ard a guess that there is going to be a taxpayer revolt over the income taxes in this country unless we move in this area.

Now, the revolt is not going to come from the poor. They do not pay very much in taxes. The revolt is going to come from the middle class. It is going to come from those people with incomes from $7,000 to $20,000 who pay every nickel of taxes at the going rate. They do not have the loopholes and the gimmicks to resort to, Mr. Chairman. However, when these people see, as I see, that in the year 1967, there were 155 tax returns in this country with incomes of over $200,000 a year and 21 returns with incomes of over a million dollars for the year on which the "taxpayers" paid the U.S. Government not 1 cent of income taxes, I think those people are going to say it is time to do something about it and I concur.

Now, we have tried for 8 years to reform the tax system and we have made some dent in the problem. May I encourage this committee to keep up the impetus that it has always had in this area of tax reform. We have a good tax system. Economically it works as a countercyclical force. It is working that way right now. When the economy starts running stronger than it should, the tax system soaks up excess demand and tends to cool off the economy. It is a magnificent system that is producing in the income tax area alone $132 billion in this fiscal year.

Mr. Chairman, and members of the committee, this is a voluntary system. It will not work unless people support it. Mr. Chairman, I do not believe the problem is the level of taxation. I believe rather it is the equity of taxation. People want to feel they are not paying more than their share and that everyone should pay a fair share. This does not happen when you are running a corporation and you look at the international oil companies and see they pay little or no taxes. They pay huge taxes including royalties to other governments but not to this Government, Mr. Chairman.

You look around and you see many people with huge advantages. Now, these are difficult to terminate. These special tax provisions are controversial subjects, Mr. Chairman, but I submit that if we are going to mantain this magnificent tax system with its advantages for revenues, and provide the revenues that Senator Javits mentions that he wants to use in the cities and the rest of you want to use for various purposes, it must be a fair system.

Senator JAVITS. Mr. Chairman, I have one question that is so pertinent that I beg leave of the Chair to ask it.

Chairman PATMAN. You may proceed, Senator.

Senator JAVITS. It is a fact that the surcharge bill included a requirement for the President to submit a report on tax reform by December 31, 1968.

Secretary BARR. Right, sir.

Senator JAVITS. It is also a fact that on December 31, the President announced with the concurrence of Chairmen Mills and Long, that he will not submit such a report although the Treasury's recommendations would be available to Congress in confidence on request. I was talked to in advance of the date, and asked whether I would consent to

its being submitted as a confidential document. I did not feel I was able to do that but I did not wish to embarrass the outgoing President and make him take responsibility for tax reform proposals which he could not carry on. I understood his desire, though I could not accord with it, and I have asked that at least the staff report be made public.

Now, is it a fact-and please do not answer, Mr. Secretary, unless you feel able to

Secretary BARR. I am prepared to answer that. I knew you were going to ask it and I have the answer.

Senator JAVITS. I do not want to embarass you but can you tell us if the report has been requested by members of the proper committees of the Congress which I understand is the President's willingness? Will then, the report be made available generally?

Secretary BARR. Senator, in the past week I have had about as much pressure from the Congress for this data as I have ever had in my life, including a request from the vice chairman of this committee. The pressure was so great that I called the chairman of the Ways and Means Committee, who is now chairman of the Joint Committee on Internal Revenue Taxation, and said that I did not like to leave public office turning down requests from Members of Congress for data that should be available to them.

He convened a meeting of the Joint Committee on Internal Revenue Taxation. Secretary-designate Kennedy accompanied me to this meeting and it was agreed at this meeting that when the Ways and Means Committee is organized next week, Ways and Means will transmit a request to Secretary-designate Kennedy for the information. They will then publish it as a committee print. Secretary-designate Kennedy and I both agreed to this proposal.

Senator JAVITS. Thank you very much, Mr. Secretary. This is most reassuring.

Chairman PATMAN. Very well then-after the three of you finish your statements we will then ask you questions.

Secretary BARR. Now, may I move ahead, Mr. Chairman, to another subject. Over the past 8 years I have had a growing concern that in the area of trade, the United States is disadvantaged in exports because of our tax system compared with the tax systems of other nations. I have been concerned because I felt that an export, let us say a Caterpillar tractor, leaves the United States carrying all the burden of our tax load when it moves into export trade, while the same item of equipment as it leaves Germany or France is exempted from a large share of the tax load that is imposed in those nations. U.S. products such as automobile, cigarettes and alcoholic beverages, on which the Federal Government levies excise taxes, are exempt from the excises if exported.

Now, I can only confess that the academicians have not agreed with me in many instances but I do believe that the events of last November-when Germany reduced its border tax adjustments and France increased its border tax adjustments for the purpose of reducing trade imbalances would tend to lend credence to what I have thought, and

I may add that Secretary Dillon and Secretary Fowler have shared the opinion that we had to do something in this area.

