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June 1984 Incoming (2)
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June 1984 Incoming (2)
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Records of the White House Office of the Deputy Chief of Staff (Reagan Administration)
Michael K. Deaver's Correspondence Files
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I
The ind
The Ambassador of Morocco
and
I lest
May 31st
Mrs. Ali Bengelloun
Fla
Dear Mike
untergant 3mg 6/11
I World like to thank you very
much fn giving me you Time yeskray morning
I WE 20 bleased to tich to M Oglaly
and I certainly will be in touch with him
during you absence
I am at you disposal - but I would
Lithe to have the list you have beeu talking
about.
Please let the President know that
His Diapety King Hapan II will be bery
helpful in the subject we have been
talking about
Mary wishes for the mccan of your sizit
to Emote
Bm voyage
Ali
REMARKS:
TO: Michael K. Deaver
FROM: Bob DeProspero
Thanks for the info.
Bob
Bob
file
THE white house
washington
TO:
Bobby Dep
FROM:
MICHAEL K. DEAVER
Assistant to the President
Deputy Chief of Staff
X
Information
Action
138⑈ INVA 30 VII ID: ⑈0
n' 2' SECKEL SEBAICE
3D221260 ID
M.D.
THE POLICE COMMISSIONER
CITY OF BALTIMORE
MASCHIN PAROLE
CAD
April 23, 1984
Dear President Reagan:
We at the Baltimore Police Depart-
ment appreciate your very kind message
regarding your unscheduled visit to
Memorial Stadium on Monday, April 2,
1984.
Mr. President, we were honored,
indeed, when you decided to journey to
our city to attend the Orioles' opening
day ceremonies. And, we are so pleased
you enjoyed the visit.
Your comments will be communicated
to the force.
Sincerely,
Frank J. Battaglia
Commissioner
The President
The White House
Washington, D. C. 20500
Toward
better
government
TAX FOUNDATION, INCORPORATED
Founded
ONE THOMAS CIRCLE, N.W., WASHINGTON, D.C. 20005 (202) 822-9050
IIIIIII 1937
June 13, 1984
BOARD
TO:
Board of Trustees
OF TRUSTEES
JOHN W. HANES
FROM:
Robert C. Brown RCB
Honorary Chairman
W. BRUCE THOMAS
RE:
Schedule for Mid-Year Board Meeting - Revised
Chairman
FRED L. HARTLEY
Thursday, June 14
JOHN A. LOVE
HANS W. WANDERS
Drivers will have picked you up at the airport,
Vice Chairmen
taken you to your hotels and returned to take you to dinner.
THOMAS M. MACIOCE
Chairman
6:30 p.m.
Cocktails and Dinner
Executive Committee
1925 F Street Club
FRED J. LEARY, JR.
1925 F Street, N.W.
Treasurer
202/331-0020
ROBERT C. BROWN
President
Drivers will be available to return you to your
hotels.
EDWARD L. ADDISON
JACK F. BENNETT
ROLAND M. BIXLER
Friday, June 15
ROBERT J. BUCKLEY
VINCENT C. BURKE, JR.
8:00 a.m.
Breakfast/Board Meeting
JOHN C. BURTON
HARRY F. BYRD, JR.
Belle Air Room-Mezzanine Level
RICHARD M. CYERT
Vista Hotel
NORRIS DARRELL
1400 M Street, N.W.
ROBERT Di GIORGIO
JAMES H. EVANS
202/429-1700
CHARLES T. FISHER, III
ROBERT N. FLINT
GWAIN H. GILLESPIE
Because of the tight schedule, we will begin to
PRENTIS C. HALE
conduct our business during breakfast.
HENRY HARNISCHFEGER
JACK K. HORTON
COURTNEY F. JONES
9:15 a.m.
Breakfast ends. Walk through
JAMES L. KETELSEN
lobby of hotel to Tax
DUANE R. KULLBERG
Foundation offices
RICHARD G. LANDIS
WILLIAM A. LIFFERS
One Thomas Circle, Suite 500
JOHN PETERS MacCARTHY
for a brief tour.
WILLIAM McC. MARTIN, JR.
PAUL W. McCRACKEN
9:30 a.m.
Leave office for the White
PETER J. McLAUGHLIN
WALTER F. O'CONNELL
House in cars provided by the
MONFORD A. ORLOFF
Tax Foundation
CHARLES W. PARRY
JOHN G. PHILLIPS
JAMES Q. RIORDAN
10:00 a.m.
White House Briefing
WILLARD F. ROCKWELL, JR.
Roosevelt Room
RICHARD N. ROSETT
RAYMOND J. SAULNIER
ROBERT D. STUART, JR.
11:30 a.m.
Briefing ends. Return to
GEORGE G. TYLER
Vista Hotel.
HAYS T. WATKINS
GEORGE H. WEYERHAEUSER
MARK H. WILLES
11:45 a.m.
Cocktails and luncheon
L. STANTON WILLIAMS
Belle Air Room-Mezzanine Level
TRUSTEES ON LEAVE
Vista Hotel
ARTHUR F. BURNS
SAMUEL RILEY PIERCE, JR.
W. ALLEN WALLIS
12:45 p.m.
Staff presentations
1:45 p.m.
Luncheon adjourns
Drivers will be available to take you to
airport/other locations.
United States
Information
Agency
pili
Office of the Director
Washington, D.C. 20547
June 13, 1984
USIA
MEMORANDUM FOR:
The Honorable
Michael K. Deaver
Deputy Chief of Staff and
Assistant to the President
The White House
FROM:
Charles Z. Wick
Director
SUBJECT:
"Soviet Propaganda Alert No. 20"
Attached is the twentieth issue of the "Soviet Propaganda Alert"
produced by our Office of Research.
Between March 1 and April 30, the Soviet Union:
renewed (after a brief pause subsequent to the death of
Iurii Andropov) its derisive criticism of the Reagan Admin-
istration and its harsh denunciations of US foreign policy.
denied any long-term significance to President Reagan's
trip to China, derided the President's "electioneering,"
and condemned the US attempt to draw China into a "Pacific
strategy" against the Soviet Union.
issued a long litany of grievances prior to withdrawing
from the Olympic Games in Los Angeles, complaining of US
Government "interference" in the games and "threats" to the
safety of Soviet athletes.
rejected new US proposals for a chemical weapons ban,
calling them a new US "propaganda trick."
denounced new US proposals made at the Mutual and Balanced
Force Reduction talks in Vienna as "deliberately
unacceptable."
condemned the mining of Nicaraguan ports as an "act of
state terrorism."
portrayed US policy in Southern Africa as doomed to failure
as long as the "terrorist regime in South Africa" exists.
Attachment:
"Soviet Propaganda Alert No. 20"
Soviet Propaganda Alert
No. 20
May 16, 1984
Summary
In March and April, Soviet external propaganda stressed the
following themes:
Chernenko's Propaganda. Under new General Secretary
See p. 1
Konstantin Chernenko, continuity was the rule in Soviet
propaganda. After a brief period during which criticism
of the United States was restrained, standard themes and
approaches predominated, notably: derisive criticism of
the Reagan administration, harsh denunciations of US
foreign policy, and an emphasis on military and arms
control issues.
President Reagan's Trip to China. Soviet propagandists
See p. 3
criticized the President's "electioneering" and the US
attempt to draw China into its "Pacific strategy" against
the Soviet Union. They also denied any long-term
significance to the trip, playing down the agreements
reached while the President was in Beijing.
Olympic Games. Although the Soviet decision to pull
See p. 4
out of the Los Angeles Olympics surprised many in the
West, Soviet propagandists in March and April had issued
a long litany of grievances concerning the preparations
undertaken for the games. Among their complaints were
"concern" for the safety of Soviet athletes and US
government "interference" in the games.
Chemical Weapons. The Soviet Union rejected new US
See p. 6
proposals for a chemical weapons ban, depicting them as a
new US "propaganda trick."
MBFR Talks. The Soviet Union also denounced new US
See p. 7
proposals made at the Mutual and Balanced Force Reduction
negotiations in Vienna, describing those proposals as
"deliberately unacceptable."
Central America. Soviet propagandists condemned the
See p. 8
mining of Nicaraguan ports as an "act of state terrorism"
and described the recent Salvadoran elections as a
"farce."
Southern Africa. Soviet propagandists portrayed US
See p. 9
policy in southern Africa as a "futile" attempt to
reverse history and belittled the significance of the
agreements signed by South Africa with Angola and
Mozambique.
Office of Research
United States Information Agency
Washington, D.C.
CHERNENKO'S PROPAGANDA
In March and April, Soviet propaganda reverted to recent form.
For a brief period after the death of Iurii Andropov in early
February, it had restrained its criticism of US policy and the
Reagan administration. Within a few weeks, however, it
returned to the "ideological struggle" with its previous
rhetorical fervor. Under Konstantin Chernenko, at least thus
far, Soviet propaganda has been much the same as it was under
Iurii Andropov, in terms of both style and substance.
Soviet propaganda themes in March and April, therefore, were
generally similar to those of recent months, particularly in a
number of key respects:
1. Soviet propagandists continued to subject President Reagan
and members of his administration to derisive personal
attacks. Perhaps the most noxious was the Soviet comparison of
the Reagan administration to the leaders of Nazi Germany:
The huge military machine of the United States prepares to
repeat what was done by Hitler and his Wehrmacht. Only the
scope of this preparation is immeasurably greater.
Like the leaders of Nazi Germany in their time, the White
House leaders nowadays accompany preparations Psychological for war by
stirring up hatred for the Soviet Union
preparation of the population of the Western countries for
confrontation is almost completed. (Anatolii Krasikov, TASS
International Service in Russian, April 4)
2. Soviet propaganda continued to condemn US foreign policy in
harsh terms. Soviet Foreign Minister Andrei Gromyko repeatedly
blamed the "sharply aggravated" international situation on the
"adventurist policy" of the United States: "Using ostentatious
peaceableness and election rhetoric as a smokescreen," he
charged, the United States and others "count on crude force,
build up the arms race, keep international conflicts
smoldering, and kindle new ones" (Pravda, April 2).
