surtax, still, if the 1963 rates had been allowed to run on through the total period the whole tax burden, including the surtax-that we are really better off today than we would have been under 1963 rates. The American people will have saved-if 1963 rates had gone on and you extend the surtax through 1970, the American people would have paid $12 billion fewer taxes because of the action we took in that 1964 tax reduction.

CHART 16

The liquidity deficit was between $1.3 billion and $1.4 billion in each of th years 1965 and 1966-only a third as large as the 1959-60 average.

In 1967, our attempts to restore balance in our international accounts receive a severe setback and the deficit rose sharply to $3.6 billion. The uncertaintie and unrest which accompanied the sterling devaluation in November 1967, accen tuated our problems. However, this deterioration also reflected the effects higher costs in Vietnam, heavy unilateral transfers, a disappointing trade su plus, and increased outlays by U.S. citizens traveling abroad.

In 1968, despite a strong upward surge of imports stimulated by domesti inflation, a strong rate of real GNP growth and various strike situations, th liquidity deficit disappeared and a small balance-of-payments surplus emerge The improvement, however, was not well balanced as among various account The trade surplus fell well below $1 billion and the tourist deficit continue at a high level. Also, some of the sharp improvement in the capital accounts wa the result of restraint programs which are not permanent features of our syster The overall results, however, are encouraging and have been reflected, in par in a net increase in our gold stock during the second half of last year.

U.S. BALANCE OF PAYMENTS ON "LIQUIDITY" BASIS
AND GOLD SALES

$Bil

Note: Includes sales for domestic industrial and artistic purposes. Also includes acquisitions from IMF of $300
million of gold in 1960 and $150 million in 1961 and a payment of $259 million of gold for quota
increases in 1965.

the Savary of the Yeary

Secretary BARR. On chart 16 we only carry the figures through 19 We have preliminary figures for 1968 which we hope are going stand up. The final figures won't be available until February but preliminary ones show that on both accounting methods, on liquidit this is the long-established method of accounting-we are in sur from $100 million up to $200 million-some place in that range

the first time since 1957, the year of the Suez crisis; 1957 was the only surplus in the decade of the fifties. So we have achieved for the first time in 18 years, with one exception, a surplus in this liquidity statement on our balance of payments.

Now, on the official settlements basis which is an accounting method that takes account only of the funds that are held by foreign central banks and monetary authorities, we have achieved a surplus of between $1.6 billion and $1.8 billion; this is a huge swing.

I want to warn you all, however, not to take too much comfort in these figures. It is not a question of their accuracy. They are prepared under the statistical accounting systems that have been in effect in this Government for many, many years. But let me tell you how we got to this surplus. I am delighted-I would much rather have this surplus than a deficit-but the way we got there is a bit disturbing. We didn't get there on a trade surplus. Our trade surplus was bad. Our trade surplus was under $1 billion. We got to this surplus because we had a huge inflow of funds into our stock markets, into our bond markets, and into deposits in our banking system. We got into surplus too because we had tight controls over the amounts banks could lend and corporations could invest overseas.

The interaction of these two forces gave us a surplus, plus two other things, one of which is rather intangible.

First. The Congress had the courage to pass a tax act last year-the Revenue and Expenditure Control Act of 1968. This was a symbol to everyone in the world that the United States could discipline itself. That started a big inflow of funds.

Second. The French Government got in difficulties, as you will remember, in May. This frightened the people in Europe.

Third. Russia invaded Czechoslovakia and this added to the general unease. Consequently, anyone with a nickel to invest decided they had better come to the United States. It resuited in a huge inflow of capital funds which gave us our first surplus, as I indicated, since 1957.

Mr. PASSMAN. Mr. Secretary, we are now borrowing money from some of the Far Eastern countries; for instance, Korea. I believe Korea has bought a substantial amount of U.S. securities. Would that be taken into account?

Secretary BARR. Yes, sir, that is correct.

Mr. PASSMAN. Thank you.

Secretary BARR. We have urged many governments to invest dollars they have obtained, particularly from our military expenditures abroad, in special nonmarketable securities that benefit our balance of payments. You are quite correct in that statement.

Chart 16 would go on the down side there and it would be $100 to $200 million.