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(cont from 16:6) Recommendations for Early Action or Consideration: A Report to the President-Elect. Submitted by Arthur F. Burns, Chairman, Program Coordination Group. 47 pages. [Report], 1/18/1969
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(cont from 16:6) Recommendations for Early Action or Consideration: A Report to the President-Elect. Submitted by Arthur F. Burns, Chairman, Program Coordination Group. 47 pages. [Report], 1/18/1969
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Richard Nixon Presidential Library
White House Special Files Collection
Folder List
Box Number Folder Number Document Date
Document Type
Document Description
16
7
01/18/1969
Report
(cont from 16:6) Recommendations for Early
Action or Consideration: A Report to the
President-Elect. Submitted by Arthur F.
Burns, Chairman, Program Coordination
Group. 47 pages.
Wednesday, June 17, 2009
Page 1 of 1
- 77 -
the employee.)
(c) Poverty area investment tax credit. Under this
proposal a 50 per cent tax credit would become
available to a business firm with respect to
outlays for depreciable plant and equipment in
amounts up to $3,000 for each employee, residing
in the poverty area, who is added in the tax-
able year to the payroll of the business in the
poverty area.
(d) Tax incentives for poverty area capitalism and
entrepreneurship. Here the Task Force urges
the exploration of the possibilities of adapt-
ing tax provisions governing cooperatives to
the problem of encouraging entrepreneurial
capitalism in poverty areas.
(e) Tax incentives for improving poverty area
housing. Various devices are suggested, among
them a tax credit of 50 per cent of the in-
crease in maintenance outlays in respect of
residential property in certified poverty areas.
The several tax credits and other incentives sug-
gested by the Task Force are of unequal merit. The
"poverty area payroll tax credit", the "on-the-job train-
ing tax credit", and the "poverty area investment tax
credit" appear to be particularly attractive supplements
- 78 -
to the voluntary program described earlier in this
report.
You should ask the Secretary of the Treasury to
undertake at once, with the aid of the Council for Urban
Affairs, a thorough study of the proposals by the Task
Force to improve economic and social conditions in poverty
areas. It would be very helpful to have the Secretary
give you by a very early date his preliminary impressions
of the practicability, both financial and political, of
these proposals.
5. Human Investment Act
This Act, originally introduced by Senator Prouty,
has been actively promoted by prominent Republicans in
the Congress. You strongly endorsed it during the campaign.
The Act is modeled on the investment tax credit. It
seeks to train workers who are presently unemployed, and
also to upgrade the skills of workers already on payrolls.
The main doubt raised by the Act is whether its
purpose cannot be achieved at much smaller expense. Critics
have rightly pointed out that, as the Act is now written,
employers would receive tax benefits merely for continuing
the training programs that many of them conduct anyhow in
the interest of profitable management of their businesses.
Critics have also raised the question whether the proposed
- 79 -
tax credit would stimulate any significant amount of
additional training in skills -- that is, over and above
what is provided by the training programs now being con-
ducted without special tax benefits.
These criticisms can be met through amendments of
the Human Investment Act; that is, by replacing the tax
credit stipulated in the Act with the "on-the-job training
tax credit" and the "poverty area payroll tax", which
were previously discussed in this report under the head-
ing of Tax Incentives to Private Efforts. These tax
credits would be at a higher rate. They also have the
great merit of being limited to increases of the employ-
ment and training provided by employers. Hence, they
could accomplish the broad purpose sought by the present
version of the Human Investment Act at a smaller cost to
the Treasury, and they would not be subject to criticism
on the ground of being a blunt instrument that provides
a windfall to business at the expense of the general tax-
payer.
This proposal for amending the Human Investment Act
should be discussed at an early date with the Secretary
of the Treasury, Senator Prouty, and other Congressional
leaders.
6. Community Self-Determination Act
A combination of tax incentives of the kind described
- 80 -
in the preceding item (Tax Incentives to Private Efforts)
would appear to be a more constructive approach to im-
proving poverty-area conditions than that contemplated
by the Community Self-Determination Act.
The latter proposal, sponsored in 1968 by Senator
Percy with the strong support of the Congress on Racial
Equality, would establish an elaborate new apparatus of
community development corporations and community develop-
ment banks, besides making special tax incentives avail-
able to poverty-area business undertakings. The "commu-
nity control" features of the proposal could very well
lead to the exercise of considerable monopoly power in
economic affairs by vocal and politically astute local
leaders (not necessarily those with the most business
acumen), and it could also lead to dubious use of finan-
cial resources.