In particular, the Reagan administration was again accused of
pursuing a policy of "state terrorism" --a charge resurrected by
Chernenko on March 29 at a state dinner for visiting Ethiopian
leader Mengistu. In response to the Presidential speech of
April 6 at Georgetown University's Center for Strategic and
International Studies in Washington, Soviet propagandists
charged that what the Reagan administration really wanted was
to subject troublesome Third World countries to a policy of
military tyranny--to "terrorism elevated to the rank of state
policy."
- 2 -
Though the United States officially opposes terrorism, it was
asserted, what US statesmen really mean by terrorism "is not so
much individual terror-the kind that the CIA engages in so
intensively, by the way--as much as the national liberation
movements and anyone at all who challenges the dominance of the
transcontinental monopolies" (Izvestiia, April 11).
3. As before, Soviet propaganda concentrated heavily on
military and arms control issues. "Deeds, not words," was the
favorite Soviet catch phrase. But the general approach was
well-worn and all too familiar, even in moments of rhetorical
moderation:
The Soviet Union wants only peace and arms reduction, not an
arms buildup. But it will do everything necessary to ensure
equal security for itself and its allies. (Konstantin
Chernenko, reported in TASS, March 2)
The United States wants military superiority and has entered
into arms negotiations only in order to camouflage the arms
race and its "cold war" policy. (Chernenko, in TASS, March
2)
The Soviet Union refuses to play the US game, particularly
since the United States has begun to deploy INF weapons in
Western Europe. The US action has created "obstacles" to
both the INF and START negotiations, and the USSR will not
resume these negotiations until the newly deployed missiles
are removed. (Chernenko, in TASS, March 2; and Prime
Minister Nikolai Tikhonov, in Pravda, April 15)
If the United States really has good intentions, why did it
not accept the proposal for a mutual freeze on US and Soviet
weapons? Why does it not ratify the treaties with the USSR,
signed nearly ten years ago, on limiting underground nuclear
weapons tests and on the peaceful purposes of nuclear
explosions? (Chernenko, in TASS, March 2)
Apart from standard themes, however, Soviet propaganda
responded to developing events. Within the framework of the
general Soviet propaganda line, Soviet spokesmen and
commentators in March and April dealt with a number of new
issues not treated at great length before--notably President
Reagan's trip to China, the Los Angeles Olympic Games, a new US
proposal for a ban on chemical weapons, a new US proposal at
the Mutual and Balanced Force Reduction talks (Vienna), the
mining of Nicaraguan ports and the Salvadoran elections, and
the recent US diplomatic demarche in southern Africa.
- 3 -
PRESIDENT REAGAN'S TRIP TO CHINA
Soviet media coverage of President Reagan's trip to China
concentrated on the US side, whose intentions, actions, and
pronouncements were treated in detail. As the trip wore on,
Soviet coverage of the Chinese side was increasingly more
subdued and less sweeping in its judgments.
Soviet propaganda explained the trip as a necessity of the US
presidential race. President Reagan was actually campaigning
in Beijing, according to Soviet news reports; his trip to the
Great Wall, for example, was "purely a matter of domestic
politics":
He had to drive about 80 miles to the wall and back just to
spend 20 minutes on it posing for correspondents to take
pictures. He was filmed not only by the press but also by a
film crew of the Republican Party, who had followed Reagan
throughout his visit, shooting material for his reelection
TV advertisements. (TASS in English, April 30)
Other Soviet commentaries added that "after four years of
politics based on force, hatred, fostering constant enmity to
the
socialist
countries
Reagan
hopes
to
win
over
part
of
the American electorate by posing before them as an 'open' and
'peaceful' President" (TASS, April 26).
A second theme in Soviet coverage was that the Reagan trip had
an anti-Soviet thrust. Specifically, Soviet spokemen accused
the United States of attempting to involve China more closely
with the US-Japan-South Korea "military triangle," and to
develop active political and military cooperation with China
(Izvestiia, April 21). Before Reagan's arrival in Beijing on
April 26, Soviet commentators mentioned that the United States
might conclude contracts to supply China with advanced weapons
(TASS in English, April 20). And in a Mandarin-language
broadcast to China, one Soviet "observer" cited the "covert" US
objective of weakening "China's vigilance against stationing
American troops in China's coastal areas" (April 24).
A third propaganda theme was given less play--the US attempt
"to penetrate the Chinese economy." Through such means as
investments and the sale of arms production technologies,
Soviet commentators claimed, the United States was trying
"achieve positions of maximum dominance in China's economy, and
so raise the issue of creating the best conditions for US
investments, making them tax-free and providing privileged
treatment for mixed US-Chinese and US enterprises" (Izvestiia,
April 21).
- 4 -
Soviet propaganda was generally low-key about the results of
the trip. According to MOSCOW Radio, "It's too early to draw
conclusions on President Reagan's journey to China; when the
dust stirred up by the American media settles down after the
trip, we'll see that the actual results are much tamer than the
noise made over the President's trip to Beijing" (Moscow Radio
in English, April 28)."
Accordingly, the Soviet media played down, at least while
President Reagan was still in Beijing, the agreements concluded
by the United States and China. The US-PRC nuclear energy
agreement, for example, was reported matter-of-factly, and
without much commentary, as an agreement "on cooperation in
nuclear-power engineering, envisioning US technology supplies
to meet the needs of the Chinese nuclear power industry" (TASS
in English, April 30).
In the same vein, the Soviet media also stressed the enduring
differences between the United States and China. Foremost
among them was Taiwan--"potentially a serious source of
complications in US-Chinese relations" (TASS in English, April
30).
A counterpoint to coverage of the US side was a continual
Soviet media refrain extolling friendly soviet-Chinese ties.
The Reagan trip thus shared the stage with accounts of, among
others, a visiting Chinese coal-mining delegation in Moscow
(Moscow Radio in Mandarin, April 13), an optimistic assessment
of soviet-Chinese trade relations (Radio Peace and Progress in
Mandarin, April 18), a gymnastics competition in Beijing in
which a Soviet team lost to the Chinese gymnasts (TASS in
English, April 22), and USSR-PRC friendship society groups on
tour in China (Izvestiia, April 27).
OLYMPIC GAMES
Soviet propaganda in March and April kept up a steady barrage
of criticism of preparations undertaken for the LOS Angeles
summer Olympics, in advance of the Soviet Union's announcement
on May 8 that it would withdraw from the games.
This criticism centered on several themes:
O Security for Soviet athletes. Will Soviet athletes and
citizens be safe? A statement by the Soviet Olympic
Committee professed alarm that "preparations for political
demonstrations and rallies during the Olympics are under way
and that banners and placards hostile to socialist countries
have already been put up." (TASS, April 9)
- 5 -
Soviet spokesmen expressed particular concern over such
groups as "Ban the Soviets." According to the Soviet media,
leaders of "Ban the Soviets" boasted that they had
"infiltrated" the Los Angeles Olympic Committee and "would
have access to athletes and guests" for the purpose of
encouraging defections from the Soviet team. (Moscow Radio
in English, April 25).
O Identity documents. Soviet spokesmen charged that in
violation of Rule 59 of the Olympic Charter, the US State
Department was requiring visas for all members of the Soviet
Olympic delegation and was prepared to deny entry to those
it considered unsuitable. (TASS, April 9)
Specifically, they condemned the US denial of a visa to Oleg
Erimyshkin, the Olympic attache (described by Western
sources as a KGB agent) proposed by the Soviet Olympic
Committee.
O Radio Free Europe accreditation. The Soviet Olympic
Committee objected strenuously to accreditation of the press
representatives of Radio Free Europe. "As is known," the
committee stated, Radio Free Europe is "maintained at the
expense of the US special services and
conducts subversive
activity against the peoples of the socialist countries in
direct violation of Rule 51 of the Olympic Charter" (TASS,
April 9).
o "Commercialization." The Soviet Olympic Committee censured
the "unrestrained commercialization" of the Olympic games.
"Profit grabbing has taken on some very ugly forms," it
charged, and "things have gone so far that there is a gross
violation of Rule 62 of the Olympic Charter, which bans the
use of the Olympic flame for commercial aims." TASS
complained bitterly that "the head of the motorcycle gang
'Hells Angels' has been granted the right to an 'Olympic
kilometer. (April 23)
Furthermore, the committee complained, "the increase in
prices in Los Angeles is not being controlled; vast sums
will be raised here for many services that are traditionally
free." (TASS International Service in Russian, April 9)
O "Sin City." Soviet propagandists as usual inveighed against
crime, smog, traffic jams, and poor public transportation in
Los Angeles. The most salacious charge, however, was that
the city was awash in "sexploitation" of the Olympic games.
- 6 -
Olympic games, billed as the first "private games" in
The explanation? According to Izvestiia, the Los Angeles
history, quickly fell prey to the capitalist system.
Deprived of financial assistance from public agencies, the
business," which opened the door to such abuses (A.
Los Angeles Olympic Organizing Committee had to turn to "big
Palladin, Izvestiia, April 3).
The implicit threat in such criticism was that the Soviet Union
might not participate in the games. Marat Gramov, head of the
Soviet Olympic Committee, publicly threatened on April 16 that
the Soviet Union might not send a team to Los Angeles. At the
time, however, he also stated that the Soviet Union had no
intention of "boycotting" the games (presumably because a
"boycott" might entail sanctions by the International Olympic
Committee). At the time Soviet spokesmen promised that the
Soviet Union would announce its decision in late May.
As an afterword: the Western press reported on April 30 that
"alternative Olympic games in Sofia [Bulgaria] are evidently
being planned in case of a boycott of the Olympic summer
games
Complete blueprints for such an event allegedly
already exist in Moscow" (Vienna ORF Teletext, April 30).
CHEMICAL WEAPONS
The Soviet Union reacted in a strongly negative fashion to US
proposals for a new draft treaty banning the production,
possession, and use of chemical weapons worldwide.