Now, may I suggest, sir, that I do not believe you need to go to a value added tax or some other form of a national sales tax to achieve this objective. I do not think you need to do that. I do think this committee should consider carefully in conjunction with other committees whether or not this Nation should impose border tax adjustments whereby, as our exports leave, there will be a payment to the exporter and as imports come in, there will be a tax. This would tend to equalize our tax system with the systems of other nations relative to exports and imports.

Now, let me warn you, I do believe such border taxes must be under strict international control or you will end up with a protectionist device. On the other hand, may I say to the committee as bluntly as I can, that I think we are at a disadvantage in exports because of the way the present international rules apply to different tax systems and this should be corrected, sir.

Thirdly, we now have nearly completed the special drawing rights facility which your committee, the committee on which you and Mr. Widnall sit, the Banking and Currency Committee considered and the House and Senate approved last year. Not enough countries have ratified the agreement yet to bring this facility into force. May I urge you, sir, and this committee, to keep up an unrelenting pressure on the powers that be, to try to get this special drawing rights facility ratified so the world has an opportunity to create the reserves that it needs to keep international trade and finance and exports moving. I think it is crucially important and I would hope that it would come into being soon.

Mr. Chairman, I also want to call to your attention the fact that the Congress has still not acted on the request for funds for the International Development Association. I have watched this arrangement since I was a member of Congress. I helped prepare the legislation that first created IDA. I have watched it for 8 years.

I think, Mr. Chairman, this is the way the American people want to move in assistance to developing nations. They want to share the burden with other industrial nations. I would urge the Congress to move as promptly as possible in this crucial area.

And lastly, Mr. Chairman, I want to submit for the analysis of this committee, and especially its staff, a study of tax expenditures which the Treasury has completed, presented in chart form, and called "Comparison of Budget Outlays and Tax Expenditures by Function," together with a supplementary statement entitled "Tax Expenditures: Government Expenditures Made Through the Income Tax System." Now, I have not had an opportunity to go into this deeply, but the Treasury staff in this report, concludes that through the tax system, not by appropriations, but through special provisions in the tax system, similar in effect to appropriations, we are now making available huge sums of money to various functional sectors of the budget. You have the chart here in front of you. If you want to pick it up I will leaf through it very quickly.

Now, this is done on a functional basis the way the budget is established. You will see that for national defense chart 1, there is a little benefit under the tax code. You would ask where does that come from? Well, it comes from the fact that certain housing and other allowances for military personnel are nontaxable.

International affairs and finance, chart 2-you will find an explanation on the cover side as I flip through these charts-you will find that the Congress is appropriating $3.7 billion, and there is about a half billion dollars, running through the tax code.

Now, part of that arises from the fact that you can live overseas and the first $20,000 or $25,000 of your income is exempt from taxation. The other is various forms of corporate exemptions built into the code. Agriculture and Agricultural Resources, which is chart 3. You will find that there are special provisions in the tax code that provide about a billion dollars in tax expenditures versus $5.2 billion in budgetary expenditures.

You will find under Natural Resources-chart 4 that the U.S. Government appropriates about $1.9 billion a year in the most recent years. The total that ran through the tax expenditure side was $1.7 billion.

In Commerce and Transportation-chart 5-you will find that the budget outlays which you voted are $9 billion. The tax expenditure item is $9.7 billion.

Community Development and Housing is chart 6. The budget outlays total about $2.8 billion a year, the tax expenditure item total $5.2 billion.

'Health and Welfare, chart 7. Budget outlays are about $55 billion a year; tax expenditures are roughly $19.5 billion.

For education and Manpower, chart 8, the budget outlays are $7.9 billion, tax expenditures are $900 million.

Veterans Benefits and Services-chart 9.-Budget outlays are about $7.8 billion, tax expenditures are $700 million.

The study adds two other headings to cover tax expenditures which do not fit under functional headings in the Federal Budget:

Aid to State and Local Government. Financing involves tax expenditures of $4.6 billion.

Capital Gains-Individual Income Tax have a tax expenditure cost in the range of $5.5 to $8.5 billion.

Mr. Chairman, let me alert the committee to the fact that this is a highly controversial study. It is based on carefully drawn assumptions by the Treasury staff. I submit this not as the last word, but a carefully done staff study to provide additional information which I think this committee should have available to it. You can examine and discuss it as you see fit.

Chairman PATMAN. Without objection, they will be placed in the record at this point.

(The documents referred to follow :)

1. Comparison of Budget Outlays and Tax Expenditures by Function.

2. Supplementary Statement-Tax Expenditures-Government Expenditures Made Through the Income Tax System.