Despite its questionable features, the measure is
likely to be pressed in the 91st Congress. Thirteen
Republicans joined Senator Percy in introducing the bill,
and a similar legislative proposal was made by 19
Democratic Senators. It would be useful to try to steer
Congressional thinking into more constructive channels.
- 81 -
7. Supply of Skilled Construction Workers
Progress in housing and urban development will de-
pend on increasing the supply of skilled labor.
The Task Force on Housing and Urban Development
reports as follows: "The new Administration should press
forward with new programs relating to (1) ending dis-
crimination in minority hiring, (2) job opportunities,
and (3) introducing off-site fabrication in the construc-
tion field. Current restrictive practices in these areas,
if permitted to continue, will prevent the nation from
achieving its over-all construction goals. The construc-
tion trades unions must be made aware that they have an
obligation and a role in improving and increasing the
nation's housing inventory. "
The Task Force on Manpower has also directed special
attention to construction: "The President must set a
policy calling for establishment of effective training
programs for construction trades, management of housing,
and related skills. If
The convergence of the interest in housing and in
the manpower problem of the construction industry creates
an obvious field for interdepartmental cooperation. You
should call this to the attention of the Secretaries of
Labor and HUD.
- 82 -
8. Review of Davis-Bacon Act
It is widely believed that the Davis-Bacon Act has
contributed materially to the sharp rise in construction
costs.
It is highly important to check this belief. The
Secretary of Labor should be asked to appraise experience
under this legislation with a view to its possible amend-
ment or repeal.
9. Equal Employment Opportunity Commission
The Equal Employment Opportunity Act does not grant
to the Equal Employment Opportunity Commission the power
to enforce its orders. In the event that investigation
discloses a pattern or practice of discrimination and
efforts to obtain voluntary compliance fail, the charging
party must proceed on its own to obtain enforcement in
a court of law.
In the 90th Congress, Charles Goodell introduced
legislation that would grant to the Commission the power
to seek an appropriate remedy in a court of law in the
event mediation and voluntary compliance efforts failed.
This is in contrast to the Johnson Administration's pro-
posed legislation that would have granted the Commission
broad NLRB enforcement powers. Under this approach, the
- 83 -
Commission would operate as investigator, prosecutor,
judge, and jury.
It can be anticipated that legislation similar to
the Johnson Administration proposal will be introduced
in the 91st Congress by Democratic members. You should
instruct appropriate Administration officials, including
the Secretary of Labor, to consult the Republican legis-
lative leaders with respect to this matter as soon as
possible.
Social Security
- 84 -
XIII - SOCIAL SECURITY AND VETERANS PROGRAMS
1. Cost-of-Living and other Adjustments
During the campaign you proposed an automatic cost-
of-living adjustment in social security benefits, so
that benefits will go up automatically to the same degree
as prices.
This proposal has the fine quality of justice for
older people, but it may be opposed on two grounds. First,
decreases in benefits would hardly be practical if and
when the price level declines. Second, and much more im-
portant, automatic increases in social security benefits
would tend to institutionalize inflation; that is to say,
elderly people, who now offer powerful resistance to in-
flationary policies, would tend to lose interest in the
problem of inflation once they are assured of steady
real benefits.
In view of these difficulties, it would be best to
propose later in the year an increase in social security
benefits that would compensate the people on social secu-
rity for the recent increase in prices, but which would
not promise automatic increases in the future. Congressman
Wilbur Mills, incidentally, favors this approach.
A special message on Social Security would probably
be the best vehicle for presenting your recommendations
- 85 -
on this subject, and also your other proposals on
social security (Nixon Speaks Out, pp. 174-79). The
Secretary of HEW should be asked to prepare a working
draft of this message.
2. Problems of the Aged
During the campaign you expressed a desire to hold
a special White House Conference on the Problems of
Older Americans. You also indicated that you would ap-
point a special White House Assistant on the Aging to
keep you "informed of new ideas and in touch with the
many councils and organizations devoted to the cause of
the elderly."
In view of the intense pressures of the early months
of your Administration, the White House Conference should
probably be held in 1970 rather than 1969.
The promise concerning the special assistant should,
however, be discharged promptly. This can be done by
appointing a special White House Assistant on the Aging
or by charging one of the special assistants with the
of
responsibility/attending, among his other duties, to the
problems of the aged. Since the number of assistants at
your disposal will be quite limited, the latter course
is preferable.