The Soviet media called the proposals "nothing short of a
propaganda trick," when President Reagan announced the new
initiative at a press conference on April 4:
"The White House will use it to camouflage and justify a
program for the rapid buildup of its chemical arms arsenal,"
it was charged, and the Reagan administration "is actually
going to block any agreement in this field by making
patently unacceptable conditions for 'verification' and
enforcement. (Pravda, April 6)
Soviet propagandists repeated the same charges after Vice
President George Bush formally presented the US proposal to the
UN Committee on Disarmament in Geneva on April 18. Pravda
called the US proposal "deliberately unacceptable,' for in the
socialist countries it would open "every factory, even one that
produces shoe polish," to inspection, while in the capitalist
countries, the "huge chemical corporations could produce
- 7 -
whatever they like, including chemical weapons, quite
uncontrollably because they are private property." The real US
aim in presenting such proposals, it charged, is to accelerate
preparations for "chemical rearmament" (April 21).
More generally, Soviet spokesmen expressed strong skepticism
about whether the United States can be trusted to keep its
promises. According to Viktor Israelian, the Soviet delegate
to the Geneva disarmament conference:
It is known that international confidence has recently been
considerably undermined as a result of attempts of the
United States to obtain unilateral military advantages to
the detriment of the other side--the Soviet Union--spreading
various kinds of doctrines and concepts substantiating the
possibility of victory in nuclear war and the first use of
nuclear weapons to this end.
It should be mentioned that the Soviet Union continued to
reject all charges that it has employed chemical and biological
weapons in Afghanistan, Southeast Asia, and elsewhere. It also
denied that Soviet military experts aided the Iraqi use of
chemical weapons against Iran: according to a Moscow Radio
broadcast to Iran, "it is truly difficult to think that there
can be lies more absurd than these concoctions and fantasies.
Everyone knows that from the very first days of the war between
Iran and Iraq, the Soviet Union has believed that the
differences between the two neighbors should be solved solely
through peaceful means" (March 13).
MBFR TALKS
The Soviet Union also belittled new Western proposals made at
the Mutual and Balanced Force Reductions (MBFR) negotiations in
Vienna.
As the MBFR talks resumed in mid-March, Soviet observers
reiterated the socialist countries' proposals, describing them
as a "simple and practical approach" to solution of the
problems. Therefore, it was claimed, "the ball is now in the
Western court" (Moscow Domestic Service, March 15).
When the new Western initiative was formally presented on April
19, the Soviet MBFR representative promised to study them
carefully. However, Soviet press commentators left little
doubt that the Soviet side found them unacceptable, claiming
that "in the present Western proposals one can find no hint of
a serious attempt to untie the knots of differing views held by
the sides at the talks" (Pravda, April 21).
- 8 -
Specifically, it was claimed that:
The Western proposals do not resolve the data disputes [over
the current level of conventional forces in Europe] but
revive them: "even a cursory examination shows that the
West continues to maintain the artificially created
numerical impasse with the aim of justifying its claims for
asymmetrical reductions of the Armed Forces of the Warsaw
Pact and NATO, banking on obtaining unilateral military
advantages for itself." (Pravda, April 21)
The verification measures proposed by the West, exaggerated
even before the new initiative, have been broadened.
(Pravda, April 21)
"All the questions currently dividing the two sides at the
Vienna talks," Soviet propagandists asserted, "lend themselves
to mutually acceptable resolution. The basis for such a
resolution is provided by the package of proposals put forward
by the Warsaw pact states in 1983. These proposals retain
their topicality in full to this day" (Pravda, April 21).
CENTRAL AMERICA
In March and April, Soviet propaganda continued to replay
standard themes on Central America. None were substantially
different from what had been said before. Most, however, were
repeated more noisomely than previously.
Soviet propagandists denied any important Soviet or Cuban
role in the region: "the sundry fabrications of US
propaganda that the situation
is
the
handiwork
of
'subversive elements linked with Moscow and Havana' are
simply slander and lies." (Izvestiia, March 16)
They maintained that the causes of the crisis in Central
America are "the profound social injustice existing in these
countries, the domination and despotism of the transnational
corporations in their economies, and discriminatory US
policy." (Izvestiia, March 16)
They continued to charge that the United States supports
counterrevolution in the region and is preparing to
intervene in force if necessary: "The US Empire has staked
its claim to neocolonialist rule in this part of the
world
Today, after the treacherous aggression in
Grenada, US internationalist activity is spearheaded against
Nicaragua. The attack on the Nicaraguan revolution is being
conducted under the flag of 'defending democracy and
pluralism. (Izvestiia, March 16)
- 9 -
The mining of Nicaraguan ports provided the occasion for a
great deal of Soviet handwringing. Soviet propagandists
claimed that the US actions amounted to "official Washington's
new act of state terrorism
Both Nicaraguans and the crews
of foreign ships have already become victims of terror"
(Pravda, April 14).
The "height" of US "hypocrisy" in the affair, according to
Soviet commentaries, came with the appearance of Deputy
Secretary of State Kenneth Dam before the House Foreign Affairs
Committee: "This diplomat went so far as to try to justify the
mining of Nicaraguan ports as 'necessary measures of
collective security.' And he even asserted that this does not
run counter to the UN and OAS charters" (Pravda, April 14).
"Caught red-handed," Soviet commentaries continued, "the White
House has been forced to take "evasive action." But that does
not mean the threat to Nicaragua is over: "The Pentagon has
already drafted plans for direct US military interference in
Central America, including a direct invasion of Nicaragua"
(Pravda, April 14).
Another occasion for Soviet propaganda clamor was the election
campaign in El Salvador. Before the first round of the
elections, one Soviet "observer" " noted "the predictable outcome
of the election farce" and argued that "the Reagan
administration intends to use it as a confirmation that
democracy has triumphed in El Salvador" in order to extract
more money from Congress (World Service in English, March 12).
Another Soviet commentator, however, claimed that "the training
of 2,000 American Marines for an invasion of El Salvador is
under way," because Washington fears a "fresh offensive by the
patriotic forces," which will lead to a complete breakdown of
the elections (Moscow Television, March 12).
Subsequent to the initial election round, Soviet propagandists
again proclaimed the elections a "predictable farce." The
United States had had full control of the voting process, it
was claimed, and got a substantial lead for the candidate it
wanted--Jose Napoleon Duarte. Duarte, it was asserted,
"appears more decent than the other favorite, the open murderer
D'Aubuisson, and should be more pleasing to congressmen who
commit the sin of liberalism" (Moscow Domestic Service, March
28).
SOUTHERN AFRICA
In reponse to the recent US diplomatic offensive in southern
Africa, Soviet propagandists sought to accentuate the
positive- what little of it could be found, at least, in what
- 10 -
most Western observers called a major setback for Soviet
foreign policy.
The Soviet media said little about South Africa's cease-fire
agreements with Angola (February 28) and Mozambique (March
16). Soviet commentator Aleksandr Bovin lamely claimed that
the agreements represented a defeat for South Africa's policy
of military force; from the point of view of Angola and
Mozambique, he said, "the chief gain is the opportunity to get
on with their internal affairs in peace, first and foremost
with their economies" (Moscow Television, March 18).
Even less was said about the South West African People's
Organization (SWAPO) and the African National Congress (ANC),
both of which lost territorial bases and support as a result of
the agreements. The positions of SWAPO and ANC, Bovin
acknowledged, "become more complicated. They are to a large
extent deprived of their rear" (Moscow Television, March 18).
However, Soviet spokemen severely criticized US and South
African policy, which they called "immoral and dangerous":
"Acting in unison with South Africa, US ruling circles are
implementing a kind of 'division of labor' with their
'historical ally.' Whereas Pretoria uses crude force and
the mailed fist against the front-line African countries,
Washington acts as a 'peacemaker' promising mountains of
gold to those who 'put themselves in the difficult position'
of their racist neighbor." (Pravda, March 5)
But US policy in southern Africa, according to Pravda, will
prove futile. The African peoples are well aware, it was
claimed, that "the main source of tension" in southern Africa
is "the very existence of the terrorist regime in South
Africa." There will be no "lasting peace" in the region,
therefore, until the "racist system" is eliminated (Pravda,
March 5).
In such conditions, Soviet propagandists suggested hopefully,
the African front-line states will ultimately reject US efforts
to play the "honest broker" in southern Africa--which amount to
no more than calling on them "to come to terms 'temporarily'
with the system of racist terror and oppression in South Africa
for the sake of 'peace and stability."
SELECTED BIBLIOGRAPHY
Listed below are representative Soviet press and TASS items on
themes discussed in this report. Translations or summaries of
virtually all appeared in the FBIS Daily Report (Soviet Union)
in March and April.
CHERNENKO'S PROPAGANDA
Election Speech of Konstantin Chernenko to Constituents in
Moscow's Kuibyshev District, summarized in TASS in English,
March 2.
"soviet-Indonesian Talks," Pravda, April 2 (luncheon remarks by
Foreign Minister Andrei Gromyko).
Book Review of Soviet-US Relations During the Great Patriotic
War of 1941-45, by TASS political news analyst Anatolii
Krasikov, TASS International Service in Russian, April 9.
"Ostentation and Reality in the US Code of State Terrorism," by
political observer Vladimir Kudriavtsev, Izvestiia, April 11.
PRESIDENT REAGAN'S TRIP TO CHINA
"Regarding the US President's Trip to Beijing," Izvestiia,
April 21.
"Reply to Readers' Letters: The Island of Taiwan," " by V.
Ganshin, Izvestiia, April 27.
"Reagan: From Positions of Confrontation," TASS International
Service in Russian, April 29.
"Reagan's Trip to China," Pravda, April 29.
OLYMPIC GAMES
"Sin City," by A. Palladin, Izvestiia, April 3.
Statement of the National Olympic Committee of the USSR, TASS
International Service in Russian, April 9.
CHEMICAL WEAPONS
"Performance Flopped: Washington Gambles on Chemical
Weapons," Pravda, April 20.
"Advertisement and Reality," Pravda, April 22.
