Secretary KENNEDY. I should say definitely not. I think the general restraint program is now working. It seems to me at this point that setting wage and price controls would not be the right thing to do. Mr. FLOOD. Nothing further.

Mr. MAHON. Any further questions on my left?

Any questions on my right?

TAX REFORM ACT

Mr. CEDERBERG. I have just one question. In the recent tax reform bill that passed Congress last year, what was the revenue impact in fiscal 1970 and what will be the impact in 1971?

Secretary KENNEDY. At page 67 of the budget document there is a table which shows changes in revenue between the years 1970 and 1971. The total effect on fiscal 1970 revenue as a result of all of the changes in the Tax Reform Act of 1969 would be an increase of $3.8 billion. Two billion of that is the result of the extension of the surtax at the rate of 5 percent through June 30, 1970. The extension of the excise tax rates to December 1970, brings in $600 million. The repeal of the investment tax credit adds another $1.3 billion. The net effect of the reform provisions is a loss of $0.1 billion. Individual tax reforms will cost $400 million but corporation taxes will increase by $300 million. It all adds up to a plus of $3.8 billion plus for 1970. But for fiscal year 1971 the increase due to the Tax Reform Act provisions is $2.4 billion. Mr. CEDERBERG. Tax reform resulted in an increase in revenue for these 2 fiscal years.

Secretary KENNEDY. That is right, and it is nearly all due to the extension at 5 percent of the surcharge and the repeal of the investment tax credit.

Mr. CEDERBERG. And even with this increase in revenue you still will have this very precarious balance, if you want to call it a balance, in both of these fiscal years?

Secretary KENNEDY. That is true, sir. Largely the result, of course, of the rise in uncontrollable expenditures.

Mr. McFALL. Will the gentleman yield at that point?

Mr. CEDERBERG. Yes.

Mr. McFALL. I have heard the President say something about the Congress reducing his revenues by about $3 billion, but that doesn't square with what you just said now. Could you explain what the President means when he says we have reduced his revenues by $3 billion?

Secretary KENNEDY. He is going back to our original reccomendation of last April when the tax provisions were sent to the Congress and at that time we would have had $3 billion more than the figures came out with.

Mr. McFALL. In other words, it is $3 billion under what he would have recommended?

Secretary KENNEDY. What he did recommend.

Mr. McFALL. Not $3 billion from what revenues would have been had there been no change?

Secretary KENNEDY. That is correct.

Mr. CEDERBERG. In other words, if the tax reform package had been adopted, the revenue would have been greater in 1970 by $3 billion? Secretary KENNEDY. That is right.

TRUST FUND INVESTMENTS

Mr. MAHON. Are there further questions on my right?

Mr. RHODES. Mr. Secretary, how can you invest funds of the trust accounts-what investments are legal for such funds?

Secretary KENNEDY. It varies with the terms of the trust instrument and in many cases it is special issues to the trust funds directed from the Treasury. In other cases we can allocate marketable issues into the trust fund.

Mr. RHODES. Marketable issues

Secretary KENNEDY. Of the Treasury.

Mr. RHODES. Each instrument would have the backing and the full faith and credit of the U.S. Government, would it not?

Secretary KENNEDY. Precisely.

Mr. RHODES. Would you give us an outline of the return to the various trust funds for the various types of interest

Mr. MAHON. What are you paying the trust funds by way of interest?

Secretary KENNEDY. We would be glad to furnish it. It will vary with respect to each. The average I would guess would be 44 percent because they have these investments outstanding. The new marketable issues allocated in the last financing would be 8 percent issues. You have to balance out the total to get the amount.

Mr. MAYO. We could also indicate that the interest received by trust funds in the fiscal year 1970 is $3.8 billion. It is $4.3 billion estimated for next year.

Mr. MAHON. How much has the Government borrowed from the trust funds? You can supply that for the record.

(The information follows:)

The several statutes which established the major trust funds specified that they could be invested in direct obligations of the United States or obligations guaranteed as to principal and interest by the United States. In addition, the statutes of most Government agencies authorized to issue obligations which are not obligations of or guaranteed by the United States specify that those obligations shall be lawful investments for trust funds.

The rate of interest paid on special obligations issued to the major trust funds during February is, in most cases, 7% percent. In the case of the national service life insurance fund it is 7% percent, because the formula governing the rate paid to that fund includes a reduction of one-fourth percent to pay for a guaranteed floor. In the case of the unemployment insurance trust fund the rate is 5% percent because the formula governing the rate paid to that fund is based on an average of coupon rates on outstanding issues rather than on market yields on outstanding issues.

There follows a table showing the total holdings of the trust funds.

734s, 2/15/71.

79,948, 000

169, 000

8s, 5/15/71.

172, 863, 000

4,481, 000

168, 382, 000

BONDS-INVESTMENT
SERIES

See footnotes at end of table.