Planning for the Conference should be done by the
- 86 -
White House with the aid of the Department of HEW.
3. Veterans Programs
The Republican Platform made several specific pro-
posals for improving veterans' programs. Congressman
Ross Adair, the ranking Republican on the House Veterans
Committee, has made somewhat similar proposals.
It would be desirable to request the new head of the
Veterans Administration to make a prompt evaluation of
these proposals, and to have him check his evaluation
with the Secretary of HEW before communicating with the
White House.
It would also be desirable to request the Secretaries
of Labor and Defense to join in making plans for the em-
ployment of veterans, particularly Negroes, when the war
in Vietnam ends.
Health Care
- 87 -
XIV - HEALTH CARE
1. Medicaid
The costs of Medicare and Medicaid are mounting.
The increase in costs appears to be out of all proportion
to the benefits derived by poor people.
Senator John J. Williams writes: "Medicaid as it
has been expanded by executive orders and regulations
within the past four months will add another one to two
billion dollars annual cost to this program /in fiscal
1970.7 Unless the President takes prompt action to res-
cind these regulations, they become fully effective
July 1969."
The advice of the Secretary of HEW on this recommenda-
tion should be sought at once. At the same time, the
Secretary should be asked to review the several alterna-
tive proposals for improving Medicaid that the Task Force
on Health has submitted.
2. Medicare
There is a likelihood that early financing decisions
will have to be made in connection with Medicare, in part
because premium rates were not increased by the outgoing
Administration. Pressures will develop both within and
- 88 -
outside the Congress to make changes in the program,
and one of the proposals likely to be pressed is supple-
mentary financing for Medicare with general Treasury
revenues. In all probability, recommendations will also
be advanced for extending coverage to groups not now
eligible.
It is important to try to head off any build-up of
pressure for using general Treasury revenues to finance
Medicare. If we move in that direction, it will become
increasingly difficult to resist proposals for progres-
sively liberalizing the program. For that very reason,
it would be well to heed the advice of the Task Force
on Health to undertake a prompt study of the unresolved
issues surrounding Medicare, and you should so instruct
the Secretary of HEW.
3. Hill-Burton Act
The Chairman of the House Interstate and Foreign
Commerce Committee has indicated that extension of the
Hill-Burton Act, which authorizes Federal aid for the
construction of community hospitals, will have top
priority in the 91st Congress.
Given the pressing need for hospital construction
and modernization in many parts of the country -- brought
on in significant part by Medicare and Medicaid -- it
- 89 -
seems certain that a concerted effort will be mounted
to get the authorization dramatically increased. Since
the Hill-Burton Act is but one of a number of Federal
programs concerned with construction of health facilities,
there is a need to coordinate this piece of legislation
with other undertakings, a point emphasized by the Task
Force on Health.
The recent statement of intention by the Chairman
of the House Interstate and Foreign Commerce Committee
underlines the importance of an early conference between
the Secretary of HEW and appropriate legislative leaders.
One of the issues that should be explored is the possi-
bility of moving in the direction of block grants in this
area. You made favorable mention of that possibility
during the campaign.
Welfare
Programs
- 90 -
XV - WELFARE PROGRAMS
1. Need for Critical Review
In recent years, welfare programs have greatly
proliferated and their cost is mounting dangerously des-
pite the general advance of prosperity. As you stated
in a recent address, "it is time to admit that the maze
of current Federal, state, and local welfare programs
has alienated the taxpayers who supported them, the
social workers who administer them, and the poor who de-
pend on them. "
What is now urgently needed is a thorough reexamina-
tion of existing welfare programs and policies with a
view to their simplification, to the elimination of
abuses, and -- most important of all -- to the creation
of opportunity and incentives for moving poor people off
welfare rolls and onto private payrolls.
There can be little doubt that the great disparity
in the benefits allowed by the individual states has
served to augment the welfare load of the more liberal
states. A common national standard would remove this
difficulty, but such a standard would probably approximate
the benefit levels in the most liberal state and thus
run up costs inordinately. The problem can, however, be
handled gradually -- that is, by moving over a term of
- 91 -
years to a national standard.
The Task Force on Public Welfare has basically
accepted the Johnson Administration's approach to welfare
problems and has recommended liberalization of various
benefits under existing law. While some of its detailed
recommendations deserve respect, another study -- whether
by a special task force or some other way -- is urgently
needed.