MBFR TALKS
"International Diary" program, presented by Evgenii Kachanov,
MOSCOW Domestic Service in Russian, March 15.
"Commentator's Column: The Latest Trick," by Boris Orekhov, in
Pravda, April 21.
CENTRAL AMERICA
"Hopes and Fears of the Seething Continent," by Viktor
Vol skii, Izvestiia, March 16.
"International Diary" program, presented by Viktor sobolev,
MOSCOW Domestic Service, March 28.
"Apart from Everything Else," by A. Tolkunov, Pravda, April 14.
SOUTHERN AFRICA
"What IS the Meaning of the US Maneuvers in Africa," by A.
Patin, Pravda, March 5.
"International Panorama" program, presented by Aleksandr Bovin,
March 18.
EMBASSY OF THE UNITED STATES OF AMERICA
LONDON, ENGLAND
CHARLES H. PRICE II
June 13, 1984
AMBASSADOR
William F. Sittmann, Esquire,
Special Assistant to the President
and Special Assistant to the
Deputy Chief of Staff,
The White House
Washington, D.C. 20500
Dear Bill:
I just wanted to thank you for the many courtesies
which you accorded Carol and me, and most especially to
express our deep appreciation for being granted the
privilege of our trip out to Normandy for the 40th
celebration of D-DAY. We will always retain this OC-
casion among our most treasured memories.
I trust you and Mike have recovered from our mara-
thon tennis competition and that during my next visit
to Washington I will once again be allowed the oppor-
tunity to savor the joy of victory.
Incidentally, if you have a tape of the President's
speech at the ceremony at Omaha Beach I would greatly
appreciate having one. Carol talked to Mrs. Reagan
yesterday who indicated that she had just viewed a video
tape of about three hours duration of their entire trip.
Is it possible to obtain a duplicate of this?
Please accept my warm personal regards, and again
my thanks for making it possible for Carol and me to
participate in such a memorable journey.
Sincerely,
Charler
Office of the Director
United States
Information
Agency
Washington, D.C. 20547
Lie
USIA
June 14, 1984
Dear Mike:
With the enclosed, I am pleased to be able to share
with you a final compilation of information on the
usage resulting from WORLDNET's commemoration of
NATO's 35th Anniversary.
Best regards.
Sincerely,
Trabe
Charles Z. Wick
Director
The Honorable
Michael K. Deaver
Deputy Chief of Staff and
Assistant to the President
The White House
SIGNIFICANT REACTION
TO WORLDNET NATO SPECIAL PROGRAM
MAY 24, 1984
BELGIUM:
RTBF carried a three minute special summary of the program on
its prime time evening newscast (3 million), including Secretary
Shultz' reply to a question of fair burden sharing.
Le Soir (215,000) carried an article and Belga National News
Agency summarized Secretary Shultz' views as well as those of
Mr. Tindemans.
A frontpage story under the heading "Belgium Remains Prepared to
Deploy Missiles" in the Catholic Gazet Van Antwerpen (194,000)
said that Foreign Minister Tindemans by emphasizing that Belgium
will honor its commitments "wiped away all doubts about the
installation or non-installation of the 48 cruise missiles on
Belgian soil."
De Morgen (54,000) carried the following item on the program:
"Minister Tindemans told BRT radio yesterday that he judged from
the Reagan remarks that foreign problems are increasingly 'a
specialist's job'. In the same radio interview the Minister
cited his wife as a 'witness beyond suspicion' to state that
Reagan may have made a mere slip of the tongue. Tindemans
yesterday was one of the stars of the interational 'talk show'
which was broadcast from the RTBF studios. Also participating
were, among others, NATO Commander Rogers, U.S. Assistant
Secretary of Defense Richard Perle and Le Monde editor Andre
Fontaine, while via satellite Tindemans' American colleague
Shultz also spoke. Tindemans said: 'Belgium will honor its
NATO commitments -- but continues to evaluate the evolution of
the situation. It is important to make public opinion realize
-2-
how much Europe is directly involved in NATO decisions and that
the European countries themselves are the ones who asked
Washington to deploy the Euromissiles.'
CANADA:
Embassy Ottawa reports that the audiences in both Ottawa and
Montreal were effusive in their praise of the program. Turnout
at Ambassador Robinson's residence was heavy with NATO
Ambassadors, military attaches, Canadian press and government.
In Montreal, one member of the audience of press and NATO
Consular representatives stated: "how wonderful it is to sit in
Canada and finally hear some good European views."
Global TV fashioned a major news item out of the event for May
24 early and late evening newscasts repeated in May 25 noon news
show. While it emphasized the local angle of the Trudeau "Peace
Initiative" it also repeated at some length Secretary Shultz'
response to the six-nation nuclear freeze proposal explaining
the danger of leaving all deployments to one side.
DENMARK:
Copenhagen reports that their first participation in WORLDNET
was a highly successful experience appreciated by all who
attended. Print media coverage was substantial and upbeat, and
Danish T.V. used over three minutes in its prime time evening
newscast on May 24, carrying its correspondent's question to
Secretary of State Shultz as well as as a question from the
Hague on INF. TV correspondent Karin-Lis Svarre described the
Secretary as "friendly and diplomatic."
Berlingske Tidende (conservative) reported: "Questions and
answers were issued at the first major trans-atlantic press
conference and security policy dialogue via TV and satellite
taking place between Western Europe and North America, an
unusual media event on the occasion of NATO's 35th anniversary
and an example of the democratic openess which characterizes
Western defense cooperation. [Shultz] stated that 'NATO is
strong and our best guarantee for peace.' This was the
prevailing theme of the lengthy dialogue between the many
capitals "
Under a story in Information (leftist) headlined "New Era with
TV Communication Brings Washington Nearer," correspondent Jorgen
Dragsdahl says: "From studios in the American embassy
-3-
journalists had the possibility to raise direct questions to top
members of the Reagan administration
Danish journalists have
not been included in previous telecasts but the 35th anniversary
of NATO allowed the circle to be extended to include 14
countries
After drawing straws the invited press were allowed
to address questions to the color TV monitor
The American
embassy has great expectations for regular meetings via
satellite which also can include others besides the media. For
example, European and American artists can meet and exchange
viewpoints
A new era has begun."
Conservative Jyllands-Posten's Nils Thostrup wrote: "The U.S.
government has begun utilizing satellite technology in order to
be able to include its partners in the NATO alliance in quick
debates on mutual problems
Thursday the American embassy in
Denmark was linked up on this network on the occasion of NATO's
35th anniversary
"
Social Democratic Aktuelt's foreign affairs editor stated:
"NATO is alive and well. Despite minor problems things are
going pretty well. This is what TV viewers were told yesterday
by U.S. Secretary of State George Shultz, seconded by
politicians and experts from the U.S. and Europe
"
Kristeligt Dagblad (independent Christian) wrote: "The
questions of the journalists from the 16 countries were
transmitted back and forth between the U.S. and Europe via
satellite. [The press conference] centered around the
intermediate range missiles. The situation in the Gulf area and
the possibility of renewed negotiations
"
FRANCE:
Agence France Presse carried a four paragraph dispatch reporting
Secretary Shultz's reaction to President Mitterrand's remarks on
the necessity of European defense and the Secretary's comments
on Spain's joining the NATO alliance.
UNITED KINGDOM:
Attendees to this program generally found it of considerable
interest and praiseworthy.
BBC Russian Service prepared a 6 minute segment on the
transmission which went out on the Russian Service's Weekend
Magazine show (repeated twice on May 26 and 27).
-4-
WEST GERMANY:
Embassy Bonn noted that audiences in the capital and Munich felt
that the program appropriately commemorated the anniversary of
NATO by demonstrating that this Alliance of sixteen democratic
states reaches its decisions through a process of consultation
and discussion, in stark contrast to the Warsaw pact.
Suddeutsche Zeiting weekend edition (May 26/27) (478,000 circ.)
reported Secretary Shultz's statement that the U.S.
Administration's planned strategic defense initiative did not
represent a serious obstacle to the NATO alliance as well as the
Secretary's comments about the possibility of a neutralist
government in West Germany (which he saw as unlikely) and about
the need for greater European defense expenditures.
Bayrischer Rundfunk (BR) closed its 6:45 PM television newscast
Thursday with a 90-second feature on Munich's participation in
EURONET.
ICELAND:
The special NATO WORLDNET program was broadcast for one hour and
fifteen minutes on Icelandic State Television on Friday, May 25,
starting at 10:30 PM. The commitment of such a large block of
time to a political issue is unusual for state television.
Morgunbladid, Iceland's largest daily, noted the NATO broadcast
in an editorial on May 27. "The television program telecast on
the 24th that was done simultaneously in all NATO member states
and was shown here
confirmed once again that NATO is the
strongest peace movement that has been established since the end
of the Second World War and even further back in history. Of
course, no one is in full agreement on everything that NATO has
done, but the overwhelming opinion in the member states is that
a more sound option than military cooperation between the member
states is not possible if they want to ensure their security and
independence.'
"It is necessary to keep this in mind when one listens to the
various outcries and sensationalism in the name of peace. For a
long time, the Soviet propaganda machine has been busy
portraying Kremlin leaders, whoever they may be, as the greatest
peace chiefs of the world. Now, even as the Soviet Army is
decimating the people of Afghanistan, the peace drums have been
beaten harder than ever in the hope that their sound will drown
out the cries of agony and the bomb percussions from
Afghanistan
"
-5-
"As Leo Tindemans said during the NATO WORLDNET interview on TV,
'Who is not for peace and against nuclear weapons?' Of course,
everyone chooses peace without nuclear weapons, but there are
only a few who find it necessary to advertise themselves as the
saviours of mankind with that view on their lips."
Thodviljinn, Iceland's most leftist-leaning daily, carried a
major article on May 25 that was remarkable in its content since
it was generally more evenhanded than what is expected of the
newspaper which is the strongest print critic of the NATO base
and Iceland's participation in the alliance.
ITALY:
Rome
The special WORLDNET program on the occasion of NATO's 35th
anniversary received coverage by major newspapers and electronic
media throughout Italy.