It is recommended that you promptly request the new
Council for Urban Affairs to make the welfare maze its
first order of business, that it seek to simplify and
rationalize the approach to welfare, that it explore ways
of reducing the number on welfare rolls, that it obtain
the advice of another task force composed of informed
and tough-minded citizens, and that it secure the full
cooperation of the Bureau of the Budget in this urgent
enterprise.
2. Food for the Poor
At the present time there are a number of uncoordi-
nated Federal food distribution programs. The Director
of the Budget should be requested to furnish an early
report on these programs and the feasibility of unifying
them.
- 92 -
3. Declaratory Applications
The Department of HEW has proposed the mandatory
use of a declaratory application, under which individuals
would establish their eligibility for public assistance,
by July 1. You have endorsed this principle, and so too
has the Task Force on Public Welfare.
The Secretary of HEW should be requested to report
promptly on his views concerning this proposal and its
implementation.
Business
Regulation
- 93 -
XVI - BUSINESS REGULATION
1. One-bank Holding Companies
Because of a "loophole" in the Bank Holding Company
Act of 1956, holding companies that include only one
bank among their affiliates are also permitted to engage
in nonbanking activities. Federal legislation is needed
to prevent the one-bank holding company (oBHc) movement
from radically changing the face of American capitalism
in the years ahead.
The fears of those who foresee the development of
50 to 100 conglomerate power centers, each controlling
one large commercial bank, appear to be supported by the
tremendous upsurge in the formation of OBHC's; from less
than 600 with deposits of $14 billion in mid-1965, to
over 800 with deposits of $100 billion today.
The task of finding a legislative solution that will
prevent a significant restructuring of the U.S. economy
without further hamstringing financial competition is
tough but necessary. The interests of several politi-
cally strong groups are involved, including the 500 or so
small OBHC's of the "traditional type" which have made
constructive contributions to their communities; the
large conglomerates which want to avoid any Federal
regulation; the new OBHC's being built around large
- 94 -
commercial banks, such as the Bank of America; the
Association of Registered Bank Holding Companies, which
are already federally regulated; and the American
Bankers Association, which has a powerful grassroots
lobbying mechanism. Competent observers agree, however,
that the legislative task is not insuperable, especially
if your Administration moves quickly to adopt a position
which is also supported by the three Federal banking
agencies, key Congressional leaders, and the American
Bankers Association.
At the earliest opportunity, you should urge the
Secretary of the Treasury and the Chairman of the Federal
Reserve Board to assume leadership in the search for a
solution.
2. Interest Ceilings on Deposits
Present legislation prohibiting payment of interest
on demand deposits and authorizing Federal regulatory
agencies to fix maximum interest rates on savings deposits
and savings and loan shares needs reconsideration.
These ceilings have two adverse effects. First, they
cause shifts of funds into and out of financial institu-
tions as market interest rates fluctuate, resulting --
or threatening to result -- in difficulties for the in-
stitutions and their customary borrowers. Desire to avoid
- 95 -
these difficulties limits the Federal Reserve autho-
rities in tightening credit when economic stability
would require it. Second, the ceilings on interest pay-
ments force competition among financial institutions to
take the form of provision of excessive offices and ser-
vices rather than in interest payments.
While this problem is not urgent now, it may become
so at any time. It would be well to seek the advice of
the Secretary of the Treasury on an early occasion.
3. Occupational Safety
It appears fairly certain that Congress will consi-
der occupational safety legislation early in the 91st
Congress. An Occupational Safety and Health Act was re-
ported over Republican objections by the House Education
and Labor Committee late in the 90th Congress. There are
firm indications that the recent Farmington mine disaster
will result in a Congressional inquiry into the present
enforcement of the mine safety laws, and that legislation
amending the Federal Coal Mine Safety Act will be intro-
duced when the 91st Congress convenes.
Congressman John M. Slack points out that substantial
results cannot be expected from mere passage of new laws.
He argues that "as a long-term approach to minimizing
the risks for the miner we must proceed along lines which
- 96 -
will make it feasible to perform the maximum amount of
work from a location above ground." To accomplish this,
he recommends the addition of some $5 million to the
budget of the Office of Coal Research, with the stipula-
tion that the money be spent (a) on the exploration of
devices for the creation of self-sustaining climates un-
derground, and (b) on the development of means whereby
much of the mining function can be performed underground.
Congressman Slack's proposal is constructive. You
should advise the appropriate Administration officials,
particularly the Secretaries of Labor, Commerce, and
Interior to get together as soon as possible with the
legislative leaders to determine what course of action
should be taken.