Italian television's moderate Channel One News (TG-1), which was
on the site with a correspondent and crew, carried a clip on its
late-night "TG-Notte" broadcast (275,000). The clip, narrated
by Fabrizio Del Noce, highlighted his one INF-related question
and used a variety of visuals from the program.
Moderate GR-2 -- Channel Two Radio News -- carried brief
summaries of the broadcast on its morning news roundups on May
24 (1.4 million).
Leftist, influential La Repubblica (260,000) headlined its
report "Shultz: We Shall Not Give In to The Kremlin."
Caludio Lanti in leading conservative Il Giornale (182,000)
" NATO is strong and firm,' said the U.S. Secretary of State
Shultz"
During the many-voiced debate the defensive nature of
the pact was repeatedly stressed. Lanti followed with a summary
of the program's views, listed theme by theme.
Rome's conservative Il Tempo (130,000) called Secretary Shultz
"cautious and positive at the same time." The headline:
"Shultz: 'There Will Be No Concessions To Bring Moscow Back to
the Negotiating Table.
Il Popolo (80,000) : "It was not only a celebration, but also an
occasion for debate and study. What's the present status of
health of the 35-year old alliance? Almost everybody says it is
good, even if there are problems."
-6-
The longest article on the program appeared in radical left
Il Manifesto (30,000) under headline: "35 Years of NATO, Shultz
makes a Television Toast to Peace and to Cruise Missiles."
Milan
Overall, the EURONET transmission to Milan was a great success.
The inaugural telecast of EURONET in Milan attracted television
and press coverage on a national and regional level.
An estimated audience of 100,000 viewed the RAI 3 evening
newscast for the Lombardy region which devoted three minutes to
the EURONET transmission.
Corriere Della Sera (502,000), Italy's top circulation, centrist
daily carried an article on EURONET on the day of the
transmission and covered the program the following day, May 25,
on its foreign affairs page. Headline read: "Shultz Live on
Television: European Plan for Common Defense a Contructive
Step."
L'Avvenire, the national Catholic daily, covered the
transmission in a five-column wide box on the front page. The
headline read: "NATO, A Choice of Peace" with subhead:
"Anniversaries: Press Conference of Shultz via Satellite with
the Capitals of the Alliance."
Naples
The foreign editor of Naples' Il Mattino, Almerico Di Meglio,
gave a lengthy, positive story on the program under the
headlines: "Deterrence: Strategy for Peace; Shultz for the
NATO's 35 Years."
NORWAY:
A 3-column story headlined: "International Press Conference via
Satellite," focused on the program, its participants, and types
of questions. Aftenposten, (independent conservative)
In a story that illustrated the timeliness of the program, the
Dagbladet (sensationalist liberal) focused on the answer
Assistant Secretary of Defense Perle gave to a question about a
nuclear freeze. The reporter asking the question came straight
from the Parliament which the same day approved nearly
unanimously a report favoring a freeze. Dagbladet in its five
column story headlined, "Freeze: Cold Shoulder from USA" said:
-7-
"Richard Perle said almost the exact opposite of the Norwegian
parliament. He denied that a nuclear freeze is an advantage for
the disarmament effort, and said that a freeze would
increasingly place the West in a worse situation, with the
deterrent force gradually losing its credibility."
PORTUGAL:
An estimated 4.5 million people saw RTP's (Portugal's
state-owned and only television station) prime-time evening
broadcast May 29, which aired major portions of May 24 WORLDNET
special The feature lasted for over an hour and included
introductory film, Shultz and Tindeman's interviews and the two
panel discussions. In addition to WORLDNET's "man-in-the-street
interviews," RTP included a couple of their own.
SPAIN:
The May 24 WORLDNET special was well covered in the Spanish
media: a full minute on Spanish television, broad radio
coverage and articles in Madrid's three leading dailies on May
25th. In addition to journalists, the program at the Embassy
was attended by representatives from the Office of the Spokesman
of the Prime Minister, the Ministry of Defense and three
political parties.
TURKEY:
Turkey's first participation in WORLDNET programming was highly
successful. The NATO special generated great interest among
working journalists and attracted an invited audience that
included the Director of Turkish Television, Director of the
Government of Turkey's Press Office, several Members of
Parliament and other foreign policy analysts.
Ankara reports that TRT Television ran a six minute segment on
their main news broadcast, featuring Turkish questions, answers
and in-studio visuals.
Semi-official Anatolian News Agency distributed story with
excerpts, and the report was carried in Milliyet (liberal -
232,122).
Both Tercuman (259,000 - conservative) and Bulvar (177,000 -
sensational) carried stories including color pictures of TRT
studio scene (frontpage in Tercuman) Cumhuriyet and Gunes
(232,000 - popular/family) both carried brief items emphasizing
"boycott."
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
OFFICE OF THE CHAIRMAN
June 14, will 1984
The Honorable Michael K. Deaver
Deputy Chief of Staff and Assistant
to the President
The White House
Washington, D.C. 20500
Dear Mike:
The attached paper on "The Leveraging of America"
discusses three aspects of corporate takeovers and
buyouts that will significantly impact American
enterprise next year and beyond.
Any comments or suggestions concerning what we
should do, if anything, concerning the issues
discussed, would be sincerely appreciated.
Very truly yours,
John John S.R.
Shad
Attachment
The Leveraging of America
John S.R. Shad
Three aspects of corporate takeovers and buyouts that will
significantly impact American enterprise next year and beyond
are: the increasing tendency of institutional investors to
oppose anti-takeover proposals by corporate managements;
acquisition related bankruptcies and other consequences of
leveraging-up major corporations; and the consequences of a
significant increase in exchange offers, if pending proposals
are adopted.
The purpose of this paper is not to sound a note of alarm, but
to ventilate some of the major issues that should be weighed by
the business and financial community, the Congress and the
Securities and Exchange Commission, in conjunction with ongoing
discussions of the laws and regulations that govern changes in
corporate control.
More Institutional Dissents
Until last year, institutional investors' opposition to manage-
ment proposals has been negligible. However, last year they
and other investors defeated anti-takeover proposals by a number
of companies, including Castle and Cook, Data General,
International Paper and Sherwin-Williams.
Despite management opposition, Superior Oil's shareholders forced
recision of a defensive preferred stock dividend, and created
a committee of independent directors to evaluate future tender
offers.
In a 1983 Kidder Peabody & Co. and Morrow & Co. survey of
2,500 institutions, 75% opposed requirements that mergers be
approved by supermajorities (typically 80%) of the shareholders,
and half opposed staggered boards (i.e., the election of less
than all the directors annually).
In an Investor Responsibility Research Center survey last year,
a "wide margin" of institutions opposed both supermajority
and staggered board provisions, and favored requiring share-
holder ratification of "golden parachutes" (i.e., high termina-
tion compensation for executives, following a change in effective
control).
In a D.F. King study, 75 of 100 major institutions were generally
opposed to increasing management protective provisions.
Based on a June 7, 1984 speech by Securities and Exchange Commission
Chairman Shad before the New York Financial Writers Association.
-2-
The repurchases of blocks of their stocks at premium prices
from possible bidders have subjected Walt Disney, Texaco,
Warner Communications, St. Regis, Gulf & Western and many
other companies to significant shareholder criticism. The
SEC has proposed pending legislation that would proscribe so
called "greenmail" transactions.
Following a case-by-case review, Citicorp's $36 billion
Investment Management division is reported to have voted
against all anti-takeover proposals by 64 companies in which
it holds stock.
The $11 billion Batterymarch Financial Management has adopted
a policy of voting against all anti-takeover proposals and of
announcing publicly its votes on specific issues.
With only a 1% interest in the TWA holding company, Odyssey
Partners obtained a 30% vote in favor of breaking-up the company,
based on the proposition that the parts were worth more than the
whole.
A projection of these trends suggests that a rising number of
institutions will not only oppose future anti-takeover proposals
by managements, but also begin to support corporate break-ups
and mergers, with a view to enhancing the value of their invest-
ments.
The Rising Tide of Leveraged Takeovers and Buyouts
These trends lead into the second topic the consequences of
the rising tide of leveraged takeovers and buyouts of major
American corporations.
In such transactions, shareholders have received 50% to 100%
premiums over the current market prices of their shares.
However, the longer term consequences to shareholders and
the nation cannot be ignored.
Corporate takeovers and buyouts are financed through large loans.
The net effect is that debt is being used to retire equity,
which is known as leveraging-up a company's capitalization.
The greater the leverage, the greater the risks to the company,
its shareholders, creditors, officers, employees, suppliers,
customers and others.
Common Characteristics of Targets
Companies that are being takenover by other companies or
boughtout by their managements and others generally have one
or more of the three following common characteristics:
significant untapped borrowing capacity; shares trading at
discounts from the current market value of their net assets,
and at low multiples of their cash flows (i.e., their net
incomes plus depreciation, depletion and other non-cash
charges).
-3-
The foregoing - untapped borrowing capacity, undervalued assets
and low cash flow multiples - are also common characteristics
of many of America's largest and soundest corporations.
Under such circumstances, buyers are able to finance-out a
major portion of the purchase price against such companies'
own assets and cash flows. When they do so, it is usually
necessary to dedicate such cash flows to future debt service,
rather than the replacement of aging plant and equipment and
declining oil or other reserves. Companies that do not
replace aging facilities and declining reserves, become
increasingly inefficient.
Also, under current economic conditions, conservatively
capitalized companies - those with low debt-equity ratios -
have incentives to borrow funds and reacquire their own
shares or those of other companies, rather than suffer the
consequences of such tactics by others.
In today's corporate world, Darwin's "survival of the fittest",
has become - acquire or be acquired.
Management Leveraged Buyouts
Leveraged buyouts by managements have been a fraction of
leveraged takeovers of one company by another. In my opinion,
shareholders would generally prefer to have managements place
their companies on the block at premium prices, rather than
use their companies' resources to buyout or fight off bidders.
Management buyouts that have attracted higher bids from
others include City Investing, Northwest Energy, Norton Simon
and Stokely-Van Camp.
Optimum Economic Environment
The past 24 months have been an optimum economic environment
in which to effect leveraged takeovers and buyouts.
Corporations' tax deductible depreciation and depletion
allowances are based on historical costs. Such allowances
have long been inadequate to replace plant, equipment and
reserves at current inflated prices. The Economic Recovery
Tax Act of 1981 increased such allowances, which has in turn
increased corporations' cash flows and liquidity. In addition,
the past 24 months have witnessed relatively low interest
and inflation rates, and a vigorous economic recovery. This
combination of events has facilitated the rising tide of
leveraged takeovers and buyouts.
-4-
More Bankruptcies in Prospect
However, major bankruptcies have resulted from the heavy debt
incurred by companies that have engaged in aggressive acquisition
programs (e.g., Baldwin-United, Charter Corp., Lionel, Saxon
Industries, Wickes and many others).
When a company highly leverages its capitalization, the
consequences of even modest business problems, economic
recessions or rising interest rates, are greatly magnified.
Shareholders, creditors and others have sustained billion
dollar losses - in addition to the serious impact of
bankruptcies on employees, communities, suppliers, customers
and others.
The more leveraged takeovers and buyouts today, the more
bankruptcies tomorrow. During the past few years, the multi-
billion dollar premiums shareholders have received in
leveraged takeovers and buyouts have been a multiple of
their losses from acquisition related bankruptcies. The
premiums come first, the consequences later. The leveraging-
up of American enterprise will magnify the adverse consequences
of the next recession or significant rise in interest rates.
Marketplace Disciplines
The theory that contested takeovers discipline incompetent
managements is of limited veracity. Corporations have momentum.
Today's corporate performance and stock prices are in large
measure a function of yesterday's decisions, by prior
managements - whether good or bad.
Companies that borrowed at the low interest rates 12 years
ago to buy oil reserves at the low prices then, and subsequently
retired such debt with inflated dollars, are reaping the
rewards today of prior management decisions.
When able executives turn around ailing enterprises, the market
prices of such companies' shares often lag their improving
prospects. They become attractive takeover candidates, because
of the competence - not the incompetence - of their managements.
Also, contrary to a discipline, the increasing threat of being
takenover is an inducement to curtail or defer research and
development, plant rehabilitation and expansion, oil exploration
and development, and other programs - which entail current
costs for long-term benefits.
-5-
More Exchange Offers in Prospect
The third topic concerns offers to exchange one company's
securities for those of another. Contested takeovers through
exchange offers have been negligible. However, if proposed
regulatory changes are adopted by the SEC, next year can be
expected to witness a significant increase in both friendly
and contested takeovers through exchange offers - and through
combinations of open market accumulation, securities exchange
offers, cash tender offers and statutory mergers.
Last year, the SEC Advisory Committee on Tender Offers
recommended that exchange offer regulations be simplified
and accelerated. In view of the billion dollar benefits to
corporations and shareholders of the SEC's recent simplification
and acceleration of public offerings and private placements
of securities, similar improvements in tender offers seems
a worthy effort.
The Commission is currently soliciting public comments on
proposals that would significantly reduce the paperwork for
business combinations and exchange offers. The SEC will
also release for public comment shortly, proposals that
would permit exchange offers to be done as rapidly as cash
tender offers.
Advantages of Exchange Offers
There are many advantages to exchange offers:
Stock-for-stock exchange offers do not increase
the leverage in corporate capitalizations.
Exchange offers of debt and equity securities can
eliminate the necessity to borrow the large sums
required to do cash tender offers.
Multiple transactions can be telescoped into
a single transaction. There is no need to
refinance the short-term debt incurred to
effect cash tender offers.
Cash tender offers are taxable transactions.
Exchange offers of voting equity securities are
not - and such acquisitions can be accounted for as
poolings of interest, rather than as purchases.
In poolings, the premiums over book value paid for
target companies do not have to be amortized.
And finally, the fairness of partial and two-tier
tender offers have been questioned. Exchange
offers facilitate offers for all of a company's
shares, rather than for only a portion of them.
-6-
Exchange Offer Consequences
Therefore, why shouldn't exchange offers be streamlined and
accelerated? They probably should, but not without assessing
and responding to the consequences.
One consequence is that a small. company can do an exchange
offer for the shares of a large corporation on a basis under
which it is simply recapitalizing the larger corporation.
The larger corporation's assets and earning power become the
credit behind the new securities.
Subject to tax and other considerations, such an exchange offer
might consist of a package of common and preferred shares,
warrants, zero coupon bonds or other exotic financial instru-
ments, designed to accommodate such an offer. It will be
successful if arbitrageurs, institutional investors and others
conclude - or if the when-issued market value of the package
of securities clearly demonstrates - that the securities offered
are worth significantly more than the market price of the
target's common shares, before the offer.
Through combinations of exchange and tender offers, target
corporations' capitalizations might thus be leveraged-up, and
their managements succeeded by those of smaller companies,
that may have limited knowledge of the targets' operations.
In order to do cash tender offers, bidders typically have to seek
lines of credit from banks and other institutions. Thus, cash
tender offers generally require the support and concurrence of
institutional lenders. Such support or concurrence is not generally
required to do exchange offers. Bidders simply create their
own "corporate currencies" (i.e., packages of securities)
and offer them in exchange for targets' securities.
The longer time periods and more detailed registration requirements
for exchange offers have permitted target companies to block or
delay them through legal actions, often based on deficiencies in
the registration documents or other contentions. Targets have also
used the longer time to seek higher bids from others. For these
reasons, there have been relatively few contested exchange offers.
However, there will be more if they are streamlined and accelerated,
and the consequences are likely to include greater leverage in
corporate capitalizations and less experienced managements.
In the open meetings that preceded the Advisory Committee's
recommendation to accelerate exchange offers, these implications
were not discussed. These and related issues should be factually
addressed by those who respond to the Commission's releases on
streamlining and accelerating exchange offers.
-7-
One of many possibilities would be to limit accelerated exchange
offers to the largest and most creditworthy companies - as in
the case of accelerated public offerings of securities under the
shelf registration rule. They might also be limited to actively
traded security issues of such corporations. Exchange offers
of exotic securities (so called "Chinese paper") and offers
by companies that do not enjoy broad active public markets
in their securities, might continue to be subject to the more
detailed and time consuming conventional exchange offer
requirements.
It should be noted in this regard that the SEC is charged with
the implementation and enforcement of the laws passed by Congress,
principally through full disclosure. The SEC does not have or
desire the authority to pass on the merits of corporate financings,
mergers or acquisitions. Congress has wisely concluded that such
judgments are better left to the marketplace.
Conclusion
In conclusion, as mentioned at the outset, these are some of
the issues that should be weighed in conjunction with ongoing
discussions of the laws and regulations which govern changes in
corporate control.
It would be as wrong to overreact to these issues, as it would
be to ignore them.
Notwithstanding concerns to the contrary, multi-billion dollar
leveraged takeovers and buyouts have not had a disruptive effect
on the credit markets. As bank loans have been drawn down by
bidders and paid to target companies' shareholders, the funds
have been instantly recycled - redeposited or reinvested by
the shareholders. And bidders' short term bank loans have
generally been reduced within a year or two through long
term debt and other refinancings or through asset liquidations.
Corporate consolidations are subject to the antitrust and
other laws. Their major operational, financial and other
benefits should not be inadvertently foreclosed or inhibited
in an attempt to address ancillary issues. The evolutionary
response of the marketplace to changing business conditions has
been much more effective than less flexible laws and regulations.
Joan F. Gonzales
4555 Forman Avenue
North Hollywood, California 91602
213-761-2578
file
June 14, 1984
Mr. Michael Deaver
The White House
Washington, D.C. 20500
Dear Mr. Deaver:
Following up on our conversation at the banquet for the
Citizens For The Republic, we reiterate the necessity to
Federal funds from localities with rent controls.
Rent controls destroy the rental housing industry and cripple
the free enterprise system.
Please support any and all Federal measures to stop rent
controls.
Sincerely,
Joon 7. Honzales
Joan F. Gonzales
JFG/kk
PRESIDENT
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE
UNITED
OFFICE OF MANAGEMENT AND BUDGET
DECUTIVE
STATES
WASHINGTON, D.C. 20503
Fl
June 15, 1984
MEMORANDUM FOR: Michael K. Deaver
Deputy Chief of Staff and
Assistant to the President
FROM:
Joseph R. Wright Joe
Deputy Director
SUBJECT:
Comments on Memoranda from Jim Munn
Mr. Munn's first two memoranda contain the usual arguments that the deficits
will go away and that they are not all that large anyhow. Mr. Munn's third
memorandum is quite different. It proposes a tax change that essentially
allows individuals to send their Federal personal income taxes to local
governments or private organizations rather than to the Federal government.
First Memorandum
Mr. Munn's first memorandum argues that continued recovery will, by itself,
reduce the deficit dramatically. His evidence is largely based on the fact
that in January 1983 we forecast a more gradual recovery than what actually
occurred and that the 1983 deficit was below our estimate. Unfortunately,
neither of these facts indicates a trend that suggests long-term deficits will
disappear. In fact, much of the shortfall in the 1983 deficit was due to
slower defense spending rather than more robust economic growth.
Since July of 1983 we have revised our near-term economic forecast to be more
optimistic. The long-term forecast has always been optimistic. On the basis
of our current forecast of unprecedented real growth with declining inflation
for five and a half more years and rapidly declining interest rates starting
below their current levels, we still anticipate deficits of over $100 billion
in 1989.
Second Memorandum
Mr. Munn's second memorandum stresses that it is the combined Federal, State,
and local government spending relative to total tax receipts that is of
concern. However, the figures that Mr. Munn uses showing large State and
local surpluses are misleading. They include not only tax receipts, but the
contributions by State and local government employees and employers to the
employee's pension fund. These contributions are no different from the
contributions made by General Motors and its employees to the General Motors
pension fund.
The true operating surplus at the State and local level, that is the excess of
State and local taxes over State and local government spending, is only about
$15 billion, not the $58 billion Mr. Munn references.