4. Pension and Welfare Disclosure Act
Congressman John Dent, Chairman of the Labor Sub-
committee of the House Education and Labor Committee, has
indicated that he will hold hearings on amendments to the
Pension and Welfare Disclosure Act. The amendments in
which he has expressed an interest are as follows:
(a) More detailed reporting
(b) Greater fiduciary responsibility
(c) Compulsory vesting after 10 years
(d) Compulsory insurance for the fund
- 97 -
(e) Specific funding requirements
(f) Portability
When the original Pension and Welfare Act was drafted,
there was good cooperation on the part of the insurance
companies, pension experts, the Labor Department, and
the House Education and Labor Committee. The amendments
that are now under consideration are so far-reaching that
another cooperative effort is definitely in order. Most
knowledgeable people are of the opinion that something
must be done. Much money is involved and many of the
pension plans are shaky in conception and operation.
You should advise the Secretaries of Labor and Com-
merce to put together promptly an appropriate study group,
with an early deadline for reporting. The development of
an Administration position should await the report of
this group.
Crime
- 98 -
XVII - CRIME AND LAW ENFORCEMENT
1. National Law Enforcement Council
During the campaign you made a pledge to establish a
National Law Enforcement Council, at a Cabinet level,
with a view to coordinating Federal policy on the control
and prevention of crime. Such a Council can be established
at once by Executive Order and this should be done. But
in order to derive maximum usefulness from the Council,
over the long term, it would also be wise to draw plans
to establish it on a legislative base in the near future.
Under legislation proposed by Congressman Poff and
Senator Hruska, the Council would have the following duties:
(a) Advise and assist the President with respect to
Federal responsibilities in the law enforcement
field.
(b) Prepare a special yearly law enforcement report
to the Congress.
(c) Review the new state and local law enforcement
programs.
(d) Review actions taken to increase effective
coordination among Federal, state, and local
law enforcement agencies.
(e) Recommend, where necessary, additional legisla-
tion for strengthening Federal assistance in
- 99 -
the law enforcement field.
You should seek the advice of the Attorney General
promptly, with a view to submitting just as soon as
possible a recommendation to the Congress for the estab-
lishment of a National Law Enforcement Council along
the lines indicated.
2. Crime in the District of Columbia
At this point in time, the District of Columbia,
where the Federal government has the primary responsibility
for law enforcement, is one of the major keys to the
nation's crime problem. It also presents your Administra-
tion with a unique opportunity.
Normally, plans and programs of a new administration
take months to develop and years to implement. Tangible
results are slow to emerge. However, in this instance
the results could be swift and dramatic. In fact, this
process has already started. Recently, Mayor Washington
vetoed the City Council's highly restrictive regulations
on the use of firearms by the police. This veto has
given fresh encouragement to the residents and business-
men of the District and a much needed boost to the morale
of the police.
- 100 -
In order to establish that the Nixon Administration
intends to carry forward its promises in the field of
law enforcement, you should instruct the Attorney General
to evaluate at once the following recommendations for
the District of Columbia:
(a) Increase the number of judges and other judicial
and prosecuting personnel, so as to speed re-
duction in the huge backlog of criminal cases.
Delays in prosecution bog down the prosecutors
and courts, discourage the police, make con-
victions more difficult, and permit the defendants
to roam the streets and commit additional
crimes.
(b) Reorganize the U.S. Attorney's Office for the
District. This Office has been poorly admin-
istered, besides being understaffed.
(c) Institute an immediate study of the operation
of the correctional system. With the exception
of the Youth Center, all of the D.C. correctional
institutions are antiquated and overcrowded.
(d) Bring the Metropolitan Police Department to
its full authorized strength of 4,100.
Recommendations along these lines were made by you
during the campaign and have also been made by Congress-
- 101 -
man Poff and Senator Hruska.
3. Bail Reform
The Bail Reform Act of 1966 was inadequately considered
and hastily enacted. Due to its mandatory release require-
ments, hundreds of dangerous defendants have been turned
loose to roam the streets. Early consideration should be
given to revising the present bail statute, so that courts
will have the authority to detain predictably dangerous
defendants. Legislation that would accomplish this has
been introduced by Congressman Richard Poff.
Senator Sam Ervin, Chairman of the Subcommittee on
Constitutional Rights of the Senate Judiciary Committee,
has indicated that he will hold hearings on the subject
of bail reform early in this session of the Congress.
The Attorney General will be invited to appear and
testify at these hearings; hence the early development
of an administration position is imperative.