18544
2
Further, this $15 billion figure is likely to decline in the next few years
because many States operate with something akin to a balanced budget
amendment. Thus, they can be expected to cut taxes (hopefully) or increase
spending over the next few years.
Third Memorandum
Mr. Munn's third memorandum proposes a tax cut and tax surcharge that is
difficult to understand. The corporate 1 1/2 point rate cut combined with a
3% surcharge is clear, though it is not clear why both are done. This change
will lower corporate taxes since lowering the corporate rate from 46% to 44.5%
is a larger percentage rate cut (3.3%) than the 3% surcharge.
The noncorporate change is unclear. Mr. Munn refers to "the noncorporate
businesses tax", but there is no such tax. The owners of noncorporate
businesses pay personal income taxes on their combined business and other
income with no separate tax on the business share of that income.
Nonetheless, presumably the proposal could be refined to achieve whatever
result Mr. Munn is seeking.
The most important part of Mr. Munn's plan is the dollar-for-dollar tax credit
that an individual would receive for payments to State and local governments
or to Private Sector Initiatives organizations. The proposal means that a
family that owes, say, $5,000 in Federal income taxes can send that $5,000 to
a local organization instead of the IRS. Since many people would prefer to
contribute to a local youth organization, for example, rather than to the
Defense Department or the Interior Department, Mr. Munn's plan can confidently
be expected to wipe out most receipts from the Federal income tax.
OFFICE OF MANAGEMENT AND BUDGET
HANDLING
Urgent!
X
Expedite
Regular Handling
(Hand-carry)
(Time sensitive)
Decision Memo
Information Memo
Control #
Correspondence
Outgoing to
SPECIAL HANDLING INSTRUCTIONS
SHORT SUMMARY OF MATERIAL
Reply to Mike Deaver re: Memoranda from Jim Munn (for J. Wright's signature).
PREPARED BY
CLEARED BY
CLEARED BY
CLEARED BY
CLEARED BY
CLEARED BY
CLEARED BY
NAME AND
Ballentine
DIVISION
JWright
ADEP
DD
NITIALS AND
DATE
so 6/15/84
Staffed: Date/Time:
6/14/84
OMB STAFFING OF WHITE HOUSE PAPERS
5:20 PM
6/14/84 Action: Info:
Paper from: Sittman
DOC Date:
Deficit and Tax Policy
Subj:
Distribution within OMB
Action FYI
Action
FYI
Action FYI
Stockman
Wright
Gerson
-
—
Ballentine
DeMuth
Moran
-
-
Dale
Horner
-
Triplett
1
Hudson
Frey
Cogan
Sowle
Keel
Horowitz
-
-
Khedouri
Modlin
Bryant
-
-
Hause
*Please coordinate with and provide comments to
.
**Should receive first
page (s) only.
RESPONSE TO WHITE HOUSE
Lead responsibility for preparing response:
Ballentine
Address response to Deaver
for signature of
Wright
Response should arrive in Correspondence Unit by: 6/15 COB
Concurrence: Initials:
Date:
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/
***PLEASE RESPOND IN WRITING TO WHITE HOUSE REQUESTS***
IF RESPONSE IS SENT DIRECTLY TO WHITE HOUSE, PLEASE SEND DAVID GERSON A COPY
BRIEFING MATERIAL PREPARATION
Lead responsibility for preparing for meeting:
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Comments:
THE WHITE HOUSE
- WASHINGTON
14 JUN14 : June 14, 1984
MEMORANDUM TO JOE WRIGHT
FROM:
BILL SITTMANN
SUBJECT:
Attached - Re: Deficit and Tax Policy
Mike Deaver would like your office to do a one page analysis
of the attached to be sent to the President.
Mike would like it tomorrow.
Thank you.
JAMES S. MUNN
LAWYER
1125 FLOOR PACIFIC BUILDING
SEATTLE WASHINGTON 98104
(206) 623.3515
MEMORANDUM
RE: Deficit and Tax Policy
FROM: Jim Munn
DATE: May 29, 1984
Statutory
Adjusted Rate
Cumulative
Tax' Cut
Tax Cut
Tax Cut
1-1-81
10-1-81
.05
.0125
.0125
1-1-82
.10
7-1-82
.10
.05
1-1-83
.18
7-1-83
.10
.05
1-1-84
.23
It is now clear that the economic recovery commenced virtually
on schedule. On January 1, 1983 when all of the tax cuts came
on stream, the most robust recovery took place. The recovery
has substantially exceeded the expectations of all those skeptics
who criticized "Reaganomics" and throughout 1981 and 1982 pronounced
the economic program a failure.
It is clear now what happened to inflation and interest
rates. It is equally clear what happened to the dynamics of
new job creation. The severely weakened dollar has strengthened
on the world market and the world leadership of the U.S. has
been substantially restored.
What remains to trouble the doubters is the deficit. Not
SO much the prevailing deficit but the deficits being forecast
by those same economic forecasters who have been so consistently
wrong about everything else.
I believe it important to consider, and at least recognize
certain coincident facts of recent economic history. In the
latter part of 1982, the unemployment rate hit the top before
beginning to slide much faster than the conventional forecasters
believed possible. At this time (winter '82), the treasury reported
an annual deficit rate of $208 billion. One year later, after
unemployment had fallen substantially, this annual deficit rate
was at $190 billion.
Memo re Deficit and Tax Policy
May 29, 1984/page 2
This reduction in the deficit was not accompanied by increasing
the tax rates but in the face of substantial reduction. Using
the forecasts of the impact of the 1981 tax rate cut effective
in 1983, there should have been $33 billion the Feds left in
the pockets of the U.S. producers. When we add to this the dramatic
effect of all this on the states, there was another $15 billion
added to the net deficit reduction. The total change then from
1982 to 1983 (winter) was about $66 billion.
Treasury also reports that despite the most "massive" tax
give away as the critics contend, receipts rose 4.4% in 1983.
Further, when we consider the cry that the tax rate cut favored
the rich, we must explain away the fact that between 1981 and
1982 the tax take from those fat cats reporting incomes in excess
of $100,000 per annum rose about 14% in actual dollars collected.
Further, in 1983 the share of the tax burden borne by those with
incomes in excess of $50,000 rose while the share of those reporting
incomes of $25,000 or less fell.
Finally, just last week the National Income and Products
Account reports the projected deficit on the annualized basis
is down another $19 billion to $171 billion.
I am reminded of that old maxim "If it ain't broke, don't
fix it."
Whatever we do we must not choke off the dynamic economic
growth that is now underway through misguided and misdirected
tax policies. Worrisome as the projected deficits are, they
are just that -- projections. The prognostications are just
as likely to be wrong about the deficits as they have been about
the events of our recent economic past.
To be sure, deficits are not solely the product of tax policies
that discourage rather than encourage economic growth. But,
and this is a big but, we do know from any fair reading of our
history over the last several decades -- if you want less of
something tax it and if you want more of it, reward it. Economic
incentives do work and that is the pure and simple of it.
As matters now stand, the trends are all in one direction.
By the end of this year, the deficits will continue to diminish,
employment will continue to rise and the prospects for a budgetary
balance will be greatly enhanced. Like so many dismal forecasts
of those who practice the dismal science, deficits just may prove
to be non-events. This will be particularly the case as state
and local governments continue to generate increasing surpluses
as the federal deficit rate declines.
JAMES S. MUNN
LAWYER
1125 FLOOR PACIFIC BUILDING
SEATTLE. WASHINGTON 98104
(206) 623-3515
MEMORANDUM
FROM:
Jim Munn
DATE:
May 30, 1984
RE:
Reaganomics -- Phase II
Toward the end of 1980, when President Reagan was elected,
the U.S. economy was well on the way to becoming a basket case.
Inflation was increasing at an accelerating rate and threatened
to go out of control. Interest rates were reaching unprecedented
levels by any gauge of measurement. "Stagflation" was the
term employed by the conventional economists to describe the
phenomena that affected the nation.
Gloom and doom was the forecast with $50 per barrel oil
the gauge of our future. A national malaise was the diagnosis
of our affliction by our then President.
The candidate Reagan stood forth with the courage of his
conviction that the time was not to give up but to undertake
a new beginning. The American people responded to his call
for this "New Beginning" for America. Doubters called his
prescription "voodoo" economics. When he took office, his
call for tax cuts, regulatory reform, budget cuts and a stable
monetary policy were derisively called "Reagonomics". In six
months his critics heralded failure as the recession he inherited
slipped deeper.
Then recovery took hold in January 1983. Almost two years
to the day of his inauguration when the phased in tax cuts
finally took hold, the recovery began. The doubters forecast
a slow, shallow recovery that would run out of steam early.
Unemployment was forecast to remain high, perhaps dropping
just below 10% by November 1984.
We know now what happened. Oil was deregulated and the
price per barrel dropped precipitously. Energy prices did
not soar as predicted. The talk is not now of shortage but
of "oil glut". The recovery of the economy has entered an
expansion stage. New jobs are being created by American
business and industry at an unprecedented rate. Unemployment
has dropped farther and faster than the legions of doubting
economic forecasters believed possible. Real wages and
purchasing power have begun to rise as inflation has abated.
Memo re Reaganomics -- Phase II
May 30, 1984/page 2
Of course, the prevalent doomsayers continue to look for
the dark cloud within the silver lining. Projected federal
budget deficits loom over the horizon to serve the purpose
of the dragon to be slain. The problem is not just some more
mischief making by the taxers and regulators who find the
disorderly free market place so frightening. The real problem
is one of reversal. Are we to permit the "chicken-littles"
among us to undo what we have done in the last three years?
Are we to permit this under the guise that they are riding
forth to slay the dragon when they are really tilting wind
mills. at best or seek greater control of our lives?
Of course, federal spending must be brought under control.
This is not done by increasing taxes or re-regulating the economic
activities of the American people under a national incomes
and industrial policy or worse. The cuts in the budget to
date are not serious attempts to cut federal spending. Congress
will only be serious when the "so called" entitlements are
the focus of attention.