You should discuss the problem of bail reform with
the Attorney General as soon as possible. The serious-
ness of the problem may even warrant a separate message
to Congress.
- 102 -
4.
Narcotics Problem
The number of narcotic or drug addicts in the United
States is not known precisely, but it cannot be small.
This is an area where the Federal government has a primary
responsibility, and there is an intense public interest
in how it is exercised.
As soon as possible, a Presidential Message on the
narcotics problem should develop the various recommenda-
tions that you made during the campaign. The message
might cover the following points:
(a) Instruction to the Attorney General to call at
the earliest possible date a national convocation
of law enforcement officials to discuss ways
and means to curb the traffic in drugs.
(b) Request for an appropriation to employ several
hundred additional customs agents.
(c) Initiation of discussions with other countries
for the purpose of establishing multi-national
commissions to stem the flow of drugs into the
United States.
(d) Request the National Institute of Health to
intensify its research into the causes of
narcotics addiction.
- 103 -
(5) Greater effort in the implementation of the
1966 Rehabilitation Act.
(6) Provision for Public Health Service hospitals
for the treatment of narcotics addicts in New
York City, Chicago, and Los Angeles.
The advice and assistance of the Attorney General
and Secretary of HEW should be sought in the drafting of
the messages.
5. Obscenity
During the campaign you promised to deal with the
issue of obscenity, particularly the use of the mails
to forward obscene materials to juveniles.
You should therefore request the Attorney General and
the Postmaster General to hold an early meeting on this
problem, with a view to determining what can be done
under present laws and what new legislation may be needed.
The work of the United States Commission on Obscenity
and Pornography, which was created in October 1967, should
of course be reviewed.
Any new legislation that may be proposed should be
sensitive to the concept of freedom that inspires and
informs writers and artists.
- 104 -
6. Unified Correction Service
At present, there is much duplication and confusion
in the field of correction and rehabilitation. The
Justice Department (Bureau of Prisons, Parole Board,
Office of Pardon Authority), the Department of HEW
(Welfare Administration, Office of Education, Vocational
Rehabilitation Administration, Public Health Service),
the Labor Department, the Office of the President, and
the Administrative Office of the Courts -- all have
responsibilities in the area.
This tangled array of departments, agencies, and
bureaus led the Republican Coordinating Committee, of
which you were a member, to recommend the creation of
a consolidated Federal Correction Service.
In his 1967 Crime Message to Congress, President
Johnson made a similar proposal, which became the subject
of hearings by the House Judiciary Committee. Strong
criticisms of the proposal were developed, and they
suggest the need for caution.
You should establish a task force to study this
problem and to make specific recommendations that might
prepare the way for a consolidated Federal Correction
Service.
- 105 -
7.
Organized Crime
In view of the importance of the problem of organized
crime and also your discussion of it during the campaign,
you should consider a special message to the Congress on
this subject.
The message might deal with the following:
(a) Your proposal for a permanent Joint Congressional
Committee on Organized Crime.
(b) The proposal of the President's Crime Commission
and of the American Bar Association to estab-
lish extended terms of imprisonment for
"professional criminals".
(c) The proposal (as provided by legislation
introduced in the 90th Congress by Congressman
Poff and Senator Hruska) to outlaw the invest-
ment in legitimate business concerns of the
income derived by crime syndicates from other
enterprises, if such income has not been
reported on Federal tax returns.
(d) Recommendation to the Congress that the
Internal Revenue Service be given the authority
(which it no longer appears to have under a
recent Supreme Court decision) to enforce
the wagering tax laws.
- 106 -
The Attorney General and the Secretary of the
Treasury should be consulted on the proposed message.
International
Econ.Relations
- 107 -
XVIII - INTERNATIONAL ECONOMIC RELATIONS
1. U.S. Investing and Lending Abroad
The broad objective of the new Administration
must be to move away from the system of controls over
foreign lending and investing. As you explained during
the campaign, these controls are alien to our traditions
and contrary to the spirit of our international commit-
ments.
In view of the precarious state of our balance of
payments, it would be hazardous to dismantle at once
the controls that have recently piled up. We can, how-
ever, move promptly to simplify the controls and thus
lower the costs to business and government; to reduce
serious inequities in the controls; and to diminish
their harmful effects on the development of U.S. exports.
The following changes, by Executive Order, in the
controls over U.S. direct investment abroad deserve your
serious consideration:
(a) Raise the exclusion limit from $300,000 pre-
viously announced for 1969 to perhaps $1
million (investments below this level not being
subject to restriction).
(b) Drop the distinction by categories or countries
(investments in Canada, however, continuing
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to be exempted).
(c) With respect to investments above the ex-
clusion level, allow companies to choose
between (i) a base-year formula of the present
type and (ii) a more dynamic approach whereby
investment amounts would be geared to a
company's success in raising its foreign
earnings. Initially, 35 per cent of prior-
year earnings might be an appropriate ratio.
Further, the Federal Reserve Board's guidelines
limiting foreign credit extensions by U.S. banks need
revision in at least one major respect; that is, to
exempt credits for financing bona fide U.S. exports.
Finally, the Interest Equalization Tax that is im-
posed on foreign securities floated in this market may
be safely reduced, now that our interest rates are no
longer markedly lower than those abroad. This can be done
by Executive Order. However, continuation of the taxing
authority beyond the expiration date of next July 31
would seem prudent, and this will require legislation.
You should seek the advice of the Secretary of the
Treasury and the Chairman of the Council of Economic
Advisers on these suggestions for moving at once toward
dismantling of the direct controls on our foreign invest-
ing and lending.
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2. Foreign Aid
During the course of the campaign you urged that "we
ought to turn our foreign aid programs more in the direc-
tion of stimulating private enterprise, less in the direc-
tion of financing government enterprise. " One possible
means of accomplishing this has just been suggested by
the International Private Investment Advisory Council.
This Council was created under the terms of the Foreign
Assistance Act of 1966 to advise the Agency for Interna-
tional Development.
The Council has proposed a new federally-chartered
corporation for the purpose of promoting private capital
investment in the less developed countries. Newspaper
accounts indicate that a number of Republican legislators
are favorably inclined toward the proposal, and it thus
seems likely that you will be asked to support it.
The proposed corporation would take over AID's present
investment-guarantee program, which insures investors
in developing countries against loss from certain risks
of a political and business nature. Besides its invest-
ment-guarantee activities, the corporation would have au-
thority to make loans to private parties either in dollars
or in local currencies. The corporation could issue its
own securities with principal and interest guaranteed by
the U.S. government, and it would also have the right to
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borrow directly from the Treasury.
Some features of the proposal are soundly conceived.
Importantly, the principle of co-insurance is honored
and safeguards are provided against direct loans that
would compete with wholly private financing. There are
numerous features which need to be clarified, however, and
it would seem advisable for you to ask the Secretary of
the Treasury and the new head of the Agency for Interna-
tional Development to explore the proposal.
Whatever its technical merits, there are both bud-
getary and balance-of-payments reasons for moving cautious-
ly toward the establishment of the proposed corporation.
The proposal does not contemplate a substitution of
private capital investment in underdeveloped countries
for present government-to-government foreign aid. Instead,
the new corporation would complement foreign-aid programs,
and it would be specifically aimed at an expansion of
total private investment activities. This would not be
a desirable development at a time such as the present,
when the resources available for use in this country are
under strain and when our balance-of-payments position is
precarious. Moreover, the corporation's authority to
borrow directly from the Treasury may constitute an addi-
tional burden on the Federal budget.
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3. Textile Imports
Representatives of the textile industry have recently
submitted suggestions on how you might fulfill the promise
to extend current limitations on imports of cotton tex-
tiles to other fibers. The industry proposes that nego-
tiations be started at once with the major countries pro-
ducing textiles for the purpose of arranging "voluntary"
import limitations on articles made of wool, manmade fibers,
and blends; but in the event that such negotiations fail,
the industry urges that you support a legislative solution,
that is, a textile quota bill.
Clearly, every effort should be made to negotiate a
"voluntary" agreement, since acquiescence in legislative
mandatory quotas for textiles is bound to stimulate re-
quests for quotas from other sectors of American industry.
If quota bills proliferate, our nation's long-term policy
of liberal trade will be in grave jeopardy.
The Task Force on International Trade concurs in the
proposal for the negotiation of a multilateral agreement.
More specifically, it suggests that:
(a) You make a public statement, as promptly as
possible, that you intend to seek an interna-
tional arrangement covering the textile trade,
and that you are designating a high official
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to communicate to appropriate officials in
other nations your hope that a suitable agree-
ment will be promptly achieved.
(b) Besides visiting the foreign capitals, your
emissary should call upon the GATT Director
General to advise him of your position and to
seek a meeting under GATT auspices of the
nations involved.