Now enter the deficit forecasts. I suggest that these
should be looked at in the aggregate (federal, state and local).
The National Income and Products Account (NIPA) is the reference
index. This peaked at an annual deficit rate at $208 billion
in the last quarter of 1982. One year later the NIPA annual
deficit rate had fallen to $190 billion. During this same
period, state and local governments posted a surplus of $15
billion. Add to this the $33 billion of tax cuts at the federal
level by static analysis over the same period and the reversal
of $66 billion is not insignificant by any measure of economic
policy.
Nothing within the current figures indicate anything other
than a continuation of this same trend. For the first quarter
of 1984 Treasury reports another decline of $6.5 billion which
is at a rate substantially in excess of the rate for the same
quarter in 1983.
Conservative projections indicate now that the deficit
decline for 1984 should reflect at least $60 billion below
the 1983 rate. This projects a straight line to each of the
four quarters plus $10 billion per quarter to compensate for
the over withholding in the last two quarters of 1983.
The most recent NIPA forecast of $171 billion deficit rate
for 1984 supports this analysis. Unless Congress messes up
the economic mix by imprudent tinkering the trend should
Memo re Reaganomics - Phase II
May 30, 1984/page 3
continue with deficits running at an annual rate (NIPA) of
$130 billion by the fourth quarter of 1984. The same trend
should continue with state and local surpluses increasing to
roughly $75 billion by the same quarter from the present $58
billion rate. This is simply a straight line projection from
tax receipts based upon present patterns applied to the general
economy based upon the 4-5% forecast growth rate. (GNP)
The cumulative government (local, state and federal) deficit
should then be running at an annual rate of about $60 billion
by the fourth quarter of 1984. When viewed in these aggregate
terms, the magnitude of the problem does not seem so frightening
nor unmanageable.
Certainly, now the Reagan initiative of "New Federalism"
that has been treated so cavalierly in the past deserves another
look. A carefully crafted program shifting some of the social
welfare burden, "entitlements" from the federal government
to the state and local governments should have real promise.
Perhaps just the simple mechanism of reversing the dominant
role of the federal government financial participation would
yield substantial results.
The political problem is one of constituent building to
support the initiative. This is where the skillful politician
can achieve the result by acceptable means once the objective
has been identified. Public support for such a shift can be
obtained when the process is understood. Certainly, the future
economic health of the nation cannot be held hostage to old
patterns born of the misguided notion that only the "Feds"
can be trusted to care for the essential needs of the nation.
The opportunity is at hand to give substance to the oft repeated
Republican concept that the government that governs best is
that which is closest to the constituents it serves.
As the appropriate "entitlements" are shifted with
accompanying tax base shifts to state and local governments
to which the burden shifts, fears will be allayed. This should
be the next phase of the Reagan domestic program. By these
methods, the continued success of "Reaganomics" can be served.
We will all be the better for it.
JAMES S. MUNN
LAWYER
TITE FLOOR PACIFIC BUILDING
SEATTLE WASHINGTON 98104
(206) 623.3515
MEMORANDUM
FROM: Jim Munn
DATE:
May 31, 1984
RE:
Transition to New Federalism
The 3 percent Solution
The President's proposal for a New Federalism was made
at a time when the shift of the burden of some social welfare
responsibility from the federal to local and state government
was viewed as unacceptable. Cities, counties and states were
struggling through a recession-induced funding crisis. As
these deficits mounted the acceptance of greater expenditure
burdens was looked upon as unrealistic at best, intolerable
"
at worst.
Now, "Reaganomics" has begun to take hold. The forecasted
economic results are becoming too pervasive and clear to be
denied. The local and state budget crises have passed with
the recovery. While the National Income and Product Account
(NIPA) index forecasts a continuing federal (albiet decreasing)
deficit, growing state and local budget surpluses are being
realized.
Business income is rising as the economy expands. As
new jobs are created, pressure on the so-called entitlements
declines. This is the expected trend for the foreseeable
future.
Now seems an appropriate time to attack the problem of
ever growing expansion of the federal burden on social welfare
spending. "New Federalism" and "Private Sector Initiatives"
are two Reagan advanced ideas to accomplish just this. "New
Federalism" is conceived as a mechanism to shift some of the
"entitlement" burden to state and local governments. "Private
Sector Initiatives" is conceived as a vehicle to assume some
of the burden by other than tax funded government directed
activities. Each in its own way is designed to carry out the
Republican ideas that "the government that governs least,
governs best" and where government is required it is best
closest to the constituents it serves.
Memo re Transition to New Federalism
May 31, 1984/page 2
The political problem is now, as it has always been,
acceptability. There is always the natural reluctance to
accept a burden where it is uncertain just how one can pay
for it. Cities, counties and states resisted "New Federalism"
because they could not see clearly how they could pay the tab.
"Private Sector Initiatives" has had greater acceptance but
not yet enough.
As the Congress confronts the requirement to deal with
the growing burden of "entitlements" a means must be found
to render curtailment acceptable. This is the three (3) percent
solution.
The proposal is to cut the corporate income tax rate by
one and one-half (1-1/2) percent. Reduce the non-corporate
business tax by the same amount by an income exemption mechanism.
This tax reduction would be accompanied by a sur-charge levied
on all net before tax business income (corporate, partnership
or proprietary) of three percent.
Having done this, then the funding of the two concepts
"New Federalism" and "Private Sector Initiatives" are accomplished
by granting a direct tax credit (dollar for dollar) for each
501 (c) (3) deduction or payment made to the local/state government
"New Federalism" participation fund. The latter would be estab-
lished through enabling legislation whereby the state and local
governments could preempt a portion equal to a percentage (i.e.
1/2) of the sur-charge.
The effect would be at least two fold. All qualified
501 (c) (3) (tax exempt) charitable and educational enterprises
would have greatly increased sources of funding available to
be solicited. States, and through them, city and county
governments would have the option to participate. To the
extent that the state elects to participate the tax base
transfer to facilitate the "New Federalism" is accomplished.
Experience can then determine whether the scope is
sufficient or insufficient but the whole idea of shifting
appropriate burdens from the federal government to state and
local government and private sector will be substantially
advanced.
The time for this undertaking is ripe as the burden of
forecasted federal deficits is of such great public and political
concern. This is particularly true where this is accompanied
by a prospering business and growing state and local government
budget surpluses.
CHECK F
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
DATE:
6/15/84
TO: FROM: Dave ASSOCIATE FOR Gerson ECONOMIC DIRECTOR POLICY Is Greg OK Ballentine In
Is this the type of response that should be
having forthcoming your comments. from Joe? Thank I would you. appreciate 6/15
Joe- 1 I think
this draft is fine.
If it's ok w/ you,
EP can put it in final.
GUR
DRAFT
OFFICE FRESIDENT STATES UNITED
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF management AND BUDGET
WASHINGTON, D.C. 20503
June 15, 1984
MEMORANDUM FOR: Michael K. Deaver
Deputy Chief of Staff and
Assistant to the President
FROM:
Joseph R. Wright
Deputy Director
SUBJECT:
Comments on Memoranda from Jim Munn
Mr. Munn's first two memoranda contain the usual arguments that the deficits
will go away and that they are not all that large anyhow. Mr. Munn's third
memorandum is quite different. It proposes a tax change that essentially
allows individuals to send their Federal personal income taxes to local
governments or private organizations rather than to the Federal government.
First Memorandum
Mr. Munn's first memorandum argues that continued recovery will, by itself,
reduce the deficit dramatically. His evidence is largely based on the fact
that in January 1983 we forecast a more gradual recovery than what actually
occurred and that the 1983 deficit was below our estimate. Unfortunately,
neither of these facts indicates a trend that suggests long-term deficits will
disappear. In fact, much of the shortfall in the 1983 deficit was due to
slower defense spending rather than more robust economic growth.
Since July of 1983 we have revised our near-term economic forecast to be more
optimistic. The long-term forecast has always been optimistic. On the basis
of our current forecast of unprecedented real growth with declining inflation
for five and a half more years and rapidly declining interest rates starting
below their current levels, we still anticipate deficits of over $100 billion
in 1989.
Second Memorandum
Mr. Munn's second memorandum stresses that it is the combined Federal, State,
and local government spending relative to total tax receipts that is of
concern. However, the figures that Mr. Munn uses showing large State and
local surpluses are misleading. They include not only tax receipts, but the
contributions by State and local government employees and employers to the
employee's pension fund. These contributions are no different from the
contributions made by General Motors and its employees to the General Motors
pension fund.
The true operating surplus at the State and local level, that is the excess of
State and local taxes over State and local government spending, is only about
$15 billion, not the $58 billion Mr. Munn references.
2
Further, this $15 billion figure is likely to decline in the next few years
because many States operate with something akin to a balanced budget
amendment. Thus, they can be expected to cut taxes (hopefully) or increase
spending over the next few years.
Third Memorandum
Mr. Munn's third memorandum proposes a tax cut and tax surcharge that is
difficult to understand. The corporate 1 1/2 point rate cut combined with a
3% surcharge is clear, though it is not clear why both are done. This change
will lower corporate taxes since lowering the corporate rate from 46% to 44.5%
is a larger percentage rate cut (3.3%) than the 3% surcharge.
The noncorporate change is unclear. Mr. Munn refers to "the noncorporate
businesses tax", but there is no such tax. The owners of noncorporate
businesses pay personal income taxes on their combined business and other
income with no separate tax on the business share of that income.
Nonetheless, presumably the proposal could be refined to achieve whatever
result Mr. Munn is seeking.
The most important part of Mr. Munn's plan is the dollar-for-dollar tax credit
that an individual would receive for payments to State and local governments
or to Private Sector Initiatives organizations. The proposal means that a
family that owes, say, $5,000 in Federal income taxes can send that $5,000 to
a local organization instead of the IRS. Since many people would prefer to
contribute to a local youth organization, for example, rather than to the
Defense Department or the Interior Department, Mr. Munn's plan can confidently
be expected to wipe out most receipts from the Federal income tax.