(c) In advance of the meeting, consultations should
be held with management and labor representa-
tives, so that the advice and experience of
textile industry people may be secured.
These suggestions are entirely reasonable, but you
should discuss them with the Secretaries of State and
Commerce before taking formal action.
4.
Tariffs and Other Trade Barriers
To counter the political response to the new or im-
pending limitation of steel and textile imports, it is
important that you concurrently stress your commitment
to a liberal trade policy. Without that, it will be
extremely difficult to get other nations to enter into
meaningful negotiations for the removal of existing
obstacles to our exports.
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To implement this objective, the following points
deserve careful consideration:
(a) A major new initiative to reduce nontariff
barriers is needed. Work is already being
done within GATT to assemble basic information
on the extent of nontariff barriers and to
identify those which have a significant impact
on trade.
(b) The Trade Expansion Act of 1962 expired in 1967,
and you therefore lack the power that earlier
Presidents had to modify tariff rates. The
Johnson Administration proposed legislation
to extend the President's bargaining power on
tariffs, with the understanding that it would
not be used for a major new initiative; but
the Congress failed to act. Without this power,
it will be exceedingly difficult to bargain even
on nontariff matters.
(c) Foreign border taxes are multiplying, and we may
therefore be forced to consider the desirabi-
lity of our responding by a border tax of our own --
perhaps, to begin with, to the modest extent
that existing sales taxes seem to permit.
(d) Elimination of the "American selling price method"
of determining the value of U.S. imports of
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certain chemical products may be an essential
pre-condition to meaningful negotiations on
nontariff barriers.
(e) To assist firms and workers that are injured
as a result of tariff concessions, the pro-
visions of existing law need to be liberalized
so that they may be readily applicable in cases
of real injury.
(f) Enactment of quota bills and similar restric-
tive legislation should be opposed, first, be-
cause they would result in prompt retaliation
by other nations to the detriment of our exports,
second, because they could lead to a spiraling
of trade restrictions with serious consequences
for the growth of the entire world economy.
These policy suggestions, despite their reasonable
ring, raise difficult political questions. The textile,
steel, dairy, oil, lumber, cement, and chemical industries
are all eager to obtain additional protection against
foreign imports. One way or another, the trade and tariff
problems facing us will have to be dealt with this year.
Before presenting legislation to the Congress, the poten-
tial problem areas should therefore be carefully identi-
fied by the Departments of State and Commerce. If a pro-
mising bill is to be submitted before mid-year, economic
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and political probing must get under way at once; and
you should so instruct the Departments concerned.
5. Tax on Foreign Deposits
Under the Foreign Investors Tax Act of 1966, bank
deposits of nonresident aliens and foreign corporations
will lose their exemption from income and estate taxes,
effective December 31, 1972.
This law should be reviewed at an early date with a
view to remedial legislation. Early action is essential
since many foreign depositors are expected to remove
their deposits from the United States well ahead of the
effective date and, in fact, some have already done this.
The amounts involved are substantial and their withdrawal
would injure our balance of payments.
This item should be referred to the Secretary of
the Treasury.
6. Telecommunications
You should be aware that President Johnson recently
received a Report on Telecommunications from a Task Force
which had studied communications problems over a 15-month
period. The report makes a variety of far-reaching
recommendations pertaining to both domestic and interna-
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tional communications matters, some of which are bound
to be highly controversial.
It would be appropriate to establish promptly a
small review committee to assess the report, with a view
to developing legislative recommendations. Dr. DuBridge
can advise you about the composition of the review
committee.
Seeking Dr. DuBridge's advice, together with that
of the State Department, is indicated in connection with
another telecommunications matter. An international
conference, aimed at establishing definitive arrangements
for a Global Commercial Communications Satellite System,
is scheduled to meet in Washington in late February.
This provides very little time for incoming officials to
prepare themselves. It would therefore seem desirable to
postpone the meeting until later in 1969.
7. International Space Cooperation
It would be advisable to ask Dr. DuBridge and the
Secretary of State to explore possibilities of new initia-
tives in international space cooperation.
The Task Force on Space favors the "active study"
of such possibilities, noting that in the case of the
Soviet Union the "most promising" area for joint under-
takings probably lies in unmanned planetary exploration,
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a field in which Soviet competence matches our own.
Keeping alert to such possibilities seems important not
only because of the dollar savings that may be realized
but even more, perhaps, because of the political advan-
tages that could flow from a prominent joint effort with
the Soviet Union.
o0o